How to Leverage Tax-Advantaged Accounts

Tax-advantaged accounts can help you grow wealth, reduce your taxable income, and prepare for retirement or major life expenses. Yet, many individuals and business owners overlook or misuse them. Let’s break down how to make the most of these powerful tools.

Key Tax Codes and Forms

• IRC §401(k) – Employer-sponsored retirement plans
• IRC §403(b) – Tax-sheltered annuities for nonprofit employees
• IRC §408 – Traditional and Roth IRAs
• IRC §223 – Health Savings Accounts (HSAs)
• Form 8889 – Report HSA contributions
• Form 5498 – IRA contribution reporting
• Form 1099-R – Distributions from retirement plans

Common Types of Tax-Advantaged Accounts

1. Traditional IRA

• Contributions may be tax-deductible.
• Growth is tax-deferred; pay tax on withdrawals.

2. Roth IRA

• Contributions are not deductible, but withdrawals are tax-free if conditions are met.
• Great for younger earners or those expecting higher future tax rates.

3. 401(k) and Solo 401(k)

• Pretax contributions from paycheck.
• Solo 401(k) ideal for self-employed individuals.

4. Health Savings Account (HSA)

• Triple tax benefit: tax-deductible contributions, tax-free growth, tax-free qualified withdrawals.
• Must be enrolled in high-deductible health plan (HDHP).

5. 529 Education Savings Plan

• Tax-free withdrawals for qualified education expenses.
• Contributions not deductible federally, but some states offer credits.

Example: Maximizing Savings as a Consultant

A self-employed consultant contributes:

• $7,000 to Roth IRA
• $22,500 to Solo 401(k)
• $3,850 to HSA (self-only limit)

These moves reduce taxable income under IRC §401 and §223 and protect retirement savings from IRS taxation. Using Form 8889, the HSA contribution is also deducted.

Step-by-Step Guide to Leverage These Accounts

1. Identify Your Eligibility

• Use IRS limits to check if you qualify for deductions (e.g., IRA phase-outs).

2. Choose the Right Account Type

• Roth vs. Traditional depends on your tax bracket now vs. future.
• HSA requires HDHP enrollment.

3. Max Out Annual Contributions

• 2025 IRA limit: $7,000; 401(k): $23,000; HSA: $4,150 (self-only).

4. Track Contributions Using IRS Forms

• File Form 5498 and Form 8889 accordingly.

5. Avoid Early Withdrawal Penalties

• Most accounts impose 10% penalties if withdrawn early.

6. Work with a CPA

• Strategize timing and coordination of contributions.

Conclusion

Tax-advantaged accounts aren’t just for retirement — they’re powerful planning tools. Whether you’re a solopreneur, family saver, or gig worker, using them wisely can protect your income and wealth from taxes.

Call to Action

Anshul Goyal, CPA EA FCA is a U.S.-licensed CPA, IRS-authorized Enrolled Agent, and cross-border tax expert. He helps clients across all income levels design strategic plans using IRAs, HSAs, and 401(k)s to maximize tax savings and secure financial futures.

Disclaimer

This blog is for general information only. Tax strategies vary by individual. Please consult a licensed CPA before making financial decisions.

Top 5 FAQs

1. What’s the difference between Traditional and Roth IRA?
Traditional offers deductions now, Roth gives tax-free withdrawals later.

2. Can I open an HSA without a job?
Yes, if you have a qualifying HDHP.

3. What happens if I over-contribute?
Excess contributions are penalized unless withdrawn before the tax deadline.

4. Are 529 withdrawals taxable?
Only if not used for qualified education expenses.

5. Can I contribute to multiple accounts in the same year?
Yes. You can use an HSA, IRA, and 401(k) concurrently.

About Our CPA

Anshul Goyal, CPA EA FCA, is a U.S. Certified Public Accountant, Enrolled Agent, and Fellow Chartered Accountant. He serves clients in the U.S., India, and globally with advanced tax planning, IRS compliance, and financial strategies.