Easy Tax Planning Strategies for W-2 Earners
Accounting Freedom Group
Accounting Freedom Group is a full service consulting firm that provides tax planning, CFO services, & accounting.
Tax-advantaged accounts are powerful tools your employer may offer to help you reduce your taxable income. They allow you to contribute pre-tax dollars, post-tax dollars, grow your savings, and potentially withdraw the funds tax-free. Here are some commonly utilized tax-advantaged accounts to consider:
1. 401(k): If your employer offers a 401(k) plan, contribute the maximum allowed amount. Not only will this reduce your taxable income, but it will also help you save for retirement. Be cautious that withdrawals from this account are considered taxable income. Always ensure that the contributions are invested.
2. Roth IRA: After tax contributions you make to a Roth IRA can grow tax free while having the option to withdraw money without penalty after 5 years of compounded growth from dividends, interest, and capital gains. All you have to do to contribute is have earned income. Be cautious as there are limits depending on how much you make.
3. Health Savings Account (HSA): An HSA allows you to contribute pre-tax dollars to pay for qualified medical expenses. Contributions to an HSA are tax-deductible and withdrawals for qualified medical expenses are tax-free. Oh and your money can grow tax free for a lifetime.
4. Dependent Care Reimbursement: A dependent care reimbursement plan is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and child or adult daycare. With a Dependent Care FSA, you use pre-tax dollars to pay qualified out-of-pocket dependent care expenses.
CTA: Contact Accounting Freedom Group to calculate your tax savings and implementation of the plan!