Savings accounts are usually taxed on the interest they earn, but there are tax-free accounts you can invest in that will allow you to save more. Each type of tax-free instrument has its limitations, but they're all tools that can help you reach your financial goals. Here's how to save money tax-free.

Tax-Advantaged Retirement Accounts

Saving for retirement should be a high priority, whether you're just starting your career or you're closing in on retirement. Using 澳洲幸运5官方开奖结果体彩网:certain types of accounts will 🎃lower your taxes and leave you with more retirement🍨 savings.

Individual Retirement Accounts (IRAs)

Several types of 澳洲幸运5官方开奖结果体彩网:individual retirement ﷽accou▨nts (IRAs) can help you save on taxes. The money you invest in a Roth IRA is taxed at the time you deposit it and the interest generally won't be taxed when the money is withdrawn in retirement, as long as you've had the account for at least five years.

澳洲幸运5官方开奖结果体彩网:Traditional IRAs let you deduct the amount you contribute from your income, lowering your tax burden for the year in which you make the contributions. Your money grows tax-free while it's in the account. You pay no taxes on the interest it earns until you take the money out, when your contributions and earnings are taxed at your current income tax rate.

401(k) Plans and Similar Savings Accounts

Employer-sponsored 401(k) plans let you defer part of your paychecks toward a retirement account. With a traditional 401(k), you aren't taxed on any income you put into a 401(k) so you lower your total taxable earnings for the year for every dollar you contribute. Your employer might contribute to the account in some cases, making it even more advantageous.

澳洲幸运5官方开奖结果体彩网:403(b) plans are for public school employees and those who work for some tax-exempt organizations. 澳洲幸运5官方开奖结果体彩网:457 plans are available to certain government and nonprofit employees.

Earni♉ngs on your investments in all of these traditional accounts are untaxed until you withdraw your funds. Both contributions and earnings are then taxed at your current income tax rate.

The 401(k) has had a 澳洲幸运5官方开奖结果体彩网:Roth option since 2006 with employers that chose to offer them. You set aside 澳洲幸运5官方开奖结果体彩网:after-tax income. You won't get a deduction for your contribution (as with a Roth IRA), but the account grows tax-free. There are no taxes on withdrawals in retirement, as long as you've had the account for five years. Employer-matching funds, if any, are taxable upon withdrawal just as with a traditional 401(k).

F🐻lexible Spending Accounts and Health Savings Accounts

澳洲幸运5官方开奖结果体彩网:Flexible spending accounts (FSAs) and 澳洲幸运5官方开奖结果体彩网:health savings accounts (HSAs) help provide some tax relief while helping with healthcare expenses. Certain FSAs also help with childcare expenses. Thei⭕r names sound similar, but there are some key differences.

FSAs

• Must be sponsored by an employer
• Must be set up with a deposit amount that usually must be declared at the start of the year and can't be changed
• Don't roll over year after year, so you lose the money if you don’t use it
• Are available for both healthcare and childcare expenses
• Don’t require that you have a high-deductible health insurance plan

HSAs

• Don't require an employer sponsor
• Can be opened by anyone with a high-deductible health insurance plan
• Can be rolled over from year to year so you don’t lose your money if you don’t spend it
• Can earn interest
• Can only be spent on qualifying health-related expenses
• Can serve as an 澳洲幸运5官方开奖结果体彩网:extra source of retirement savings

A health savings account can be opened by anyone who has a high-deductible health plan. A high- deductible plan has a minimum annual deductible of $2,850 for self-only coverage or $5,700 for family coverage as of 2025, an increase from $2,800 and $5,550, respectively, in 2024.

Annual out-of-pocket expenses for self-only coverage are limited to $5,700 in 2025, up from $5,550 in 2024. The limits for family coverage are $10,500 in 2025, up from $10,200 in 2024. Out-of-pocket expenses include deductibles and 澳洲幸运5官方开奖结果体彩网:copayments but not monthly 澳洲幸运5官方开奖结果体彩网:insurance premiums.

The annual contribution limit for a health savings account is $4,300 for individuals and $8,550 for families. In 2024, it was $4,150 for individuals and $8,300 for families.

What FSAs and HSAs have in common is that you can contribute to these accounts before you pay income tax on your earnings, stretching the dollars you have to spend on healthcare. It can be worth considering one of these accounts if you have one-time or recurring medical expenses or an upcoming procedure that's not fully covered by insurance and you have a good estimate of your medical and childcare needs for the next year.

Education Savings Accounts

College or other education costs are another signi๊ficant expense for which people save money. Certain savings accounts can help by reducing the taxes you pay.

529 Accounts

A 529 plan lets you save for both K-12 education and post-secondary education costs. There are two main types: prepaid tuition plans that let you pay now for future attendance at certain schools, locking in tuition rates, and savings plans that are invested and grow tax-free.

💮 Many states also offer tax benefits on the money you co🍬ntribute.

Coverdell Education Savings Accounts

A 澳洲幸运5官方开奖结果体彩网:Coverdellꦡ education savings account is similar to a 529. It's a trust or custodial account that can be used to pay for elementary, secondary, or post-secondary education expenses. Distributions are tax-free when they're made for qualifying expenses but any money remaining in the account when the beneficiary turns 30 must be distributed and is then taxed. There's no age limit for the 澳洲幸运5官方开奖结果体彩网:beneficiary of a 529 plan.

Municipal Bonds

澳洲幸运5官方开奖结果体彩网:Municipal bonds (or "munis") are bonds sold by local governments to support public improvement projects. They generally have a fixed rate of return and a set length of time. Short-term bonds mature in anywhere from one to three years. Long-term bonds don't mature for more than a decade.

The interest earned on municipal bonds is free from federal taxes to encourage investment in local government projects. Some but not all municipal bonds are exempt from state and even local tax if you live in the state in which the bond was issued.

Munis pay relativ🅰ely low interest rates but most are considered to be low-risk investments. These bonds are popular with people in high tax brackets because they help reduce their tax burden while still earning interest.

And there's a bonus: Investing in your city's or town's municipal bonds allows you to support projects in the community where you live. You receive improved public resources while earning tax-free interest on your savings.

One alternative to investing directly in a municipal bond is to choose a 澳洲幸运5官方开奖结果体彩网:municipal bond fund. You must live in the state where the bond is issued, however, if you want to be exempt from state and local taxes.

Permanent Life Insurance

A less-known way to accumulate tax-free growth and income is through the use of 澳洲幸运5官方开奖结果体彩网:permanent life insurance policies that carr💃y cash value. These include whole life or universal life. The policies have a death ben൩efit component and a cash component that can be borrowed against or drawn down while the insured individual is alive.

This money grows each year at a modest rate via 澳洲幸运5官方开奖结果体彩网:dividends that may not൲ be subject to taxation in many cases. You won't have to pay any taxes if you withdraw money that you've contributed, referred to as the basis. Your other option is to borrow against your policy's cash value tax-free and let the polic💦y dividends cover the interest expenses.

The Bottom Line

Most savings accounts and similar places to park your cash such as 澳洲幸运5官方开奖结果体彩网:money market funds require that you pay taxes on the interest you earn. A few types of savings accounts and other financial instruments are exceptions to this rule, however,⭕ and they might be worth considering if you're lookingꦰ for ways to reduce your tax bill and stretch your savings.

Some accounts let you deposit 澳洲幸运5官方开奖结果体彩网:pre-tax money, reducing your taxable income in the year you contribute. Other accounts allow the money you put in to earn interest tax-free, reducing your tax burden in the future.