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Learning that you are eligible for a tax refund can be a welcome surprise. Or maybe it’s something you’ve been hoping (or even waiting for) for months.

If you have any pressing expenses — maybe you’re behind on a few bills or have been putting off going to the dentist because of the cost — you may be wondering how you might be able to get that money into your hands ASAP.

Fortunately, there are a few simple things any taxpayer can do to help ensure that their refund comes quickly.

This includes e-filing with the IRS (rather than physically mailing in your return) and setting up direct deposit, so there’s no waiting for that refund check to come through the mail.

Read on to learn more about getting your tax refund sooner, including:

•   How to plan your tax return filing

•   How to file electronically

•   How to set up direct deposit

•   How to track your refund

Quickest Ways to Get Your Tax Refund

Here are some key steps you may want to take as tax season gets underway, starting well before Tax Day in April. They’ll help ensure that you get your refund ASAP.

1. Start Planning Your Tax Return Filing in January

In general, the fastest way to get your tax refund is to file your taxes early, and you certainly don’t want to miss that tax-filing deadline.

This means that, starting in January, you may want to begin collecting all the necessary information for filling out your tax forms, such as your W-2 and any 1099s. You’ll also likely need to decide whether you are going to file on your own (perhaps using tax software) or hire a tax preparation service or accountant to help.

2. Get Your Return in ASAP

The further into tax season that you file, the more likely the IRS is to be inundated with returns. That can slow processing times, which can delay your refund.

If you followed Step 1, above, then you’ll have your documentation organized. All of the forms you need should be issued by January 31.

If you prefer working with a professional tax preparer, it’s wise to book them in advance, since they’ll likely be very busy with other clients. If you plan to use tax software, buy it early and learn how to use it. You’ll be ready to be one of the first filers out of the starting gate.

3. File Your Tax Return Electronically

One of the fastest ways to get your refund can be to choose electronic filing instead of sending your return by mail.

That way, your refund can begin moving through the system immediately, rather than having to wind its way through snail mail and hands-on processing.

A paper tax return can take about six to eight weeks to process, but with electronic filing, or e-filing, taxpayers can typically expect to receive their refund within 21 days. Your tax preparer will usually offer ways for you to file electronically.

Taxpayers can also use tax preparation software such as TurboTax, TaxSlayer, TaxAct, or H&R Block. You can use these programs to file your taxes yourself, or you might go to a professional who knows how to use this type of software. Either way, electronic filing is probably an option.

4. Get Help Filing Your Return Quickly

But what if you don’t have funds for tax help and are feeling overwhelmed by the process and therefore don’t file right away? Fortunately, help is available. The Internal Revenue Service (IRS) offers a few options for
e-filing which can help you get this task completed.

If taxpayers make an adjusted gross income (AGI) of $89,000 or less per year, then they can use IRS Free File to turn in their tax forms.

For taxpayers whose AGI is greater than $89,000, they can use the IRS’s Free File Fillable Forms service, which lets you simply input your data onto your tax forms so you can e-file (if you choose this option, you’ll need to know how to prepare your own tax return).

The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs also provide help and e-file for taxpayers who qualify.

Many states also offer free e-filing options for state returns.

The IRS has a helpful tool on their website where taxpayers can find an authorized IRS e-file Provider
Locator . All taxpayers have to do is input their zip code and choose what kind of provider they need.

5. Set Up Direct Deposit

How else to get your refund fast? The speediest way to get your tax refund is to have it electronically deposited into your financial account. This is known as direct deposit, and the service is free. It’s also possible to break up your refund and have it deposited into one, two, or even three accounts.

You can set up direct deposit simply by selecting it as your refund method through your tax software and then inputting your account number and routing number (which you can find on your personal checks or through your financial institution).

Or, you can tell your tax preparer that you want direct deposit.

It’s also possible to select direct deposit if you’re filing by paper and sending your return through the mail (you may want to double check to make sure you didn’t make any errors inputting your financial account information). But remember, paper returns tend to move through processing more slowly.

💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

6. Open a Bank Account If You Don’t Have One

If you just read the step above and thought you can’t use direct deposit because you don’t have a bank account, this could be the moment to set one up. Perhaps you haven’t gotten around to opening a checking or savings account. Now is a great moment to open one. Many online banks can guide you through the application and opening process online, from your home, in a minimal amount of time. This can be an excellent move as you prepare for tax season.

If you were previously turned down for a bank account, you might want to look into what are known as second chance accounts. Offered by some banks and credit unions, these may not have all the features of conventional accounts, but they can give you a good landing pad for your tax refund via direct deposit.

Recommended: What Are the Different Types of Taxes?

When Can I Expect My Tax Refund?

As long as taxpayers have e-filed by the deadline and chosen direct deposit, then the refund should hit their account within three weeks. According to the IRS, nine out of 10 refunds arrive in less than 21 days. However, if you file a paper return, the timing will more likely be six to eight weeks.

And, remember, if you file later in the tax season, you might face processing delays. That’s because the volume of returns working their way through the IRS rises significantly. So being an early bird can be among the quickest ways to get your refund.

Recommended: What Is Income Tax Withholding?

Finding Out Where Your Refund Is

Once everything is filed, taxpayers can check their tax refund status on the IRS’s Where’s My Refund? page. This requires inputting your Social Security number, filing status, and the exact amount of the refund, which can be found on the tax forms that were submitted.

Can I Track the Status of My Tax Refund?

Taxpayers can check “Where’s My Refund?” starting 24 hours after e-filing.

The site is updated daily, usually at night. The IRS cautions that you may experience delays in getting your refund if you file by mail, or you are responding to a notice from the IRS.

If it’s been more than 21 days and you still haven’t received your refund, you can call the IRS at (800) 829-1040 for help. You may also want to contact the IRS if “Where’s My Refund?” instructs you to do so.

