Investing for retirement is more critical than ever. With rising costs, Social Security in jeopardy, and pensions nearly non-existent, you need to take charge of your investments. Investing in tax-advantaged accounts is one of the best ways to save for retirement.
These accounts offer tax incentives for investing, saving you money now and in the future. Plus, any money invested in these accounts grows tax-free. The most popular tax-advantaged account is a workplace 401(k) account.
Depending on where you work, you may have access to similar accounts like a 403(b) or a 457(b) account. These accounts allow you to automatically contribute directly from your paycheck. There are no income limits for 401(k) accounts, and you can contribute up to $23,500 as an employee as of 2025.
Some companies also match part of your contributions, boosting your investments with extra funds without counting against your contribution limit. Contributions are deducted from your taxable income, saving you money in the year you contribute. You can also invest the funds so they grow, and you only pay taxes when you start withdrawing funds in retirement, starting at age 59.5.
Individual retirement accounts (IRAs) allow you to contribute up to $7,000 per year at a brokerage of your choice.
These accounts are something you personally open outside of your job, and contributions made will lower your taxable income if you qualify. Your adjusted adjusted gross income must be below specific thresholds to get the full tax deduction for your IRA contributions. Similar to a 401(k) account, contributions are tax-deductible in the year you make them, your investments grow tax-free, and you only pay income tax when you start withdrawing funds in retirement, starting at age 59.5.
Roth 401(k) accounts allow you to contribute directly from your paycheck but don’t lower your taxable income.
Instead, the investments can grow tax-free, and when you begin to withdraw in retirement, you pay no income taxes on your Roth 401(k) withdrawals.
Tax-advantaged retirement accounts overview
A Roth 401(k) has no income limits, and as of 2025, you can contribute up to $23,500.
With the passing of the Secure 2.0 Act in 2022, your employer match may also be made into a Roth 401(k), boosting your tax-free retirement income. A Roth IRA is similar to a traditional IRA. You can contribute up to $7,500 per year, but instead of contributions lowering your taxable income now, you are allowed to withdraw from your Roth IRA tax-free in retirement.
The Roth IRA also allows you to access your principal investment at any time since it is funded with post-tax money. This makes it a viable backup emergency fund. However, the Roth IRA does have more stringent income limits than a traditional IRA.
A Health Savings Account (HSA) is a type of medical expense savings account that allows persons with a high-deductible health plan (HDHP) to set aside money for medical expenses. Contributions to an HSA are tax-deductible, your investments grow tax-free, and withdrawals for medical expenses are also tax-free. There are no income limits to contribute to an HSA, and you can contribute up to $4,300 if you have a single coverage health plan or $8,550 if you have a family coverage health plan.
After age 65, you can begin withdrawing funds for any purpose and pay ordinary income taxes, similar to a traditional IRA. A Flexible Spending Account (FSA) allows you to contribute up to $3,300 in 2025 to either a Health Care Flexible Spending Account (HCFSA) or a Limited Expense Health Care FSA (LEX HCFSA). If you are saving for your dependents, you can contribute up to $5,000 to a Dependent Care FSA (DCFSA).
Contributions lower your taxable income for the year you contribute. However, the catch with an FSA account is that your contributions expire at the end of the year, so you must plan to use them before December 31 of the contribution year. Taking full advantage of these tax-advantaged accounts can significantly enhance your savings and help you build a secure financial future.
Consider consulting with a financial advisor to determine the best strategies tailored to your individual needs and circumstances.
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