Saving outside your plan

Contact your financial professional or visit capitalgroup.com for more information about IRAs.

Brokerage accounts

While your savings do not grow tax-deferred in a brokerage account as they would in a Traditional IRA or 401(k) plan, you can still take advantage of another tax-friendly saving opportunity by investing in mutual funds outside of your retirement plan. Current tax rates on qualified dividends and long-term capital gains can be considered favorable when compared with regular income tax rates.

• The top tax rate on qualified dividends is 20%*.
• The top tax rate on long-term capital gains is 20%*.
  

^*This rate does not include the 3.8% Medicare surtax applicable to net investment income for higher income taxpayers.

You can save even more in a brokerage account by investing in tax-exempt bond funds. These mutual funds typically invest in bonds issued by state and local governments to finance projects such as highways, schools, hospitals and airports.

• Dividends paid by these funds are exempt from regular federal income taxes.
• State-specific tax-exempt funds can offer both federal and state tax advantages.
• The higher your tax bracket, the more benefit there is to investing in tax-exempt bond funds.
  
  

For more information on investing in mutual funds, click here. For information on American Funds tax-exempt bond funds, click here. Your financial professional can help you select from these or other tax-exempt funds that may be right for you.

Variable annuities

A variable annuity is an investment that includes an option that can help make sure you don’t outlive your assets.

• Taxes aren’t due until earnings are withdrawn. (Note that you may have to pay a 10% federal penalty tax on earnings withdrawn before age 59½. Surrender charges and other costs may apply.)
• Your money is invested in professionally managed funds that are similar to mutual funds.
• Returns fluctuate as the prices of the stocks and bonds in the funds rise and fall, so the returns are variable.
• They typically include a death benefit that can provide some protection to your beneficiaries.
   

For information on the American Funds Insurance Series® suite of variable annuities, click here. Your financial professional can help you select from these or other variable annuity products that may be right for you.

Education savings programs

If you’d like to put money away for college tuition or other education expenses and receive certain tax benefits, consider these three options:

Note: States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K–12 expenses may not be exempt from state tax in certain states.

If you accelerate gifts to a 529 account beneficiary, no additional gifts can be made to that beneficiary over the next four years after the year in which the one-time gift is made. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Consult with a tax advisor regarding your specific situation.

For more information on how to invest in CollegeAmerica®, a 529 savings plan from Capital Group, click here or contact your financial professional to open an account.

ABLE account

If you or a loved one are disabled or blind, you may be able to save for disability expenses while receiving tax benefits through an ABLE account. 

The beneficiary must be blind or disabled from a condition that began before age 26.

With an ABLE account:

• Anyone can contribute to an account, up to a total of $16,000 per beneficiary across contributors for 2022.
• Beneficiaries can save up to $100,000 without impacting their eligibility for Supplemental Security Income (SSI).
• Savings grow free from federal taxes, and in some cases state taxes, and withdrawals are free from federal taxes if used for qualified disability expenses. State tax treatment varies.
• Funds can be used for basic living expenses, housing, health care, assistive technology and other qualified disability expenses.
   

If withdrawals are used for other purposes, the earnings are subject to a 10% federal tax penalty as well as federal and, if applicable, state income tax. 

For more information on how to invest in ABLEAmerica, an ABLE plan from Capital Group, click here or contact your financial professional to open an account.