Can You Get Your Tax Refund Back the Same Day?

Unfortunately, there is currently no way to get a tax refund back the same day. The speediest timing tends to be closer to eight days from e-filing to direct deposit of a refund.

However, if taxpayers are in a bind, some tax preparation services offer 0% interest tax-refund loans. Tax-refund loans, also called “refund advances,” allow you to access your refund early, but you may want to keep in mind that tax preparers typically charge fees for filing tax returns.

If you are paying a tax preparer just to get the advance, you’ll essentially be paying a company in order to access your refund. Consider these points:

•   Some providers may charge an additional fee for the advance service.

•   These short-term loans range from $200 to $4,000. In some cases, there may be a minimum amount your refund must meet in order to qualify for a refund advance (how much can vary from one company to another).

•   You may only get part of your expected refund in advance.

•   Some companies may offer to give you a prepaid card with the loan amount on it within 24 hours.

•   Once your tax refund is issued, the tax preparer will typically deduct the loan amount from your refund.

Also be aware that you may be offered this kind of quick cash from other non-bank lenders with significant fees. Proceed with caution.

If you’d rather not pay any fees, however, you may also want to look into other options.

•   If you have bills that are due, it may be worth calling up your providers or credit card companies to see if they can extend their due date while you are waiting for your refund.

•   You might open a 0% interest credit card, such as a balance transfer one, and charge an urgent expense on that card and then pay it off as soon as the refund comes in.

What’s the Best Way to Spend Your Tax Refund?

Finally! Your tax refund has arrived. You may wonder about the best way to use the funds. Yes, it can be tempting to splurge on a weekend away or those new boots you’ve had your eye on, but consider this financially-savvy advice first:

•   If you are carrying any high-interest debt, one smart move might be to put your tax refund towards minimizing the debt or, if possible, wiping it out all together. Doing this can help you avoid spending more money on interest charges. It may also help boost your credit score, which may help you qualify for loans and credit cards with lower interest rates in the future.

•   Or you might consider using your tax refund to jump-start one of your current savings goals, such as building up an emergency fund, a downpayment on a home, or buying a new car.

For an emergency fund or savings goals you hope to accomplish within the next few years, you may want to put your refund in a high-yield savings account. These options typically offer a higher return than a traditional savings account but allow you easy access to your money when you need it.

•   Your tax refund can also help you start saving for the longer term, such as retirement or paying for a child’s education. Using a tax refund to buy investments can help you create additional wealth over time to help fund these far-future goals.

The Takeaway

To get your tax refund as quickly as possible, it’s a good idea to file early, and, if possible, avoid the mail. That means filing electronically (using the IRS’s free service or tax software, or hiring a tax pro) and signing up for direct deposit when you file.

It’s also wise to keep track of your refund on the IRS site and reach out to the agency if you haven’t received your refund within three weeks.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How can I receive my tax refund sooner?

To receive your tax refund as soon as possible (which typically means within three weeks of filing), file electronically and request that the refund be paid by direct deposit.

Is direct deposit faster than mail for tax refunds?

Direct deposit will typically save time versus a check sent by mail in terms of tax refunds. If you file your return electronically too, you’ll likely have the shortest possible time from finishing your return to receiving funds that are due to you.

When should you start planning to file your tax return?

Tax season begins in January, with the forms you need having to be sent by January 31. It’s wise to start getting organized as soon as possible in the New Year to get your return done. If you work with a professional tax preparer, you might want to book them even earlier since January through April will be their busy season.

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About the author

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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You may wonder if anyone balances their bank account manually anymore given how many aspects of personal finances have become electronic. However, tracking withdrawals and deposits and tallying up amounts can have value.

Monitoring your checking account in this way can help you identify errors or fraud. It can reveal charges and fees you may not have known you were being assessed. It can also put you in better touch with your money and your spending. All those things are definitely positives.

This guide will help you learn the step-by-steps for balancing your checkbook as well as its benefits.

How to Balance a Checking Account Step-by-Step

Here’s how to balance your checking account. It can take a little time and effort but rewards you with control over your finances.

Step 1: Gather Your Bank Statement and Transaction Records

Start by gathering the receipts and records for spending and deposits for the period chosen. If you use a check register, grab that. If you write your purchases down in a notebook or use software or a spreadsheet, use those. If you collect ATM receipts, pull that pile together, too.

Step 2: Compare Deposits and Add Any Interest Earned

Next, you’re going to match those records with the bank statement. Many people review these online or in their bank’s app; some people may still get hard copies sent by snail mail.

In this step, you’re specifically looking for deposits. Make sure you have accounted for every transaction. If you missed something the bank has listed and you’re sure it’s accurate (for example, or a birthday check you deposited and forgot about), add it to your records. Factor in any interest you may have earned on the amount of money in your account.

Step 3: Check Off All Cleared Withdrawals, Payments, and Debits

Go ahead and make sure you have included all debits. This can mean any withdrawals from the ATM, autopayments, debit card transactions, and other transactions deducted from your account. This will help you get to the true bottom line of your account.

Step 4: Subtract Any Bank Fees or Service Charges

Don’t forget to account for any bank fees and service charges. Perhaps you keep your accounts at a fee-free bank, or maybe you pay a maintenance fee and overdraft charges from time to time. Check your statement and account for any such fees.

Every little bit counts: If you use fee-free ATMs, great, but if you paid a few dollars as a fee, don’t forget to account for that as you do the math.

Step 5: List and Total All Your Outstanding Transactions

Take note of any transactions that are pending. Did you deposit a check by mobile deposit last night that hasn’t fully cleared yet? Do you have an autopay that’s currently processing? Consider what might be about to hit your account and add or subtract it.

