Financial planning can have a direct impact on your health. A solid savings plan can help you cover future expenses, manage financial stress, plan for vacations, and more. However, without a plan you may be setting yourself up for financial hardship.
Here are some of the most common types of savings plans:
| Savings Plan Type | What is it? | Who is eligible? | When is it taxed? |
|---|---|---|---|
| 401(k) | Employer-sponsored retirement plan
| Employees of public corporations, tax-exempt organizations, and certain public sector employers, if offered by employer | Pre-Tax: when you withdrawal funds Roth After-Tax: before you deposit funds |
| IRA | Tax-deferred retirement savings and investment plan | Anyone with an income | When you withdraw funds |
| Roth IRA | Retirement savings and investment plan that is funded with after-tax dollars | Anyone with an income under a certain threshold | Before you deposit funds |
| 5291 | Tax-advantaged savings plan designed to encourage savings for future education costs | Mostly available to everyone, but some have residency requirements | Only taxed if withdrawals are NOT used for qualified higher education expenses |
| Health Savings Account (HSA)2 | Savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses | Only people who have an HSA-eligible High Deductible Health Plan (HDHP) are eligible | Only taxed if funds are NOT used to pay for qualified medical expenses |
When choosing a savings plan, there are many factors to consider:
- The date you plan to retire
- How much retirement savings you think you will need
- Whether you need to fund a college education
- Whether your employer offers matching
It is wise to consult with a financial advisor and tax professional to better understand your investment options, tax implications, and whether one savings plan may be a better fit for your situation. Our employee assistance programs (EAPs) also offer financial planning resources.
SOURCES
- U.S. Securities and Exchange Commission. Updated Investor Bulletin: An Introduction to 529 Plans. Aug 31, 2023. Accessed Sept 13, 2023.
- Healthcare.gov. Health Savings Account (HSA). Accessed Sept 13, 2023.
- Internal Revenue Services. Types of Retirement Plans. Accessed Sept 13, 2023.Lockwell Hub powered by Navigate Wellbeing Solutions.