4 Financial Products We Should All Be Thankful For
Thanksgiving is a time to reflect on life’s many blessings — family, friends, shelter, and, if you’re lucky, a glorious feast that’ll produce leftovers that last for days. But while you’re basking in all that gratitude, let’s give a bit of thanks for some of the investment vehicles that can shape your finances for the better. Here are four in particular that should be on your radar.
1. 401(k) plans
Though not everyone has access to an employer-sponsored 401(k) plan, though who do have a solid opportunity to build savings for retirement. Currently, 401(k) contributions max out at $19,500 a year for workers under 50, but those 50 and over may contribute up to $26,000. The limits will remain at those levels for 2021 as well.
Another great thing about 401(k)s? Saving and investing with them is seamless. Once you set up your plan, your contributions are taken automatically from your paycheck pre-tax, so you don’t have to think about your 401(k) except at those times when you might want to make changes to it. And many employers offer a company match on your contributions up to a certain percentage of your salary.
For those who don’t have access to a 401(k), Individual Retirement Accounts can be a vital long-term savings tool. With an IRA, you can contribute up to $6,000 a year if you’re under 50, or up to $7,000 if you’re 50 or older. The great thing about these tax-advantaged accounts — both Roth and Traditional — is that they offer a wide range of investment choices. Want individual stocks in your retirement plan? Go for it. Prefer index funds? That’s an option as well. Having these choices gives you an opportunity to assemble the right investment mix to meet your goals.
Not as many people can open a health savings account (HSA) as have access to IRAs or 401(k)s. To do so, you must be enrolled in a high-deductible health insurance plan. But if you do qualify, you’ll reap a host of tax breaks. HSA contributions go in tax-free, and withdrawals are tax-free as well, provided they’re taken to pay for qualified medical expenses. Investment gains accrued in an HSA are tax-free, too.
HSAs also offer flexibility — you can withdraw funds to cover immediate healthcare bills, or carry that money forward for as long as you’d like. Currently, you can contribute up to $6,900 a year to an HSA on your own behalf, or up to $13,800 on behalf of your family. In 2021, these limits will increase to $7,000 and $14,000, respectively. Also, people 55 and older can add an extra $1,000 annually.
4. 529 plans
Though there is no federal tax break on contributions to 529 college savings plans, some states offer incentives for funding one. Furthermore, a 529 plan’s gains and withdrawals are tax-free as long as they’re used for qualified education expenses.
It used to be that 529s could only be utilized to pay for college-related expenses. But recent tax code changes have made it so that these plans can be used to pay for private education for children as young as grade-schoolers as well. Plus, 529 plans allow you to change their beneficiaries. So if you have a child who opts out of higher education, you can use the funds you set aside for them for a sibling, or even hold them in reserve for a grandchild.
This year, as you’re giving thanks, take a moment to think about the tools out there that can help you meet your financial goals. And if you’re not currently taking advantage of any of the products mentioned above, consider taking some time soon to see how they might benefit you. Your future self will thank you.
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