Reconcile Your Records With the Bank’s Balance

Now for your account reconciliation: The amount you come up with should match with the balance you have in your register/notes/spreadsheet and jibe with what you are seeing online or in app, once pending transactions are accounted for. If it doesn’t, you may have to do a closer check to see what you might have missed or if your math is a little off.

If you’re confident that the bank made a mistake or you notice anything else askew, contact the bank by phone, email, messaging, or in-person right away to let them know about the inconsistency.

Modern Tools to Help You Balance Your Account

If the thought of doing this reckoning and the math has you in a cold sweat, relax. There are tools to help you balance your checking account with less stress.

Using Your Bank’s Mobile App and Website

Your bank’s app and/or website can typically play a major role in balancing your account. By checking these options, you can see your real-time balance, transaction history, and digital statements. You can also likely glean spending insights that help you match your records to the bank’s, not to mention budget better.

You can also uncover errors this way. You use these tools to see what your bank knows and then compare that to your records to find discrepancies.

Using a Personal Budgeting Spreadsheet

Another system that can help you balance your account is a budgeting spreadsheet. There are many variations of these templates available online. It can be a smart move to start with one that is free to download. Digital spreadsheets vs. physical ones can offer the benefit of automatically doing the math for you as you enter your starting balance, credits, debits, and other bits of data.

If you’re the kind of person who enjoys working on a hard copy, you can print out these spreadsheets or buy paper ones at a local office supply retailer or perhaps a big box store.

Why Is Balancing Your Checking Account Still Important?

Balancing your checking account is still important because it helps you manage your money better, even in this era of online banking.

It Helps You Catch Bank Errors and Overcharges

Even if you are a fastidious record keeper, logging every cash withdrawal, bill payment, and deposit into a paper ledger, spreadsheet, or app, we all make mistakes from time to time.

Maybe an ATM receipt went missing or a bill payment was forgotten or recorded incorrectly. Or perhaps you were double-charged by a merchant. By reconciling an account regularly, these little mistakes can be quickly fixed. Banks also can make errors in rare instances. Balancing your checking account can allow you to bring a possible mistake to the attention of customer service.

It Helps You Spot Fraudulent Activity Sooner

Every time a person makes an ATM withdrawal, pays for gas with a debit card, or places an order online, there’s a slight chance that a scammer will intervene.

Consumers who check their accounts regularly may have a better chance of spotting fraud faster, limiting their own liability and helping the bank deal with potential problems.

It Gives You Control Over Automatic Payments and Subscriptions

Automatic bill payments are convenient and can help an account holder avoid late payments (and late fees).

But the downside is that those bills might not get the same attention as those paid every month by check, phone, or online. Ready or not, the money comes out of the bank account as scheduled, and if the account is low on the payment date, it can lead to bounced checks and overdraft fees.

Account holders who check their statements regularly may find they’re more aware of and prepared for the amount and timing of their autopay charges. They also might find they’re ready to dump or reduce the cost of some of the services and subscriptions they’ve been paying for from their checking account every month or year.

It Provides a Clear Picture of Your Spending Habits

Balancing your checking account can benefit those who need or want to take more control of their spending to see exactly where their money is going every day, week, or month.

Regularly scheduled reconciliations enable people to see exactly how much they’re spending every week on nonessentials, such as in-app purchases or happy hours. This kind of information can help people budget more effectively and help bring them closer to their savings goals, such as a downpayment on a home.

Recommended: ATM Withdrawal Limits — What You Need To Know

The Takeaway

Balancing a bank account every month can serve as an important backup and safeguard, especially for those who have multiple accounts, or who have turned over certain financial tasks (say, bill paying and budgeting) to automation and apps. It can also help you avoid unnecessary fees, spot mistakes or fraud, and enable better budgeting and money management.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How often should I balance my checking account?

How often you should balance your checking account can vary. Financial experts recommend a minimum of once a month, with some saying weekly is a good cadence. If you conduct a lot of transactions, an even more frequent rhythm can be best.

What should I do if my checking account doesn’t balance?

If your checking account doesn’t balance, it’s wise to dig in and reconcile the account, looking for missing and pending transactions, fees you forgot about, and math errors. If you can’t find an error or if you see any unauthorized or incorrect activity, contact your bank immediately.

Do I need to balance my account if I use a banking app?

It’s a good idea to balance your account even if you use a banking app. The reason: Apps can’t necessarily catch instances of fraud or mistakes the way you can, and they may not show pending transactions (like an upcoming autopay) in a way that allows you to manage your money optimally.

What is the difference between my current balance and my available balance?

Here’s the difference between these two amounts: Your current balance reflects money in your account for all transactions that have cleared or are in the works. Your available balance, however, shows what you can spend right now. It doesn’t include transactions that are still pending or processing, nor does it reflect any funds that have a hold on them.

What is a check register and is it still used?

A check register is a ledger (often in booklet form) that is filled out to track bank account activity, such as deposits, checks written, and ATM withdrawals. This serves as a tracker for account activity and current balance. Some people still use them; others prefer online tools to keep tabs on their money.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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If you’re looking to reduce the amount of income tax you’ll need to pay, there are numerous strategies to consider. Familiar moves include contributing to tax-deferred retirement and health-spending accounts, deducting certain taxes and interest, and making charitable donations. More complex maneuvers include timing investments to offset gains with losses.

Because each person’s situation is unique, be sure to check with your tax accountant to find out how a potential strategy might work for you. Note that some of the strategies included in this guide have income limits.

Keep reading to see how many of these 25 tactics you can implement.

25 Ways to Lower Your Taxable Income

As you look through this list of 25 ideas on how to pay less in taxes, you’ll note that some are broad, advising how to reduce either W-2 taxable income or self-employment income. Meanwhile, others are more targeted — for instance, applying only to the self-employed. Keep track of ideas that pertain to your situation so you can explore them further.

