Money you have now is worth more than money you will have in the future, because you can invest your money now to earn a profit and grow wealth over time. Money that grows at a rate of 8 percent a year will double in less than 10 years. Picking the right investments can be difficult, but there are several places you can invest your money in that offer tax advantages and other benefits.
Employer Retirement Plans
Employer-offered retirement plans like 401(k) plans are one of the best places to invest money for retirement. The money you contribute to a 401(k) plan is tax deductible; you do not pay income tax on your contributions until you withdraw them during retirement. The money you save may grow in underlying investments like stocks and mutual funds. Index funds are investments that generally follow the overall direction of a stock market index. They tend to be less volatile than individual stocks and are appropriate for 401(k) savers looking for stable long-term growth. Your employer may also match your contributions. Investing in a 401(k) up to your employer's matching limit is perhaps the best possible way to save for retirement.
Individual retirement accounts (IRAs) are retirement accounts that individuals can open that offer similar advantages to a 401(k) plan. The money you put in an IRA may be tax deductible, and you can put the money in underlying investments like mutual funds. Roth IRAs are a type of IRA that differ from 401(k) plans and traditional IRAs in that money you save is not tax deductible, but you can withdraw it during retirement without paying income tax. Both types of IRAs are preferable to investing in a fully taxable account.
Health Savings Account
A health savings account is a special investment account that is available to certain individuals with high-deductible health insurance plans. Money you save in an HSA is tax deductible, and you can take money out to pay for medical expenses without paying income taxes on the funds. The IRS states that you may withdraw funds for purposes other than medical expenses once you are 65 without facing a tax penalty; you will simply pay income tax on the money as you would with a 401(k) plan or a traditional IRA.
One of best places you can invest money you have today is in your own education. Higher levels of education and job skills are associated with higher annual income and greater potential to advance in a career field. For younger workers, seeking more education may result in more total wealth accumulation over a lifetime than any other type of investment, even if you take advantage of investment accounts with tax benefits.