Retirement Accounts and Tax-Advantaged Savings

All US tax-advantaged retirement accounts work through one of two mechanisms. In tax-deferred accounts (Traditional 401(k), Traditional IRA), contributions reduce taxable income today, investments grow without annual taxation, and withdrawals are taxed as ordinary income in retirement. In…

The 401(k) plan takes its name from the section of the Internal Revenue Code added by the Revenue Act of 1978, which allowed employees to elect to receive a portion of compensation as deferred income rather than current wages. Benefits consultant Ted Benna recognised in 1980 that this provision…

An Individual Retirement Account (IRA) is an individually-owned tax-advantaged account that anyone with earned income can open at a bank, brokerage, or other financial institution. Unlike a 401(k), an IRA is not tied to an employer — it travels with you regardless of job changes, and you have full…

Pre-tax retirement accounts cannot be sheltered indefinitely. Required Minimum Distributions (RMDs) force annual withdrawals from Traditional IRAs, SEP-IRAs, SIMPLE IRAs, and most employer-sponsored plans — including traditional 401(k)s and 403(b)s — beginning at age 73 under the SECURE 2.0 Act of…

The Health Savings Account (HSA) offers what is widely described as the "triple tax advantage": contributions are tax-deductible (or pre-tax through payroll deduction, not even subject to FICA taxes), investment growth is tax-free, and withdrawals for qualified medical expenses are tax-free. No…