1. Contribute to a Retirement Account

Many IRA contributions are tax deductible. If you’re covered by a plan at work, you can contribute up to $23,500 to a 401(k) plan in 2025 ($24,500 in 2026), and an additional $7,500 if you’re over 50 ($8,000 in 2026). You can also contribute $7,000 to an IRA ($7,500 in 2026), or $8,000 total if you’re over 50 ($8,600 in 2026). However, your deduction may be limited depending on income and other factors.

Self-employed individuals can contribute between 25% and 100% of net earnings from self-employment, up to $70,000 for 2025 (up to $72,000 for 2026). Plans available to the self-employed include the Simplified Employee Pension (SEP) plan, solo 401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA).

2. Open a Health Savings Account

A health savings account (HSA) allows you to deposit money on a pre-tax basis. Contribution limits depend on your health plan, age, and other factors, but most individuals can contribute $4,300 for 2025 and $4,400 for 2026.

Funds can be used to pay for qualified medical expenses or rolled over year to year. You must have a high deductible health plan (HDHP) to contribute to an HSA.

3. Check for Flexible Spending Accounts at Work

In lieu of an HSA, you can contribute up to $3,300 in pre-tax dollars to a flexible spending account (FSA). In 2026, the contribution threshold rises to $3,400. FSAs allow people with a health plan at work to deposit money and then use it to pay for qualifying health care costs. Unlike HSAs, FSAs don’t require an HDHP to qualify. The downside: Only a small portion of funds may be rolled over to the following year.

4. Business Tax Deductions

The IRS guidelines around business deductions change frequently, so it’s wise to watch out for their announcements throughout the year. Some business expenses apply only to self-employed people.

5. Home Office Deduction

When a self-employed person regularly uses a specific area of their home for business purposes, they may qualify to deduct costs associated with that part of the house. The home office deduction can be calculated in two ways (regular or simplified) up to the current gross income limitation. For more information, search for “IRS publication 587.”

When you’re in business for yourself, every moment counts. Online tools can help take the guesswork out of tracking your spending, setting up budgets, analyzing spending habits, and more.

6. Rent Out Your Home for Business Meetings

If you’re self-employed, you can also rent out your home for business events and meetings, collect the income — and not have to pay income taxes on that rental income. To learn specifics, visit https://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

7. Write Off Business Travel Expenses

Travel expenses, as defined by the IRS, are the “ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” For IRS guidance for both W-2 employees and the self-employed, go to https://www.irs.gov/taxtopics/tc511.

8. Deduct Half of Your Self-Employment Taxes

When calculating your adjusted gross income (AGI) as a self-employed person, using Form 1040 or Form 1040-SR, you can deduct half the amount of your self-employment tax. In 2025 and 2026, the self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.

9. Get a Credit for Higher Education

This tax credit can go up to $2,500 based on tuition costs along with what you paid in certain fees and for course materials. As a first step, income tax owed is reduced dollar for dollar up to your limit. Then, if your tax credit is more than what you owe, you may be able to get up to $1,000 in a refund.

10. Itemize State Sales Tax

Currently, you can deduct a total of $40,000 for itemized state and local income taxes, sales taxes, and property taxes when you use Form 1040 or 1040-SR. If married but filing separately, the total is $20,000 per person. The IRS provides a calculator that you can use to figure out your deduction at https://apps.irs.gov/app/stdc/.

11. Make Charitable Donations

A taxpayer can typically deduct up to 60% of their AGI to qualified charities. However, thanks to a 2025 law, standard deduction filers can deduct up to $1,000 (or up to $2,000 for married couples filing jointly) for cash donations starting in the 2026 tax year.

12. Adjust Your Basis for Capital Gains Tax

If you sell an asset, including but not limited to investments, a capital gains tax is levied on the difference between the purchase price and what it sells for. The adjusted basis also takes into account the costs of capital improvements made, minus decreases such as casualty losses. For more on the topic when selling a home, search for “IRS publication 523.”

Recommended: Should I Sell My House Now or Wait?

13. Avoid Capital Gains Tax by Donating Stock

You may be able to avoid paying capital gains tax if you transfer the ownership of your appreciated stock (held for more than one year). This is something that needs to be handled in exactly the right way; your tax accountant can help.

14. Invest in Qualified Opportunity Funds

If you invest in property through a Qualified Opportunity Fund, the IRS states that you can temporarily defer paying taxes on the gains. Taxes can be deferred (not reduced or canceled) up until December 31, 2026, or until an inclusion event occurs earlier than that date. This is a complex strategy and, again, you may want to get professional advice.

15. Claim Deductions for Military Members

You may be able to deduct moving expenses if you’re a member of the military on active duty who relocated because of a military order and permanent change of location. In this case, you can potentially deduct your unreimbursed moving expenses as well as those for your spouse and dependents. You can calculate relevant expenses on “IRS form 3903, Moving Expenses.”

16. Enroll in an Employee Stock Purchasing Program

In an employee stock purchase plan (ESPP), an employee who works at a company that offers this program can buy company stock at a discount. The company takes out money through payroll deductions and, on the designated purchase date, buys stock for participating employees. Note that only qualified plans have potential tax benefits.

17. Deduct the Student Loan Interest You’ve Paid

You may qualify to deduct student loan interest. Annual deduction amounts are the lesser between the amount of interest paid and $2,500. This deduction is lowered and eliminated when your modified adjusted gross income (MAGI) reaches a certain limit based on your filing status.

18. Sell Your Losing Stocks to Claim Capital Loss Carryover

If you sell stock at less than the purchase price, you’ve experienced a capital loss. You can use that loss to offset any capital gains that year. If you’ve lost more than you’ve gained, this can reduce your taxable income, which could reduce what you owe up to $3,000 for individuals and married couples, and $1,500 for someone married who filed separately.

