Investing for retirement is more important than ever. With rising inflation, Social Security in jeopardy and pensions nearly non-existent, you need to take charge of your investments.
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One of the best ways to save for retirement is to invest in tax-advantaged accounts. These accounts offer tax incentives for investing, which can save you money now and in the future. Plus, any money invested in these accounts grows tax-free.
Here’s how to take advantage of these tax-advantaged accounts to build wealth faster and save for retirement.
401(k) Plans and Similar Accounts
The most popular tax-advantaged account is a workplace 401(k) account. Depending on where you work, you may have access to a similar account called the 403(b) or a 457(b) account. These accounts allow you to automatically contribute directly from your paycheck.
There are no income limits for 401(k) accounts, and you can contribute up to $23,500 as an employee as of 2025. Some companies also match part of your contributions — boosting your investments with extra funds without counting against your contribution limit.
Contributions are deducted from your taxable income, saving you money in the year you contribute. You can also invest the funds so they grow, and you only pay taxes when you start withdrawing funds in retirement, starting at age 59.5.
This is one of the best vehicles for retirement savings and building wealth.
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Individual Retirement Account (IRA)
Individual retirement accounts (IRAs) are a type of investment account that allows you to contribute up to $7,000 per year at a brokerage of your choice. These accounts are something you personally open outside of your job, and contributions made will lower your taxable income, if you qualify.
To get the full tax deduction for your IRA contributions, your modified adjusted gross income must be below these thresholds for 2025:
- Single and head of household: $150,000
- Married filing jointly: $236,000
- Married filing separately: $10,000
Similar to a 401(k) account, contributions are tax deductible in the year you make them, your investments grow tax-free, and you only pay income tax with you start withdrawing funds in retirement, starting at age 59.5.
Roth 401(k)
Roth 401(k) accounts allow you to contribute directly from your paycheck — but they don’t lower your taxable income. Instead, the investments can grow tax-free, and when you begin to withdraw in retirement, you pay no income taxes on your Roth 401(k) withdrawals!
Like a traditional 401(k), there are no income limits on a Roth 401(k), and you can contribute up to $23,500 as of 2025. And with the passing of the Secure 2.0 Act in 2022, your employer match may also be made into a Roth 401(k), boosting your tax-free retirement income.
Roth IRA
A Roth IRA is similar to a traditional IRA. You can contribute up to $7,500 per year, but instead of contributions lowering your taxable income now, you are allowed to withdraw from your Roth IRA tax-free in retirement.
But the Roth IRA also allows you to access your principal investment at any time, since the account is funded with post-tax money. This allows your Roth IRA to act as a backup emergency fund. The Roth IRA does have more stringent income limits than a traditional IRA:
- Single and head of household: $79,000
- Married filing jointly (with workplace plan): $126,000
- Married filing jointly (spouse workplace plan): $236,000
- Married filing separately: $10,000
Health Savings Account (HSA)
A Health Savings Account (HSA) is a type of medical expense savings account that allows persons with a high-deductible health plan (HDHP) to set aside money for medical expenses. Contributions to an HSA are tax deductible, your investments grow tax-free, and withdrawals for medical expenses are also tax-free. This makes the HSA one of the best ways to invest for the future and save on taxes at the same time.
There are no income limits to contribute to an HSA, and you can contribute up to $4,300 if you have a single coverage health plan, or $8,550 if you have a family coverage health plan. In addition, if you still have money in your HSA after age 65, you can begin withdrawing funds for any purpose, and you’ll pay ordinary income taxes, like a traditional IRA.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is a type of tax-advantaged healthcare savings account that allows you to contribute up to $3,300 in 2025 to either the Health Care Flexible Spending Account (HCFSA) or the Limited Expense Health Care FSA (LEX HCFSA). If you are saving for your dependents, you can contribute up to $5,000 to a Dependent Care FSA (DCFSA).
Contributions lowers your taxable income for the year you contribute. But the catch with the FSA account is that your contributions expire at the end of the year — so you’ll have to have a plan to use them before Dec. 31 in the year you contribute.
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This article originally appeared on GOBankingRates.com: How To Take Advantage of Tax-Advantaged Accounts To Build Your Wealth
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