You work hard to earn your money. You live below your means and have extra funds to save for retirement or a rainy day. But with all the different types of savings and investment accounts available, which should you prioritize? Once you’ve stashed away three to six months of living expenses in a basic savings account to cover unexpected emergencies like insurance deductibles, out-of-pocket medical expenses, and auto repairs, it’s time to turn your attention to other savings or investment accounts that have tax advantages that provide a benefit from the investment, allowing more of your money to be invested and ultimately returned back to you. Below are the factors to consider:
- Are contributions to the account deductible?
- Does the account provide tax deferral of investment income?
- How are distributions taxed?
The best scenario for an investment account is one that allows deductible contributions, tax-free investment income, and tax-free distributions.