00:00 Speaker A

Joining us now to discuss tax efficient strategies that you should make to make sure that you're taking advantage of is Rob Williams, who is the Schwab Center for Financial Research managing director of financial planning. Rob, good to have you here with us. Within Schwabs Good to be here, Brad. certainly, within Schwab's 2025 wealth management mid-year outlook, you talk about tapping the full range of tax advantaged investment accounts that might be available to you. We're talking IRAs, 401Ks, Roth accounts, and HSAs. Uh let's just start perhaps with how a traditional IRA can help your tax bill.

00:54 Rob Williams

Sure. Well, one of the things I want to start with is we can't control markets. They're volatile, they go up and down, but we we do have some control over taxes. And these tax advantaged accounts are are really one of those vehicles we have to to do that and IRA is one and one of the advantages is pretty much everyone has access to one. So if you have earned income and you don't exceed certain thresholds, you can uh contribute to an IRA up to $7,000, $8,000 a year if you're over age 50. And that money can grow tax deferred. It's it's pre-tax. It's it's it's tax exempt and tax deferred. So, you know, it depends on your income level, but that's really one of the first tools that many of us have, almost all of us have access to it, and it gives us those tax advantages of of saving and really building wealth over time.

02:36 Speaker A

Rob, what are some of the tax efficient strategies that you should be considering mid-year within your 401K?

02:47 Rob Williams

Well, continue to contribute. That's the first. We mentioned IRAs as we started with it, but anyone who has a 401k, the contribution limits to that are higher. You're going to get an employer match that's required by law can be up to six 50 cents on the dollar for 6% of your contributions. And it's really earmarked for retirement. So that's free money from your employer, get the match, continue. I don't like to use the word autopilot, but you can take it from your paycheck, continue to start small, but continue to build. So mid year is a good time to look at what your contribution rates are, think about whether you can, you know, can increase them. You may look at your asset allocations and things too, but you know, even that is something you maybe do once a year. So make sure you're contributing. Can you afford more? Continue to increase. You'll thank yourself later as your balances continue to grow.

04:08 Speaker A

Now, we talked about and started to talk about an IRA. What about a Roth IRA?

04:17 Rob Williams

Right. Roth IRAs are great. I love them. They uh they're one of the ways to sort of bite the bullet up front and meaning that unlike a traditional IRA or a 401k, you pay tax up front on those, on that income, then you contribute it to the Roth, whether it's a Roth IRA or a Roth 401k. Then after that, any growth in that fund and an IRA, the Roth or your withdrawals are tax-free. So we're all watching the tax rates, you know, watching what's going on in Washington. But whatever happens in the future, you're avoiding and and sort of saying I'm not going to have to pay tax, you know, on those savings and any of the earnings in the future. That's really a powerful tool and it's one of the other accounts you have in your toolkit. So make sure you have a tax aware account strategy.

05:47 Speaker A

And then finally, we got to talk about this an HSA. I mean, you know, there are so many different strategies that we've heard about this over the year, but a health savings account, what's the mid-year check-in strategy for folks?

06:05 Rob Williams

Well, I said Roths are my favorite and and I and now you mentioned HSA, so I'm going to change it. They're one of my You can't do that, Rob. Can't do that. Yeah, okay. They're a lot of favorites and there's a lot of things on the on the menu, but HSAs, I mean, they're you can get them through an employer if you're in a high deductible plan, but here's the key, they're triple tax exempt. So you can contribute money up to the limits aren't high, but they're they're reasonable, invest in that account, and then any withdrawals you take for retirement or for health care expenses at any point in the future. You can grow that money as tax exempt too. So at all three points, there's no taxes. And and here's a nice kicker too. After age 65, they you have earnings or taxed if you take it out for retirement, but becomes a bit like an IRA account. So I think of them sort of is that wild card account to use um to help manage health care costs, but also, you know, build those assets to be flexible once you get to retirement.

07:57 Speaker A

Okay, I lied, that's not my last question. Just put all of this together for us though. What can people do today in regards to their tax advantage accounts to put them in a better position for the back half of the year and for longer run savings?

08:16 Rob Williams

Well, have a hierarchy. That's four or five different accounts I mentioned. I mean, the first is to save, use those vehicles, even if you start small. Second, use your 401k first and and the in the health savings account, you know, those are really powerful ones, get the match from your employer. Some health savings accounts offer that as well. Then after that, you have more choices in terms of where to go from there, contribute more to your 401k, considering a Roth or an IRA. Those are all things you can, you know, think about on your own or or work with a financial planner or a tax professional to help you work through that hierarchy. The key is to to be on it, time's on your side. You know, we want to make sure we we build wealth and and we keep it after tax. That's really the the name of the game.

09:11 Speaker A

Rob, great to see you. Thanks so much for joining us here on Yahoo Finance.

09:16 Rob Williams

Thank you.