401K, IRA, HSA Explained - Tax Smart Investing | Investing Rx Podcast Ep. 2

So in our first inaugural episode – we went over the basic steps to practicing good financial management. Many of these steps were opening and putting money into weirdly named retirement accounts such as:
-401k
-Roth IRA
-HSA
But the reason we want to put money in these accounts is because they are “tax advantaged accounts”, meaning you get a tax benefit!

But before we start – let’s just talk about taxes. When you make money and invest it, you can get taxed three ways.
1) Income tax.
https://smartasset.com/taxes/income-t...
This tool allows you to see how much you are getting taxed. Just plug in how much you make and where you work.

2) Taxes on dividends and interest
-For those that want to do dividend investing or invest in bonds, those payments are taxed as well.

3) Capital Gains Tax

So essentially, whenever you make money, you will be taxed. However, we can lower your taxes by using our tax advantaged and tax deferred accounts! Let's take a closer look at these:

401k Basics
-Retirement plan from your employer
-Benefit #1: Some employers match a portion of your contributions – free money!
-Benefit #2: You contribute PRE-INCOME TAX money.
-Maximum annual contribution - $19,500 a year.
For more reading, check out: https://www.investopedia.com/articles...

Roth IRA
-Individual retirement account
-Benefit #1: You contribute post-tax income, but afterwards do not have to pay taxes on earnings or gains!
-Contribution limits $6000 a year
-For more reading, I recommend: https://www.investopedia.com/terms/r/...

HSA
-Account for health care expenses
-Benefits: Triple tax advantaged!
-Maximum contribution: $3550 a year
-More reading here: https://www.investopedia.com/articles...


Here’s a page I like that shows common investments and what accounts they should go in:
https://www.bogleheads.org/wiki/Tax-e...

You want to place tax inefficient investments like bonds and REITs into tax advantaged account. There you have it! A quick rundown on tax advantaged accounts, and what you should hold in them.