Cut this year’s tax burden and save for life’s necessities

What are three major concerns in nearly everyone’s life that require investment and forethought? If you said “Education, Healthcare and Retirement,” you probably know where this is going. Yes, it’s that time of year when taxes loom and the obligation you’ll face on tax day is seemingly set in stone. However, there are three important funds that offer savings opportunities plus a chance to cut taxes before your filing date.

Let’s take a look at three types of funds, the ESA, the HSA and the IRA, and tax-­time plusses of each.

Education – A Coverdell Education Savings Account (ESA) is what the American Institute of CPAs calls a “tax­-advantaged savings vehicle.” Sounds good. Much better than, right? Euphemisms aside, let’s look a little closer at those advantages. An ESA is an affordable way to save and grow money to help shoulder the financial burden of education. Although there are limitations on who can contribute, how much can be contributed and who an ESA can be established for, the bottom line is it provides a tax­ sheltered means to help your children, grandchildren, or another important child in your life accomplish their education dreams.

With the Coverdell account, earnings grow tax­deferred and qualifying distributions are tax­free. That’s two benefits for one account. Now let’s look at Healthcare.

Healthcare – Health Savings Accounts (HSA) are one of the most popular consumer­-driven savings vehicles in today’s higher­-deductible healthcare environment. A Devenir study cited by the American Banking Association’s HSA Council estimates that thirty million HSAs will be in effect by 2017. The HSA offers you more control on how health­care dollars are spent and significant tax savings. Contributions made to an HSA before tax deadlines are tax deductible (or pre­tax if made through payroll deduction).

HSAs have a triple tax benefit. In addition to the tax­-deductible contribution mentioned, interest earned in an HSA is tax­-deferred and distributions made for qualifying medical expenses are tax-­free. Of course, there are limits and restrictions, but when saving for medical expenses for you and your family, an option that offers these kinds of tax advantages makes a heck of a lot of sense. Now, what about retirement?

Retirement – Individual Retirement Accounts (IRA) are more than just a savings vehicle for the ‘golden years.’ They can be relevant today – in the days leading up to the tax­filing deadline when you’re considering what you might owe. An IRA offers the benefits of contributing all the way up to your tax­filing due date and your contribution may be tax­deductible. Over the years, having the interest grow tax­deferred will help contribute to the growth of your retirement savings and you will pay no tax penalty on any distribution upon reaching age 59 1⁄2. (restrictions and limits apply). As you plan for taxes, it’s worthwhile to think ahead – way ahead perhaps – to retirement, and how financial forethought might shine a positive light on your finances today.

That’s three funds that can play a part in reducing your tax burden plus set you up favorably for some of life’s biggest financial challenges. Hope you enjoyed this post. To see more Central Bank blogs, visit our “Blog Home.”

*Consult your tax advisor for details. Other information regarding Traditional IRAs and Roth IRAs such as conversions, transfers, rollovers and investment options are available from any of our personal bankers at Central Bank. Simply contact or come by your nearest Central Bank location to learn more. Interested in exploring pre­tax contributions with your Central Bank advisor? Contact us.