1. Pre-tax 401(k)
One of the easiest ways to reduce tax is by contributing and maxing out pre-tax 401(k), which is an option available to most employees. Every dollar we contribute to our pre-tax 401(k), up to a maximum of $19,500 per person per year in 2020, directly reduces the amount of W2 wages/income and our taxable income. That means by maxing out both our pre-tax 401(k), $39,000 of our income will not be taxed now. Even though these contributions will be taxed upon withdrawal in the future, we'd rather cut our tax bill now when we are at a higher tax bracket, and pay (or avoid) the taxes in the future when we are at a lower tax bracket. 


2. HSA
Since I'm enrolled in a High-Deductible health insurance plan at work, I have access to a Health Savings Account (HSA), a tax-efficient savings account. Similar to the pre-tax 401(k), every dollar I contribute to my HSA accounts, up to a maximum of $3,550 in 2020, directly reduces the amount of W2 wages/income. These contributions are also not subject to federal, state, social security, and Medicare taxes as long as they are used for qualified medical expenses.​ Mad Fientist has a good post that explains more about the tax benefits of HSA.


3. Diversify for future withdrawal
Consistent with our investment strategy, we also diversify where we invest our money based on the tax implications of various investment accounts upon withdrawal. There's a high likelihood that we will need to start making withdrawals before the standard retirement age of 59.5 so we need to start planning ahead with considerations of penalties and tax impacts. The ultimate goal is to avoid penalties upon withdrawal and pay as little tax as possible on our income, now and in the future. 
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