Almost everyone needs to be saving for something. Maybe retirement. Maybe an education. Maybe health care. Maybe all three. Saving always means spending less now, of course, but it may be a little easier to do if there were also some tax benefits. There are accounts that provide significant tax benefits for all three of the goals mentioned above. Some provide tax benefits when you contribute to them, some when your withdraw from them, but all of them provide tax benefits while your money is in the account.
You may want to take advantage of all of them—if you can. Financial experts often suggest using multiple strategies to align with different savings goals. Keep in mind, however, that tax-advantaged plans also have restrictions that should be weighed carefully before you decide which plans are right for you.
Here’s a look at some tax-advantaged plans, grouped into the four primary types: retirement, education, health care, and child care/dependent care.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
1. Important information about traditional IRAs. For a traditional IRA, full deductibility of a contribution for 2016 for those who participate in an employer-sponsored retirement savings plan is available for those who are married filing jointly and whose 2016 modified adjusted gross income (MAGI) is $98,000 or less, or for those who are single and whose 2016 MAGI is $61,000 or less, with partial deductibility for MAGI up to $118,000 (joint) or $71,000 (single). In addition, if spouse A is covered by a workplace plan and spouse B is not, full deductibility of a contribution is available for spouse B if household MAGI is less than $184,000 for 2016, with partial deductibility for MAGI up to $194,000.
Penalty-free withdrawals include but are not limited to: qualified higher education expenses; qualified first home purchase (lifetime limit of $10,000); certain major medical expenses; certain long-term unemployment expenses; disability; or substantially equal periodic payments.
You must be at least 18 years old to open an IRA with Fidelity.
At least one spouse must have employment compensation to use a Traditional IRA.
2. Important information for a Roth IRA. A Roth IRA is tax free and penalty free, provided that the five-year aging requirement has been satisfied and at least one of the following conditions is met: you reach age 59½, become disabled, make a qualified first-time home purchase ($10,000 lifetime limit), or die. Minimum required distributions do not apply to the original account owner, although heirs will be subject to them.
If you’re single, or file as head of household, the ability to contribute to a Roth begins to phase out at MAGI of $117,000 and is completely phased out at $132,000 for tax year 2016. If you’re married filing jointly, the phaseout range is $184,000 to $194,000.
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