Maximizing Benefits with Tax-Advantaged Investment Accounts

Okay, listen up, service members! We see you working hard every day, and it’s time for your money to work just as hard for you.

Here are the tax-advantaged investment accounts you should be aware of, along with tips on how to get the most out of them.

Obligatory: The information provided in this article is for informational purposes only and does not constitute financial, investment, or tax advice.

1. Thrift Savings Plan (TSP)

The TSP can be thought of as your military 401(k). It has traditional and Roth, which means that you can decide whether to take the tax deductions at the time of contribution or at the time of withdrawal.

Pro Tip: It is always recommended that the recipient contribute at least the minimum amount that will entitle them to the maximum match possible from the government. That’s free money, folks! And think about the Roth – to be able to withdraw funds in retirement without owing a dime in taxes is a no-brainer.

2. Traditional and Roth IRAs

They are your own individual tax-favored savings accounts.

Traditional IRA: There are possibilities for contributions to be tax-deductible and the profits to accumulate tax-free. Translation: pay taxes later.

Roth IRA: The amount is contributed from the post-tax income, but the money withdrawn during retirement is tax-exempt. Invest taxes today and get tax-free money tomorrow.

Pro Tip: To the extent that you can, contribute as much as allowed ($6,500 in 2024, $7,500 if you’re 50+) to your accounts. If you are relatively young and expect to be in a higher tax bracket once you retire, you should go with the Roth IRA.

3. Health Savings Account (HSA)

If you are among the lucky ones with a high-deductible health plan (HDHP), then an HSA is your new buddy. For a contribution, one is allowed a tax deduction, the account does not attract any taxes, and any withdrawal made to cater for medical bills also does not attract taxes.

Pro Tip: You can spend your HSA to pay for your current health care expenses or defer such costs and use the HSA to fund them. Retirement medical bills? Handled.

4. 529 College Savings Plans

Following plans are the MVPs when it comes to saving for educational costs. These have the advantage of growing tax-free and the withdrawals are also tax-free if used for qualified purposes.

Pro Tip: It is better to start as soon as possible so that interest may be compounded. They can be used to finance your children’s education or even your own if you return to school.

5. Savings Deposit Program (SDP)

This one is for the guys out there in the (combat zone). The SDP allows you to get a fixed 10% annual interest on the deposits with a maximum sum of $10,000.

Pro Tip: If you are qualified for this, maximize the utilization of this high-yield savings option. Honestly, where else can you get an assurance of an interest rate of 10%?

6. State-Specific Benefits

Certain states go the extra mile with extra tax-advantaged accounts or benefits for military personnel.

Pro Tip: Explore what your state has for you and make sure you get everything out of it that you can. Unemployment checks and tax exempted income? Yes, please.

The Bottom Line:

These are the tax-advantaged accounts and they are your best kept financial secrets. Below are some tips to help you save your money whether you are saving for retirement, healthcare, education or merely to save money. You are putting in your effort, now let your money put in the effort too.