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When you're saving part of your income for purposes like retirement, health care, and education, it helps to get a tax break on those funds. The Internal Revenue Service (IRS) makes special tax rules for the
following accounts to help you save.
Individual Retirement Accounts (IRAs)
Coast Central offers different ways to save for your retirement, depending upon your individual needs and preferences. We offer both IRA savings accounts and IRA certificates of the following types:
- Traditional IRA: Contribute funds to this account as often as you like (up to a certain limit per year), and you can deduct the total amount from your income for that year. Later on,
when you're ready to retire (or for other qualified purposes like a first-time home purchase), you can withdraw funds and dividends at the current tax rate.
- Roth IRA: If you'd prefer to get taxes out of the way up-front, you may contribute to a Roth IRA and pay the income tax right away. This way, you have a good idea of how much money
you can withdraw, and your earnings still grow tax-deferred.
- SEP IRA: Simplified Employee Pension (SEP) IRA accounts are for business owners and/or their employees - an employer can contribute funds for their workers and the accounts function in
much the same way as a Traditional IRA.
Health Savings Accounts (HSAs)
When you devote a portion of your income to health care expenses, you can deduct a certain amount of your income per year (much like an IRA). This can help you with your current tax needs while helping
you save for future health expenses. Later, when you make qualified withdrawals, you are taxed at the current income tax rate. Your dividends also grow tax-deferred.
Coverdell Education Savings Accounts (ESAs)
Similar to the above accounts, you can contribute funds for a particular beneficiary (up to a certain amount per year) and still enjoy tax benefits with a Coverdell ESA.
Contributions are not tax-deductible but when your withdrawals are for qualified educational expenses, you can withdraw your dividends tax-free.
Funds can be used for elementary, secondary, or higher educational purposes.
Example: If you save $2,000 per year starting the year your child is born, at a 3.25% dividend rate, you would have $37,170 by the time the child turns 18 - $1,170 of which is tax-free!
Click here for a detailed calculator from Members Financial Services.
(Click here to return to the Personal Accounts section)
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