Tax-Advantaged Investing Flashcards

What is a Health Savings Account (HSA) in the context of investing?

Answer: A tax-advantaged account for medical expenses that can also serve as a long-term investment vehicle

An HSA offers a triple tax advantage: contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free, and unused funds can be invested and grow for retirement.

What is required to contribute to an HSA?

Answer: You must be covered by a High-Deductible Health Plan (HDHP)

To contribute to an HSA, you must be enrolled in an HSA-eligible High-Deductible Health Plan (HDHP) and cannot be covered by other disqualifying health insurance.

What is a 529 plan?

Answer: A tax-advantaged savings plan designed to encourage saving for future education costs

A 529 plan is a state-sponsored, tax-advantaged savings plan where contributions grow tax-free and withdrawals are tax-free when used for qualified education expenses.

What does 'vesting' mean in the context of a 401(k) employer match?

Answer: The period of time an employee must work before gaining full ownership of employer-contributed funds

Vesting refers to the schedule by which an employee earns full ownership of employer-matched 401(k) contributions — leaving a job before being fully vested may result in forfeiting some employer contributions.

What is a Roth 401(k)?

Answer: A 401(k) plan option that allows after-tax contributions so qualified withdrawals are tax-free

A Roth 401(k) is an employer-sponsored plan that combines the high contribution limits of a 401(k) with the after-tax, tax-free withdrawal benefits of a Roth IRA.

What is a Required Minimum Distribution (RMD)?

Answer: The mandatory annual withdrawal that the IRS requires from most retirement accounts starting at age 73

RMDs are minimum amounts the IRS requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans beginning at age 73, ensuring the government collects deferred taxes.