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Message
Should I direct money to 401k or HSA?
Posted on 6/6/23 at 2:36 pm
Posted on 6/6/23 at 2:36 pm
I have several investment/savings vehicles I use.
For retirement I'm maxing out a Roth IRA, contributing to a 401k with a match, and contributing to an HSA (invested) at the max amount.
In addition to that I also have a regular Fidelity account for investments and a high yield savings account for larger purchases. I almost never touch the fidelity and dip into HYS about 6 times a year for larger purchases.
On the retirement side, obviously the roth/HSA are maxed, but the 401k isn't so that's where my future increases go. My plan is just to keep increasing the 401k until I hit the max and figure it out from there.
But should I re-evalutate and put less towards the HSA and more towards the 401k? My understanding is with the HSA, once I'm at retirement age, I can use it like a retirement account and pay tax on it like it's income, but also can use it for medical expenses tax free. The 401k obviously doesn't have that benefit. I just want to make sure there's nothing about the 401k/HSA dynamic that I'm misunderstanding and if I should direct some HSA money away from that and towards the 401k.
For retirement I'm maxing out a Roth IRA, contributing to a 401k with a match, and contributing to an HSA (invested) at the max amount.
In addition to that I also have a regular Fidelity account for investments and a high yield savings account for larger purchases. I almost never touch the fidelity and dip into HYS about 6 times a year for larger purchases.
On the retirement side, obviously the roth/HSA are maxed, but the 401k isn't so that's where my future increases go. My plan is just to keep increasing the 401k until I hit the max and figure it out from there.
But should I re-evalutate and put less towards the HSA and more towards the 401k? My understanding is with the HSA, once I'm at retirement age, I can use it like a retirement account and pay tax on it like it's income, but also can use it for medical expenses tax free. The 401k obviously doesn't have that benefit. I just want to make sure there's nothing about the 401k/HSA dynamic that I'm misunderstanding and if I should direct some HSA money away from that and towards the 401k.
5
Posted on 6/6/23 at 3:02 pm to jlovel7
quote:
In addition to that I also have a regular Fidelity account for investments
You could put the additional cash flow you're using to fund this towards the 401k. Otherwise, you are understanding the HSA correctly.
Posted on 6/6/23 at 3:05 pm to jlovel7
quote:
But should I re-evalutate and put less towards the HSA and more towards the 401k? My understanding is with the HSA, once I'm at retirement age, I can use it like a retirement account and pay tax on it like it's income, but also can use it for medical expenses tax free. The 401k obviously doesn't have that benefit. I just want to make sure there's nothing about the 401k/HSA dynamic that I'm misunderstanding and if I should direct some HSA money away from that and towards the 401k.
That is my understanding, including being able to pay for dental expenses with tax free withdrawals. If you pay cash out of pocket for health/dental expenses and retain receipts you can likely use those to take money at a later time from the HSA as well to free up cash if needed. Depending on your situation if your employer offers Roth option in the 401k you could contribute to that as well.
Posted on 6/6/23 at 4:21 pm to jlovel7
401k to company match, then HSA, then Roth IRA, then max 401k, then taxable brokerage account.
This post was edited on 6/6/23 at 4:22 pm
Posted on 6/6/23 at 4:43 pm to jlovel7
quote:
But should I re-evalutate and put less towards the HSA and more towards the 401k?
No, don't do that. HSA is the only investment vehicle that is triple tax advantaged. The only reason to not max out HSA is if you couldn't put enough toward your 401k to get the full match.
Posted on 6/7/23 at 8:08 am to gpburdell
^^^ This^^^
As Tirebiter mentioned above, just keep medically related receipts (in a safe, accessible place) and make those future, inevitable HSA withdrawals completely tax free. No way I would divert money from an investable HSA to put into anything else, once I had the 401K company match.
As Tirebiter mentioned above, just keep medically related receipts (in a safe, accessible place) and make those future, inevitable HSA withdrawals completely tax free. No way I would divert money from an investable HSA to put into anything else, once I had the 401K company match.
Posted on 6/7/23 at 10:21 am to Jag_Warrior
HSA if taken out of paycheck is also free of FICA saving 7.65% of taxes right off the bat.
Posted on 6/7/23 at 1:18 pm to lynxcat
quote:
401k to company match, then HSA, then Roth IRA, then max 401k, then taxable brokerage account.
That’s basically the path I’m on. Probably will be a while if ever I’m able to max a 401k. I’m doing well now and continuing to go up but shite happens and this doesn’t factor in kids. But I’m in a good position relative to my peers.
Posted on 6/7/23 at 9:04 pm to jlovel7
I've pretty much done the same as you with the caveat that when I started my career I maxed the HSA, then contributed the max match to my 401K, going up one percent every year. That was a decade ago, while I haven't hit the max contribution amount, I'm getting pretty close. So there's an option for you if you'd like, I'm not sure where you are career wise though.
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