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July 12, 2005
Health Savings Accounts, Roth IRAs, 529 Plans - All Reduce Tax Burden
With a Health Savings Account (HSA), Roth IRA, and a 529 College Savings Plan, you can reduce your tax burden. Most people have no idea that it is possible to legally shelter income from income taxes. Oh sure, you can defer taxes, but can you really avoid paying taxes all-together?
As I talk about all the time on this blog, Health Savings Accounts enable you to put away tax-deferred money, which if ever spent on medical expenses is still tax-free. Roth IRAs allow you to put away money after taxes, but then you never pay taxes on it again, regardless of what you spend it on. And 529 College Savings Plans allow you to get tax-deferred growth if the money is spent for college tuition.
The impact that this can have on one's finances is tremendous. Of these three, only HSAs give you both a tax-deduction when you deposit the money into your account, and allow you to take the money out later without paying taxes on it. The only catch is that the money must be spent for qualified medical expenses. Considering that you can wait to spend the money for medical expenses when you are elderly, or even for long-term care insurance, this shouldn't be much of a concern.
Posted by Wiley Long at July 12, 2005 10:01 AM