Skip Navigation Documents in Portable Document Format (PDF) require Adobe Acrobat Reader 5.0 or higher to view,download Adobe® Acrobat Reader.
BTC Bank

Guide to Tax-Advantaged Accounts in Missouri

Guide to Tax-Advantaged Accounts in Missouri


When tax season comes around each year, having a good understanding of different options for your investment portfolio can help you to save money and owe less federal income tax.

Unlike your contributions to a traditional savings and investment account, tax-advantaged accounts allow you some flexibility when it comes to when you must pay income taxes on those funds. These specific plans may be tax-deferred or could be exempt from taxation entirely.

While many people are aware of the tax advantages that come from making plan investments in retirement accounts, there are several non-retirement alternatives that also offer significant tax advantages.

Take the time to have a deeper look at your financial future by assessing your potential tax exposure in the coming years. Understanding the difference between pre-tax and after-tax contributions now, rather than when you’re about to retire, will help you to make informed decisions about what’s best for you.

This guide will walk you through some of the most common account types, from retirement plans to health savings accounts. This is not a promotion for any specific type of account and is for informational purposes only. Consult your tax advisor to discuss a strategy that would be the most suitable for your financial situation and level of risk.


Visit to understand annual contribution limits.


Individual Retirement Accounts (IRAs)

By choosing to open a retirement account on your own with an IRA, you’re in complete control of your investment decisions. There are a wide range of equities that you can invest in, including exchange-traded funds (EFTs).

A traditional IRA is a tax-deferred account, where contributions can lower your adjusted gross income for that year, as the account is funded using pre-tax dollars. Taxes on this money will not be paid until you receive distributions.

You must pay taxes on any gains in that tax year, but your contributions up to the maximum of $6,000 are deductible. There are minimum distribution requirements to be aware of with traditional IRAs, where you must take your first distribution by the year that you turn 72.

If you have money sitting in a 401(k) account from a previous employer, you may be eligible for an IRA rollover. This is where your employer-based account funds can be transferred into a traditional IRA. You may do this when you leave a job or start a new one to benefit from additional tax advantages, but rollovers must be completed within 60 days of receiving funds from the old account and you can only rollover once per year.

For individuals looking at tax-exempt options, a Roth IRA may be a good choice. While you won’t be able to deduct contributions on your tax returns, you will be able to take qualified distributions and earnings tax-free when you retire. This is because Roth IRAs are funded using post-tax dollars, up to an annual contribution limit of $6,000.

Anyone can set up an IRA on their own, including the self-employed. But for these individuals, a SEP IRA is also something to consider. These accounts are used by small businesses in place of an employer-sponsored 401(k). They’re tax-deferred and contribution limits are typically higher than both 401(k)s and traditional IRAs.


401(K) accounts are employer-based retirement plans, funded on a pre-tax earnings.


Employer-Based Retirement Accounts

If you work for someone else, you’re likely familiar with employer-based retirement plans. These have defined employee contribution levels and employers will usually match contributions up to a set amount.

The most common is a 401(k), which is tax-deferred and funded by employees, with at least a partial employer match in most cases. Contributions, up to $20,500 for 2022, are deductible in the year they are made and earnings accumulate on a tax-deferred basis. Once you retire, you will be taxed on these funds as if they were ordinary income. Funds withdrawn before the age of 59.5 and not rolled over into a traditional IRA or another 401(k) are subject to a 10 percent penalty.

A 403(b) plan is the same as 401(k)s, but specifically for employees of nonprofits and tax-exempt businesses like schools, universities, religious organizations, and hospitals.

For state and local government employees, a 457 plan is also like a 401(k). Most of the rules are the same, but there are some additional advantages. If your employer offers both a 401(k) or 403(b) and a 457, you may contribute up to $38,000 (or $50,000 if you’re over 50) across both–$19,000 for each plan.

When you contribute to these plans, you’ll be part of a process called vesting. This is where you have nonforfeitable rights to the employer-matched funds that increase over time. Your company will have a vesting schedule that determines the point at  which you have full ownership of those assets.

But there are also downsides to employer plans. They provide fewer investment choices on your end, which means less control than with an account like an IRA, and they often come with higher fees than an index fund.