Recommended: Tax Loss Carryforward

19. Deduct Mortgage Interest

You can deduct the money you paid on mortgage interest on the first $750,000 (or $375,000 if married, filing separately) of mortgage debt you owe. Higher limits exist ($1,000,000/$500,000) if the debt was taken on before December 16, 2017.

20. Deduct Medical Expenses

Under certain circumstances, you can deduct medical and dental expenses for yourself, your spouse, and dependents. You’ll need to itemize on your tax return and can only deduct qualifying expenses that exceed 7.5% of your AGI.

21. Delay IRA Withdrawal Upon Retirement

You can delay IRA withdrawals so that you don’t have more taxable income when you’re a high earner.

22. Ask Your Employer to Defer Income

You pay income tax in the year the income is received. Although there are reasons why employers typically can’t postpone providing paychecks, they may be able to delay a bonus to the following year as long as this is standard practice for them. If self-employed, you can delay sending your end-of-year invoices to bump December payments to the following calendar year.

23. Open a 529 Plan for Education

A 529 plan allows you to save for future educational expenses. Although the contributions themselves aren’t deductible, interest that accrues in the account is tax-free, federally, as well as being tax-free in many states. In other words, when the money is withdrawn to pay college expenses, it is not taxed.

24. Buy Tax-Exempt Bonds

Interest you receive on muni bonds, for example, is not federally taxed (although there may be state and/or local taxes). These are typically very safe investments, although the interest rates may not be what you want.

25. Time Your Investment Gains or Losses

Known as tax loss harvesting, this strategy takes planning because you’ll want to ensure that any investment gains can be offset, as much as possible, by tax losses. So you may decide, as just one example, to hold on to a stock that’s lost significant value — selling it at a time when it can offset a stock sale with a sizable gain.

The Takeaway

High earners looking to reduce taxable income have many avenues to explore — some you’ve likely heard of, with others perhaps new to you. For instance, investors may be able to take advantage of tax loss harvesting, tax loss carryover, or tax efficient investing. Consult your tax accountant about your specific situation. And to take advantage of tax reduction opportunities, it’s important to keep careful track of your financial transactions.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How can I lower my taxable income?

If you’re wondering how to reduce your taxable income, there are numerous strategies that might work for your situation. A good place to start: Contribute to a retirement account, open a health savings account, and learn which taxes and interest you can deduct. Talk to your tax accountant about specific questions you may have.

What are the tax loopholes for the rich?

If you’re looking to reduce your taxable income, consider making charitable donations and investigating investment strategies that offset gains with losses.

Do 401(k) contributions reduce taxable income?

Said another way, are IRA contributions tax deductible? Retirements typically offer some tax benefits with specifics varying based on the type of retirement account. Traditional IRAs have different rules, for example, than Roth IRAs.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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If you’re a Canadian age 18 or older, you may want to open a Tax-Free Savings Account (TFSA). Any income you earn on the funds you deposit into this tax-advantaged account is tax-free, even when it is withdrawn.

TFSAs can be opened at almost any major financial institution across Canada for those age 18 or older with a valid Social Insurance number, or SIN. They can be held in cash, mutual funds, government bonds, guaranteed investment accounts, and sometimes even publicly traded stocks.

In this guide, you’ll learn more about TFSAs, including:

•   What is a Tax-Free Savings Account?

•   How does a TFSA work?

•   How do you withdraw funds from a TFSA?

•   What are the pros and cons of TFSAs?

•   What are U.S. alternatives to TFSAs?

What Is a Tax-Free Savings Account?

TFSAs, or Tax-Free Savings Accounts, can be excellent tax-sheltered accounts that allow contributed funds to grow tax-free. That means no taxes on interest earnings, dividends, or capital gains. What’s more, funds can be withdrawn at any time without penalty for account holders. This is a key difference between TFSAs and retirement savings plans, which are designed to be held till a certain age.

If you compare a TFSA vs. RRSP (Registered Retirement Savings Plan), you’ll see that a TFSA allows you to withdraw your contributions and any subsequent earnings over time, tax-free. With an RRSP, a certain percentage of any withdrawals taken out prior to retirement may be withheld.

To look at this from a different angle, any funds contributed into a TFSA can be withdrawn on demand and are not subject to taxation or penalty, as long as all contributions remain beneath your overall TFSA contribution limit. This can make them a smart tax shelter for both short-term and long-term financing needs.

How Do TFSA Contributions Work?

Here’s the scoop on how TFSAs work:

•   Tax-Free Savings Accounts allow you to contribute up to a certain dollar amount each year, which is set annually by the Canada Revenue Authority (CRA). As mentioned above, your funds within the TFSA can earn interest, dividends, and capital gains without being taxed. The 206 contribution limit for TFSAs is $7,000. This makes them excellent financial vehicles when it comes to the important goal of saving for the future.

•   TFSA limits accumulate and carry over every year. This means that your contribution limits (commonly referred to as your “contribution room”) will stack up annually. This holds true whether or not you’ve completed a Canadian income tax return or even have an existing account at the time. In other words, if this year’s contribution limit is $7,000 and you only contribute $4,000, next year you can save an extra $3,000 over the limit to catch up. So if the limit for the following year is $7,000, your contribution room will be $10,000 (adding the $7,000 and the additional $3,000).

•   In fact, you’re allowed to make retroactive contributions for all of the cumulative annual contribution limits dating back to 2009, or when you first turned 18, whichever was more recent.

•   Make sure you keep track of your overall contributions, as accidentally overcontributing to the account can result in tax penalties. According to the CRA, overcontributions are subject to a 1% penalty tax on the overcontribution amount each month until it’s withdrawn from the account.

Contributing to a TFSA

To contribute to a TFSA, you’ll want to first figure out what your current annual contribution limit is and then calculate how much additional contribution room you have from years past where you didn’t hit the limit. By the way, there’s no earned income requirement for contributing to a TFSA.

