Savings tips for 2021
2021 is finally here! We all tend to feel like we are starting with a clean slate as we kick off the new year. It feels like a new beginning...
From a financial perspective, it is a great time to take stock of your family’s current savings plan and ask yourself if there is room to save more or if you are missing opportunities to save in a more tax-efficient way. Here are a few of our favorite tips that are often overlooked.
Health Savings Accounts (HSA)
The HSA is a government-regulated savings account that is funded with tax-deductible funds. The HSA is often overlooked because it is misunderstood. The HSA is available to those with high deductible health insurance plans (HDHP) that qualify for an HSA (it should be indicated on your plan). This includes plans where the deductible is not less than $2800. An HSA offers a multitude of benefits.
For 2021, the maximum contribution amounts are $3,600 for individuals and $7,200 for family coverage. If you are 55 or older, you can add up to $1,000 more as a catch-up contribution.
Roth IRAs offer a number of savings advantages for income-earning young adults and retirees, in particular. Let’s revisit the specifics of the Roth IRA.
I’m sure you are seeing plenty of articles about Roth conversions. This is because our federal income tax brackets are lower per the 2017 tax reform. The benefits of a conversion include:
Roth IRAs For Young Adults
Getting an early start on savings is one of the keys to building wealth for young adults (teens included) as long as they have earned income. Some young adults can fund both a 401k and a Roth IRA. As we mentioned above, income limits for 2021 are $124,000 for singles and $196,000 for married couples filing jointly.
For those who are employed and have a 401K at work, it is important to first make enough of a contribution to their 401K to receive their employer’s matching contribution, if there is one. Depending on the amount of disposable income available, funding a Roth IRA allows you to save towards retirement, but will also permit you to withdraw up to $10,000 to make a first-time home purchase.
529 plans are the workhorse savings accounts of college funding. First introduced in 1996, they provide a tax-advantaged vehicle for college funding.
529 plans vary by state. Each state may provide its own plan along with its own tax benefits. For instance the Brightstart plan in Illinois, allows tax deductible contributions to their plan of up to $10,000 per tax year for an individual or $20,000 for a married couple.
Other benefits include
Not only do these three types of accounts provide excellent opportunities for saving money, they do it in a tax-advantaged way, thereby stretching your savings dollars even further!
Should you want to discuss your savings plan in greater detail, please contact Jenifer at Jenifer@mosaicfi.com at your convenience.
Jenifer Aronson is the Founder of Mosaic Fi.