Tax-Advantaged Investment Plans are exceptions to the rule that investors pay federal taxes on investment earnings each year.
Your earnings accumulate tax-deferred, maximizing the growth in your account. This special tax treatment makes tax-advantaged plans one of the best ways to invest for long term goals like retirement or college.
Maximize Your Investment Growth
The earnings in a tax-advantaged plan accumulate free of federal taxes. This means that your investment will grow more rapidly than in a taxable investment. The benefit of this special tax treatment is most advantageous when your funds are invested over a period of years. In the illustration below, $5,000 was invested each year for 30 years in both a taxable and a tax-advantaged account, at an interest rate of 6% and a tax rate of 25%. At the end of the period, the tax-advantaged account is worth $90,000 more than the comparable taxable account.
Tax-deferred accumulation means your earnings are not taxed while they stay within the tax-advantaged investment plan. You earn dividends or interest on the money that would otherwise have been subtracted to pay the annual taxes in a taxable account. This happens year after year, compounded by earning a return each year on the additional earnings from prior years.
In some plans, like Traditional IRAs, the taxes are deferred, meaning that you pay federal income taxes on the earnings years later, when you withdraw them. In others, like Roth IRAs and 529 College Savings Plans, the earnings can be tax-free. Both kinds of tax-advantaged treatments allow you to benefit significantly when your funds are invested over a period of years.
GEBA’s Tax-Advantaged Investment Plans
GEBA offers many tax-advantaged accounts that are a great supplement for participants in a federal pension, Thrift Savings Plan (TSP), or 401(k) plan or other retirement plan.
Individual Retirement Accounts (IRAs)
- A Traditional IRA allows tax-deductible contributions to qualifying taxpayers based on income, filing status, and coverage in an employer-sponsored plan. Earnings are tax-deferred and withdrawals after age 59½ are taxed as ordinary income. Required minimum distributions must begin by April 1 of the following year in which you turn age 70½.
- In a Roth IRA, contributions are not deductible, but withdrawals after age 59½ are free of federal income tax. Eligibility for a Roth IRA is determined by your income and filing status. There are no required distributions for a Roth IRA.
Learn More about IRAs >
529 College Savings Plans Education savings plans are designed to pay a future student’s eligible expenses at any accredited college, university or technical school anywhere in the country. In a 529 plan, investment earnings and withdrawals for eligible college expenses are free from federal taxes. Many states also offer tax benefits for 529 plans. Contributions can be made by the account owner or others in lump sum or through monthly transfers. There are no income limits.
GEBA offers two education savings options, the American Funds CollegeAmerica®529 Plan (sponsored by Virginia 529SM), whose investment options include a variety of mutual funds, and the Arizona Family College Savings Program, whose FDIC-insured investment options include fixed-rate certificates of deposit (CD) and the market-linked InvestorSure® CD. Both plans are available in all 50 states.
Learn More about Saving for Education >
An Annuity is a long-term contract with an insurance company that is not subject to maximum contribution limits. Your account grows tax-deferred during the accumulation phase and then may make periodic lifetime payments to you in the distribution phase. An insurance feature also offers beneficiary protection in the case of your death. GEBA offers both fixed and variable annuities.
Speak with a GEBA Consultant to Learn How Tax-Advantaged Investments Can Boost Your Savings
GEBA’s licensed Insurance and Financial Consultants fully understand Tax-Advantaged Investment Plans, regulations, and product options. They will meet with you to discuss your goals and financial situation, and lay out an appropriate set of Tax-Advantaged plans and investment options to consider. Request a time now to set up a discussion with one of our experienced Insurance and Financial Consultants.
Each GEBA Consultant holds the designation of Chartered Federal Employee Benefits ConsultantSM, meaning that they also are proficient in the employee benefit and retirement programs available to our members. This allows them to integrate TSP and other employee retirement programs into their recommendations.
For full details on income limits, eligibility and plan features for these tax-advantaged accounts, please request the GEBA/GEMBA Summary Plan Description and/or the prospectus for the specific investment option being considered. Group Annuities and Individual Retirement Accounts offered through Government Employees’ Mutual Benefit Association, Inc. (GEMBA).