To help you calculate your total TFSA contribution limit, check this table below that outlines all of the annual contribution limits since the program was established in 2009. You’ll also find a cumulative contribution limit to help you back-date your permitted total contribution amount.

Year	Annual Limit	Total Accumulated Limit
2009	$5,000	$5,000
2010	$5,000	$10,000
2011	$5,000	$15,000
2012	$5,000	$20,000
2013	$5,500	$25,500
2014	$5,500	$31,000
2015	$10,000	$41,000
2016	$5,500	$46,500
2017	$5,500	$52,000
2018	$5,500	$57,500
2019	$6,000	$63,500
2020	$6,000	$69,500
2021	$6,000	$75,500
2022	$6,000	$81,500
2023	$6,500	$88,000
2024	$7,000	$95,000
2025	$7,000	$102,000
2026	$7,000	$109,000

If you turned 18 in 2009 or prior and begin making contributions in 2026, your total contribution room is $109,000. If you turned 18 after 2009 and are just starting to contribute this year, your contribution room will be the sum of the cumulative amounts for all years starting from when you first turned 18.

How to Withdraw Money From a TFSA

When thinking about different types of savings accounts, you may wonder how a TFSA stacks up in terms of how you can withdraw funds. One important point: You can withdraw both contributions and earnings from your TFSA at any time, without fear of tax penalty.

Withdrawals from a TFSA are only logged when you transfer or take savings out of your account. So if you convert your investments into cash and the money remains in your account, this won’t be counted as a withdrawal.

You can withdraw any amount up to the entire balance of your TFSA account. One of the best aspects of TFSA withdrawals is that the amount of any withdrawn contributions is automatically added back to your total TFSA contribution room for the following tax year.

However, if you reach your contribution limit in a given year, you won’t be able to make any additional contributions during that year, even if you decide to withdraw funds from the account. Contribution rooms are only recalculated after the beginning of the following year.

You can typically make withdrawals from your TFSA online; contact the financial institution where your TFSA is held for details.

Pros and Cons of a TFSA

Curious about the pluses and minuses of TFSAs? You’re in the right place.

Pros of a TFSA

Here are the main advantages of a TFSA:

•   Tax-exempt interest and investment earnings: TFSAs are excellent places to park excess savings to earn a higher rate of return without having to worry about taxes on interest and capital gains. These tax advantages can be a bonus vs. how savings accounts typically work.

•   Withdrawal and use flexibility: Unlike RRSPs which may incur a penalty when funds are withdrawn prior to retirement, TFSAs have no restriction on the use of the underlying funds.

•   Contribution limits rise annually and do not expire: This means that you won’t miss out on any opportunities to add to your TFSA, even if you don’t have any income to add to your account in the current year.

•   Wide range of permitted investments: Unlike what the name suggests, funds deposited in a TFSA can be invested in stocks, bonds, mutual funds and other investments as permitted by the issuing institution.(Remember, though, that these investments may not be insured.)

•   Some insurance coverage: Deposits held in cash or GICs are insured by CDIC (Canada Deposit Insurance Corporation) to a maximum of $100,000, which is separate from other holdings by the same customer at the same member institution.

Cons of a TFSA

Yes, there are some downsides to be aware of with TFSAs. Consider these three points:

•   Non-deductible contributions: All contributions to TFSAs are made on an after-tax basis. As a result, TFSA contributions can’t be used to reduce your taxable income.

•   Day trading is generally not permitted: The CRA discourages day trading in your TFSA account. Depending on the frequency and type of trading activities within your account, the agency may declare your investment returns to be taxable business income if you’ve failed to follow the rules.

•   Not bankruptcy-remote: Unlike RRSPs which are protected from creditors, TFSAs are subject to the whims of any creditors that may seek to pull your assets back in court. This means that the funds in TFSA are fair game in bankruptcies.

•   Not always insured: If your TFSA funds are held in the market, they will not be insured by CDIC.

Opening a TFSA in 5 Steps

You can open a TFSA at most major financial institutions in Canada. They’re available at banks, credit unions, and even insurance companies. Some offerings may differ slightly in terms of their permitted investments, so it pays to shop around for the one that best suits your financial goals. Here are the five typical steps to opening a TFSA:

1. Shop Around

Research a financial institution that offers TFSAs; make sure it fits your needs and investing style. The following are the types of TFSA accounts available:

a.    Deposit

b.    Annuity

c.    Trust arrangement

d.    Self-directed TFSA.

2. Apply for a TFSA

Once you’ve decided on the right TFSA, contact your chosen institution directly and apply for an account. You may choose to do this in person or online. In some cases, the choice will be yours; in others, the financial institution will dictate how to do so.

3. Gather Documentation

As part of the application process, the institution (issuer) will ask for some personal information. Make sure to have the following items available:

a.    Birthdate

b.    Social Insurance number (SIN)

c.    Government-issued ID

4. Register Your Account

After you’ve provided all the necessary documentation and are approved, your issuer will register the account as a qualifying arrangement with the CRA.

5. Move Funds Into Your Account

You can then set up funds transfers or direct deposits into your TFSA account whenever you’re ready.

Congratulations, you now have a newly formed TFSA!

Keep in mind that, while there are no restrictions on the number of Tax-Free Savings Accounts you can have, your total contribution limit will be shared across all your accounts. Additional TFSAs will not increase your total contribution room.

All contributions will be reported to the CRA by your issuing institution, so remember to keep track of your contributions to avoid running afoul of the tax rules.

Alternatives to TFSAs Available in the US

If you are a U.S. citizen and are looking for an account that is similar to a TFSA, consider these options:

Roth IRA

A Roth IRA is similar to a TFSA in that it is a tax-advantaged vehicle designed to help you save for the future. Contributions are made with after-tax dollars, but grow tax-free. In addition, withdrawals made after age 59 1/2 are not taxed.

