Tax day has come and gone. I hope you squirreled some money away into your tax-deferred accounts. What’s that? You don’t think deferring taxes will really help your finances? Let’s turn to the numbers and see what tale they tell.
First, here’s a brief rundown of the tax-deferred accounts that may be available to you:
- IRA (Individual Retirement Account) – available to everyone but has some income limits. [retirement account]
- 401(k) – available only through your employer, but many employers offer them in some form. [retirement account]
- 403(b) – this is the equivalent of a 401(k) if you work for a non-profit organization. [retirement account]
- 457(b) – this an account that supplements your 401(k) or 403(b), if you have one, and is very similar to them. Mostly only available if you work for a state or the federal government. A key difference between 457(b)s and the other two is that independent contractors can participate in 457(b)s while they cannot participate in 401(k)s or 403(b)s. [retirement account]
- HSA (Health Savings Account) – available only if it comes paired with a high-deductible health insurance plan. [account for covering health-related expenses]
- 529 – available to everyone. These are offered by individual states to help defray education costs. [account for paying education costs]
That’s quite a list! And it pretty much covers it unless you are self-employed. Self-employed people get their own versions of IRAs and 401(k)s, those special little snowflakes.
You may be thinking, “how is that alphabet soup supposed to help me earn more money?” I’m glad you asked.