Retirement Planning and Taxes
Retirement planning can never start too early, but regardless of your stage of life it’s important to understand the different vehicles available to help save on tax burdens. Three of the most commons retirement planning tools that have tax benefits are:
- Roth IRA
- Health Savings Account
401(k) accounts are supplied by many employers, particularly at larger companies, as a benefit to employees. This account set up allows pre-tax deductions money to be invested into the retirement account in order to defer on current year taxes. 401(k) money grows tax free until it’s time for withdrawal at which point the money is taxed.
A Roth IRA account differs in that it is an individually owned and managed account (not by your employer) and the money contributed has already been taxed. So there is no current year tax benefit, but Roth IRA earnings grow tax free and you also don’t pay taxes when you withdraw money from your account.
A Health Savings Account (HSA) is another valuable tool especially for younger, healthier taxpayers who are on a High Deductible Health Plan (HDHP). An HSA account holder has the ability to put away up to $7,000 per year tax free into the account that can grow tax free as long as you take the money out for qualified medical expenses. Meaning you can use that tax free money to pay medical bills and not be subject to tax on distributions.
Tax preparation and tax planning helps with overall wealth management and retirement planning, which is something our team at STL Tax Lawyer finds most rewarding about working with individuals. However, many taxpayers lack financial literacy on how to save for retirement, the time value of money, and the benefit of interest over time.
If you need help with your retirement planning and selecting the most beneficial tax vehicles for your life situation, please give us a call today at 314-394-3370 for a free consultation.
Click this podcast link to listen to The STL Tax Lawyer Mark Milton discuss more about retirement planning and taxes.