Roth 401(k)

If you are employed full-time, your company might offer a Roth 401(k). This is a savings fund that uses after-tax dollars. When you withdraw from the account after age 59 1/2, the money is tax-free.

The Takeaway

Any Canadian who can afford to should consider taking advantage of a Tax-Free Savings Account. TFSAs are versatile tax-advantaged accounts that can be used for both short-term and long-term savings needs. They provide an excellent tax shelter for your investment earnings that can accumulate over time and be applied to a variety of needs. For those looking for a great savings vehicle, this could be it.

FAQ

Can you lose money in a Tax-Free Savings Account?

Yes, depending on the underlying investments, there’s a possibility that you may lose the principal on your investment. When the principal is invested in securities like stocks, bonds, and mutual funds, it is not covered by the Canada Deposit Insurance Corporation (CDIC). However, any uninvested cash in your TFSA is insured for up to $100,000 under the CDIC.

How do tax-free savings work?

Interest, capital gains, and dividends earned in a Tax-Free Savings Account (TSFA) aren’t taxed as long as you adhere to guidelines set by the Canadian Revenue Agency (CRA). As long as you remain beneath the contribution limits and don’t run afoul of any TFSA rules, earnings from your TFSA account won’t be treated as income.

Keep in mind, there may be some exceptions. For example, dividends earned from U.S.-based equities may still be considered taxable income. You’ll want to thoroughly review and understand the investment guidelines set by the CRA when planning your portfolio.

Is a Tax-Free Savings Account worth it?

Depending on your particular situation and goals, it can indeed be worth it. Your interest, dividends, and capital gains will grow tax-exempt, and you won’t pay taxes on any withdrawals.

What does TFSA stand for?

The letters TFSA stand for tax-free savings account, which is used to refer to a savings vehicle available in Canada.

Are TFSAs available in the US?

TFSAs are not available in the U.S., only in Canada. However, there are other savings vehicles in the U.S. that may provide similar benefits.

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Health savings accounts (HSAs) offer a tax-advantaged way to save for healthcare expenses. You may have access to an HSA if you have a high-deductible health plan at work or purchased an HDHP as a self-employed individual.

For those who have HSAs, it can be common to wonder just how much to contribute. Maxing out your annual contribution limit can help you get the most tax benefit from an HSA. However, your personal finances may not allow you to sock that much away. Here, important insights that can help you determine the right amount for your budget.

Understanding Health Savings Accounts (HSAs)

There are several types of medical expense accounts recognized by the IRS (Internal Revenue Service), including Health Savings Accounts. Several characteristics distinguish HSAs from other options, such as Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), and Archer Medical Savings Accounts (MSAs).

The differences between an HSA vs. FSA, or an HSA vs. HRA lie in who can contribute, how much you can contribute, how your contributions grow, and what happens if you don’t spend down those contributions year-over-year. Here’s a closer look at what HSAs involve.

What Is an HSA?

The IRS defines an HSA as a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. To put it more simply, an HSA is a special type of savings account for those with HDHPs and is funded with pre-tax dollars that is designed to help you pay for healthcare.

Here are the main benefits of an HSA:

•   Contributions are tax-deductible, unlike money you put in a savings account.

•   Amounts contributed to an HSA grow tax-deferred.

•   Funds roll over from year to year, so you don’t have to “use it or lose it” in terms of funds that haven’t been spent at the end of the year.

•   Most HSAs include a debit card, similar to what you get with a checking account, that you can use to conveniently pay for healthcare expenses.

•   Withdrawals for qualified medical expenses are tax-free.

Once you turn 65, you can withdraw money from your HSA for any reason, healthcare-related or otherwise. You’ll pay ordinary income tax on withdrawals that are not for medical expenses.

IRS Publication 502 outlines which medical and dental expenses you can use HSA funds to cover. The list is extensive, though it excludes health insurance premiums.

Eligibility Requirements

There’s one simple eligibility requirement you’ll need to meet to contribute to an HSA. You must be enrolled in a high-deductible health plan.

These healthcare plans must, by law, set a minimum deductible and a maximum limit on out-of-pocket costs for covered individuals. Deductibles for HSA-eligible plans are typically much higher than standard health insurance plans, but you get the benefit of a tax-advantaged savings account built in.

Here are the most recent guidelines, according to the IRS:

•   In 2025, the minimum annual deductible for an HDHP was $1,650 for self-only coverage and $3,300 for family coverage.

•   For 2026, the minimum annual deductible for an HDHP is $1,700 for self-only coverage and $3,400 for family coverage.

Note that just because you have an HSA through your high-deductible health plan doesn’t mean you have to make contributions. But you could be missing out on some valuable tax breaks if you don’t contribute and instead just keep the cash in a bank account.

Recommended: Beginner’s Guide to Health Insurance

HSA Contribution Limits

Both employers and employees can contribute to an HSA, similar to the way your job might offer a company-matching contribution to your 401(k).

But that doesn’t mean the sky’s the limit. The IRS sets the annual contribution limits, adjusted for inflation. Your limit is determined by whether you have individual or family coverage.

Here are the HSA contribution limits for 2024:

•   Individual coverage: $4,300 maximum contribution

•   Family coverage: $8,550 maximum contribution

•   An additional $1,000 catch-up contribution is allowed if you’re aged 55 or older.

For 2026, the limits increase to:

•   Individual coverage: $4,400 maximum contribution

•   Family coverage: $8,750.

•   An additional $1,000 catch-up contribution is allowed if you’re aged 55 or older.

Contribution limits apply to both employer and employee contributions. So, if you have individual coverage and your employer contributes $1,150 to your HSA for the year, you could only contribute up to $3,250 in 2026.

Also, note that you cannot contribute to an HSA if you:

•   Have a flexible spending account (FSA) or

•   Are enrolled in Medicare or

•   Can be claimed as a dependent on someone else’s tax return1

To clarify, you can have an HSA before and after you enroll in Medicare. You just can’t make new contributions to it once you’re enrolled in Medicare.

