SELECT YOUR LANGUAGE

Tax Advantage Accounts are financial accounts that have tax incentives.   They either allow you to avoid paying taxes now or later.  Your money grows faster in a tax advantage account.  Some types of tax advantage accounts are: 401K or 403B (retirement accounts)  Roth IRA’s and College Savings Plans (529), Health or Flexible Spending Accounts.  Below is an explanation of each:

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401K 

401K is a retirement savings plan offered by private employers that lets employees save and invest a portion of their paycheck before taxes are taken out.

• Contributions are tax-deferred (you pay taxes when you withdraw in retirement).

• Employers often match a portion of your contributions.

• Has annual contribution limits (e.g., $23,000 in 2025 for those under 50).

• Withdrawals before age 59½ usually incur a penalty + income tax.

Benefits Employees at for-profit companies looking to save for retirement with tax advantages.

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403B
Similar to a 401(k), is specifically for employees of non-profits, public schools, churches, and some hospitals.

• Also tax-deferred.

• Often lower administrative costs than 401(k)s.

• Contribution limits are the same as 401(k)s.

• May offer a "15-year rule" that allows additional contributions if you've been with the same employer a long time.

Usually for teachers, non-profit workers, and employees of religious organizations.

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Roth IRA
A personal retirement account where you contribute after-tax money, and qualified withdrawals in retirement are tax-free.

• Contributions are not tax-deductible.

• Earnings grow tax-free.

• You can withdraw contributions (but not earnings) at any time without penalty.

• Income limits apply (you may not be eligible if you earn too much).

• Annual contribution limit is lower than 401(k) — $7,000 in 2025 for under 50.

Usually for Individuals who expect to be in a higher tax bracket in retirement or who want tax-free income later.

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College Savings Plan (529)
A tax-advantaged savings plan designed to encourage saving for future education costs.

• Money grows tax-free, and withdrawals for qualified education expenses are tax-free.

• Can be used for college, K-12 tuition (up to $10,000/year), and even some student loan repayments.

• Owner stays in control of the account (not the student).

• Can transfer to another family member if not used.

Usually for Parents, grandparents, or guardians saving for a child’s (or their own) education.

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Health Flexible Spending Account (FSA)
An employer-sponsored account where you set aside pre-tax money to pay for qualified medical expenses.

• Reduces your taxable income.

• Use it for things like co-pays, prescriptions, medical supplies, dental/vision costs.

• "Use it or lose it" rule: Most FSAs must be used within the plan year, although some plans offer a short grace period or small rollover.

• Contribution limit is around $3,200/year (2025, subject to change).​​

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The one you invest in (or more than one) depends on what is best for your situation.​

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By Jason Torrents