There are various ways to invest money in tax-deferred savings plans besides a 401(k) and an IRA.

Question from reader: Last year I was able to fully fund a 401(k) and an IRA for my wife and myself. I also fully funded an HSA. I still had money left over that I wanted to save. Are there any other ways to save money on a tax-deferred basis?

There are various options you can use that are tax deferred. Here are five options:

Municipal bonds

While not all municipal bonds are tax-exempt, some are. Interest that comes from municipal bond funds are usually exempt from federal income taxes. Depending on the state and the issuer, the bond could also be safe from state and local income taxes, according to an article by Fidelity.

Deferred annuity

Earnings on a deferred annuity are only taxed when withdrawn. Joseph Hubeny, a CPA in Chicago, said this is something to look into, but to get individual finance advice from a professional first.

“If you are looking into exploring some of these options, I recommend hiring a qualified service professional who specializes in these types of investment vehicles,” Hubeny said.


David Reid, a tax director at WTP Advisors, suggested a Flexible Spending Arrangement as an option for medical expenses that will be used within the planned year. Offered through some employers, FSAs are health or dependent care options to cover related costs, which allows pretax dollars to be set aside in the fund.

This option, however, must be used for costs within the planned year. In 2013, the annual contribution limit for health costs is $2,500 per employee and $5,000 for dependent care costs.

529 Plan

Each state is individual in its savings plans, but in Utah a 5 percent state income tax credit can be claimed on individual contributions, up to $1,840 per single beneficiary.

“Contributions to a 529 college savings plan will not reduce federal taxable income but may reduce state income tax liability,” Reid said.

Transportation costs

Employees may be able to pay for public transportation with pretax payroll deductions, thanks to the American Taxpayer Relief Act of 2012. In 2013, companies can offer $245 per employee per month for vanpool, bus, ferry, rail or qualified parking, according to the National Center for Transit Research.

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