Factors to Consider When Determining HSA Contributions

If you have an HSA, you may have questions about where it might fit into your larger financial plan. For example, you may be asking yourself:

•   How much should I put in my HSA if I’m still young and healthy?

•   What if I have an ongoing health condition or am concerned I might develop one later in life?

•   What amount should I save if I also want to contribute to my 401(k)?

•   Will employer contributions affect how much I should contribute to HSA?

•   Would saving in an HSA make a significant difference to my tax filing?

There’s no right or wrong answer for how much to contribute to HSA savings. It’s a personal decision that’s based on a variety of factors (as noted above), such as your plan coverage, age, financial situation, and anticipated healthcare needs. For instance, a healthy single 35-year-old with minimal family history of disease and an annual salary of $75,000 may opt to put less in an HSA than a married 45-year-old parent of three children, who has a family history of heart disease, and earns $175,000.

HSA tax benefits are a strong incentive to contribute something to your account, even if it’s not the full amount you’re eligible for each year. As your income grows, you could gradually increase contributions until you’re consistently maxing out your plan.

Strategies for Maximizing HSA Contributions

If you have an HSA, it helps to know how you can make the most of it. Here are some tips for making sure every penny you contribute counts.

•   Review your plan and IRS guidelines so you know your annual contribution limit.

•   Find out if your employer makes contributions on your behalf and if so, up to what amount.

•   Review your budget and other payroll deductions to determine how much you could contribute to your HSA per pay period.

•   Max out your annual contribution limit, if possible.

•   Take advantage of investment opportunities inside your HSA, which may include individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

•   Review your contributions and asset allocations in other tax-advantaged accounts you may have, such as a 401(k) or IRA, to make sure your holdings are well-balanced.

Here’s one more tip. If you have multiple HSAs from previous employers, consider consolidating them into a single account. That can simplify HSA management and you may be able to save on fees or unlock better investments.

HSA Contribution Scenarios

Here’s how you might handle HSA contributions through different life stages.

•   Young, healthy individuals: You might assume that if you’re young and in good health HSA contributions aren’t a must. But consider this: The earlier you begin making contributions, the longer your money has to grow through the power of compounding vs. simple interest.

•   Families with children: If you have kids, you understand the simple truth that they get sick. Sometimes they get hurt. And even if they stay healthy, they still need regular checkups with doctors and dentists. All of that costs money, and an HSA helps you plan for those expenses while enjoying a tax deduction for contributions.

•   Near retirees: As you approach retirement it’s important to think about how your healthcare needs might change. If you’ve faithfully made HSA contributions and invested them you can use those funds to offset any out-of-pocket healthcare expenses you’re responsible for that aren’t covered by Medicare. Using an HSA for retirement can help you avoid having to drain your 401(k), IRA, or other assets.

Calculating Your Ideal HSA Contribution

Online tools, such as savings account calculators, can make it easier to build your financial literacy and manage your money. The same holds true for deciding how much to put in HSA savings. For example, you can use an HSA calculator to estimate how much tax-deferred growth you could realize based on:

•   Coverage type

•   Average yearly contribution

•   Average annual medical expenses

•   Current tax bracket (federal and state)

•   Expected number of years you’ll make contributions

•   Expected rate of return

For example, if you have family coverage and contribute $8,000 a year for 30 years, earning a 5% annual return, your HSA would grow to more than $523,000 over those three decades. That assumes you spend $500 per year on medical expenses.

Playing with the numbers can give you a better idea of how much you could gain from contribution to an HSA.

Common Mistakes to Avoid with HSA Contributions

HSAs offer plenty of benefits, but only when they’re used correctly. Here are some of the most important missteps to avoid if you have access to a health savings account.

Treating an HSA like a savings account at your bank. If you have a high-yield savings account you could technically withdraw money for anything. The worst penalty you might face is an excess withdrawal fee. HSAs aren’t like that and if you’re under 65, you’ll need to stick to withdrawals for healthcare only if you want to dodge a tax penalty.

Not paying attention to employer contributions. If your employer contributes to your HSA, it’s important to know how much they put in. Otherwise, you could be at risk of making excess contributions if you go over the maximum annual limit allowed based on your coverage type. Excess contributions are subject to a 6% excise tax penalty each year they remain in your account.

Not contributing at all. Perhaps the biggest mistake with HSA contributions is not making them if you’re eligible to do so. If you have an HSA at work, it’s an employee benefit, and it makes sense to use all such privileges and perks granted to you. So you might want to go ahead and set up an HSA account and add some funds.

The Takeaway

If you have a high-deductible health plan, it can be wise to consider setting up an HSA. Even if you don’t fully max out your contributions to start, every dollar you contribute and invest can benefit from compounding interest. Over time, your HSA grows in a tax-advantaged way, and those funds come in handy when you need to pay for healthcare spending.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What happens to unused HSA funds at the end of the year?

Unused HSA funds are not use-it-or-lose-it. If you have funds remaining in your account at the end of the year, they roll over and remain in your HSA until you spend them. That’s a major difference vs. FSAs, which require you to spend down contributions each year or forfeit them.

Can I contribute to an HSA if I’m self-employed?

You can contribute to an HSA if you’re self-employed provided you have a high-deductible health plan. That’s the only requirement to save in one of these accounts; you’re not limited based on your tax-filing status or income. You are, however, excluded if you have an FSA, are enrolled in Medicare or can be claimed as a dependent on someone else’s tax return.

How do HSA contributions affect my taxable income?

HSA contributions reduce your taxable income for the year, similar to the way that 401(k) contributions do. That means you get an instant tax break when you make contributions, even if you don’t plan to use any of your HSA funds right away.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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