How to Maximize Tax-Advantaged Accounts

Tax-advantaged accounts are powerful tools for building and preserving wealth, especially when used effectively. Depending on the account type and structure, these accounts allow investments to grow either tax-deferred or tax-free. Whether you’re focused on retirement, healthcare, or education savings, a strategic approach to these accounts can significantly impact your overall tax liability and wealth preservation.

Here, we’ll break down essential strategies to maximize tax-advantaged accounts for sustainable financial success. If you want to get the most out of your tax-advantaged accounts, schedule a conversation with a tax planning advisor from Avidian Wealth Solutions today.

What is a tax-advantaged account?

Tax-advantaged accounts come in two primary forms: tax-deferred accounts, like traditional 401(k)s and IRAs, where taxes are deferred until funds are withdrawn, and tax-free accounts, such as Roth IRAs and Health Savings Accounts (HSAs), where qualified withdrawals are tax-free.

These accounts allow contributions to grow in value with either deferred or no taxes on gains, offering the potential for substantial tax savings if used wisely. For high-net-worth individuals, maximizing contributions and carefully planning for withdrawals can lead to significant reductions in tax liability and enhance long-term financial resilience.

7 ways to maximize tax-advantaged accounts

1. Max out tax-advantaged accounts through contributions

Contribution limits set by the IRS may change annually, so staying updated on these limits is crucial. By consistently maximizing contributions, investors allow their funds to compound over time, which increases potential tax-free or tax-deferred growth. Here are a few different ways you can take advantage of available contributions:

1. 401(k) and IRAs: Max out contributions to 401(k)s and IRAs to benefit from tax-deferral on gains. For individuals over 50, catch-up contributions provide an additional opportunity to save.
2. HSAs: For those eligible, HSA triple tax benefits could be especially appealing. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are also tax-free. Maximize contributions each year to use as a tax-free healthcare fund in retirement.
3. 529 Plans: For education savings, 529 account tax advantages include tax-free growth on investments for qualified education expenses. Even grandparents can contribute to a child’s 529 to reduce future educational expenses while also removing funds from their taxable estate.

2. Consider strategic asset allocation for tax-efficiency

Strategic asset location is a powerful but often overlooked tax efficiency tool. Certain types of investments are better suited for tax-advantaged accounts than others. For example, placing higher-yield, income-producing assets and investments (such as bonds or REITs) in tax-deferred accounts like traditional IRAs and 401(k)s can help you reduce or avoid taxes on regular income.

Similarly, growth-oriented assets like stocks and ETFs, which appreciate in value over time, are ideal for Roth accounts since qualified withdrawals are tax-free, allowing for larger gains. Finally, you could consider placing tax-efficient investments, such as index funds, in taxable accounts. This reduces tax liabilities outside of retirement, preserving the tax benefits within the retirement accounts.

3. Optimize Roth IRA accounts for long-term tax benefits

Roth IRAs and Roth 401(k)s offer tax-free withdrawals in retirement, making them an excellent tool for long-term tax planning. While contributions to Roth accounts are made with after-tax dollars, the tax-free growth on these contributions can be significant.

For high earners who exceed Roth IRA income limits, a backdoor Roth IRA conversion may provide an opportunity to contribute indirectly to a Roth IRA. By converting traditional IRA funds to a Roth IRA, investors can gain the benefits of tax-free growth in retirement.

Meanwhile, converting traditional IRAs or 401(k)s to Roth accounts during low-income years can allow investors to pay taxes at a lower rate. It’s important when using this strategy to be careful that you don’t incidentally bump into higher tax brackets.

The strategic use of Roth accounts creates a tax-free income source in retirement, which can offset other taxable income sources and preserve wealth.

4. Time your withdrawals to maximize tax impact

When it’s time to withdraw from tax-advantaged accounts, the order and timing of withdrawals can significantly impact tax liabilities. Using a planned withdrawal strategy can help align the timing with your lifestyle, income, and estate planning needs.

• Delayed withdrawals: For example, the longer funds remain in tax-deferred accounts, the more time they have to grow without being taxed. For those who don’t need immediate retirement income, delaying withdrawals can reduce total taxable income in the early years of retirement.
• Start with taxable accounts: When you do make a withdrawal from tax-advantaged accounts, prioritize your taxable accounts first. Drawing down taxable accounts before tax-advantaged accounts reduces annual taxable income. This approach also allows Roth and traditional retirement accounts to continue growing.
• Consider required minimum distributions (RMDs): Traditional IRAs and 401(k)s are subject to RMDs starting at age 73 (for those born after 1950). Strategic Roth conversions and staggered withdrawals before reaching the required minimum distribution age can help reduce the impact of RMDs.

5. Leverage HSAs for retirement healthcare expenses

Health Savings Accounts (HSAs) offer triple tax benefits and can be powerful long-term savings tools. Unlike Flexible Spending Accounts (FSAs), HSAs have no “use it or lose it” rule, meaning contributions can be saved and invested over time.

Rather than using HSA funds for short-term healthcare expenses, consider paying out of pocket when feasible and allowing the HSA to grow. By investing these funds, you can create a tax-free nest egg for future healthcare costs. Remember HSA funds can also be used to pay for certain Medicare expenses, creating a tax-free source for medical expenses later in life.

6. Take advantage of employer-matching contributions

Many employers offer matching contributions on 401(k) plans, providing a unique way to boost retirement savings. To maximize employer matching:

• Contribute enough to receive the full match
• Combine with personal contributions

The employer match amplifies savings while reducing taxable income, creating a powerful dual benefit for retirement tax planning.

7. Use tax-loss harvesting in taxable accounts

While this strategy applies to taxable accounts rather than tax-advantaged accounts directly, it can be used in conjunction to maximize overall tax efficiency. Tax-loss harvesting involves selling securities at a loss to offset capital gains, reducing taxable income. By strategically selling investments that have declined in value, investors can offset gains from other securities or reduce ordinary income.

Tax-loss harvesting also means you could potentially replace sold assets with similar investments to maintain portfolio balance and capture growth when the market recovers. Combining tax-loss harvesting with gains in tax-advantaged accounts can create an effective year-round strategy to minimize taxable income while allowing for continued investment growth.

Loss harvesting is most effective when implemented through a consistent and systematic process on a daily basis.  Reach out today if you would like assistance in capturing this powerful tax advantage in your taxable accounts.

Create a comprehensive and tax-efficient wealth strategy with Avidian

Maximizing tax-advantaged accounts is more than just a tactic for reducing today’s tax bill — it’s a fundamental step toward creating a sustainable and resilient financial plan. By making strategic use of these accounts, you can establish a long-term wealth foundation that supports not only your own future but potentially benefits generations to come.

As you consider the role of tax-advantaged accounts within your broader wealth strategy, partnering with a knowledgeable advisor can bring clarity to complex tax rules. At Avidian Wealth Solutions, we’re here to help you make the most of your resources so that you can focus on what matters most: building a lasting legacy.

Reach out today to discuss how we can help maximize your tax-advantaged accounts and create a tailored wealth strategy designed for your success.

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• Retirement Planning for a Non-Traditional Career
• What to Know about the New 401(k) Catch-up Contribution Rules
• SALT Tax Deduction Changes and High-Income Earners
• What Is the Opportunity Zone 180-Day Rule?

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