If you fall into the Highly Compensated Employees (HCEs) bracket, where you earn over $135,000 (in salary, bonuses, or commissions) and have a 401(k), you will be subject to different rules. To ensure that retirement plans don’t favor HCEs, the IRS requires that contributions made by HCEs are no more than 2 percentage points higher than the average contributions of non-HCE employees. These rules also apply to individuals who own more than 5% interest in the business, regardless of compensation amount.

Health Savings Accounts (HSA) are funded with pre-tax dollars.

Health-Related Accounts


Health Savings Account (HSA)

A Health Savings Account is restricted to individuals on a high deductible health insurance plan through their employer, although an HSA can be opened either through your employer or independently with a local financial institution like BTC Bank.

The individual contribution limit for 2022 is $3,650; family plan holders may contribute up to $7,300. Interest and withdrawals are tax-free when used to pay for qualifying medical expenses (which are clearly defined by the IRS). Some HSA accounts allow you to invest your funds until they’re needed for healthcare expenses.

At age 65, HSA funds may be used for non-medical expenditures and taxed at the current income rate. Any funds withdrawn before this are subject to both income tax and a 20 percent penalty.

Flexible Spending Account (FSA)

Like an HSA, an FSA allows employees to contribute some of their regular earnings into a tax-free account for healthcare expenses. These contributions are deductible on your tax returns to lower your gross income and funds must be withdrawn for qualifying medical services to remain tax-free. The contribution limit for 2022 is $2,850.

FSAs are usually set up by employers and they may choose to contribute to employee accounts. There are no requirements to be on a particular health plan to be eligible for an FSA. An important note to remember is that any funds in an FSA are use-it-or-lose-it during a given tax year. Any contributed amounts that aren’t spent by the end of the year will be forfeited.


Visit for information about Missouri's 529 education plan.


Education-Related Accounts

Dependent Care FSA (DCFSA)

For employees with children or dependent family members, a DCFSA can cover care costs using tax-free funds. Money is withdrawn before paycheck taxes are deducted and contributions can be made up to $5,000 for 2022.  Like other FSAs, these funds must be used by the end of the year or will be lost.

Daycare, preschool, and school tuition is covered for children under 5, while summer camps and before or after school programs for children up to 12 are also reimbursable with a DCFSA. In-home care for elderly or dependent relatives who live with you may also be a qualifying expense under these plans.

Education Savings Accounts (ESAs) and 529 College Savings Plans

A 529 college savings plan allows after-tax contributions to grow tax-deferred and withdrawn tax-free when used to pay for qualifying education expenses. There are no annual contribution limits, but many plans have lifetime limits of up to $500,000.

If your dependent chooses not to attend college, funds can be transferred to another beneficiary for their education without a penalty. Funds may also be withdrawn at any point and for any reason, but will be subject to regular income tax and a 10 percent penalty if not used for educational purposes. Plan holders may also withdraw a lifetime maximum of $10,000 from a 529 plan to pay down student loans.

Like a 529, an ESA is a college savings plan that allows account holders to contribute up to $2,000 per child per year of after-tax income, to be used for tax-free withdrawals for education expenses. Contributions phase out for anyone with an adjusted gross income over $95,000 and funds must be used before the dependent turns 30 to avoid taxes and penalties. ESAs may be taken out through banks and financial institutions like BTC Bank to prepare for your child’s future.


Homeowners can deduct home mortgage interest from their taxes.


Home Mortgage

While taking out a mortgage may not offer you the same benefits as a tax-advantaged account, owning your own home can provide some tax savings. In most cases, the mortgage interest for your home is fully deductible on your tax return.

How much you can deduct is dependent on the amount of the mortgage, when you took it out, and how you use the proceeds of your mortgage. Consult with your tax advisor before filing to determine the correct amount for your situation.

Take Advantage of Additional Tax Savings

There are plenty of account types that can help you to save more money when you file your taxes this year. Speak with a BTC Bank retirement specialist to see how we can support your financial goals.

Contact us today at 1-877-BTC-BANK or online to speak with one of our team members. You can also visit us in-branch at any of our 18 locations.

We proudly serve the banking needs of communities throughout Missouri and Lamoni, Iowa, and offer our customers access to a nationwide ATM network.

Retirement Pie Chart icon


We can help you pursue independence, freedom and the things that matter most to you.
Mortgage Lending icon


The right home loan will give you the go-ahead to make more memories.