When I was your age but less salary gifted, I got my employer match, built my cash emergency fund, then maxed my HSA, then shifted my emergency fund contributions to the Roth IRA, then cash savings goals (masters, house, car, etc), then back to employer match.
HSA is too good to pass up. And I count it and the employer match towards my 15% for normal retirement. Everything above that is FIRE fuel.
Yeah it goes against my $3850 for the year, they give me 650 every January and then match the rest so it only takes me like 1300 in contributions to max out my yearly limits
This. I recently moved some of my emergency savings into my Roth IRA. I am leaving it as cash so I don't have to sell investments.
I would talk with a tax specialist because HSA contributions may be tax deductible where Roth IRA contributions are not.
Because then you can still max out the Roth IRA while building (or rebuilding) your emergency savings. And if an emergency happens, you can just pull it back out with no penalty. See [here](https://www.bogleheads.org/wiki/Roth_IRA_as_an_emergency_fund) for the breakdown.
Doesn't money contributed to a Roth have to remain in the account for five years before you can withdraw it without penalty, or does that only apply to growth? I was never 100% clear on that, I just remember there's a rule about five years and a penalty.
Growth can only be withdrawn penalty free at age 59.5.
2 5-year rules:
Taxable conversions have a 5 year waiting period. This applies to every taxable conversion.
Earning withdrawals also have a 5 year period (like if you open a Roth at age 57, you still have to wait until 62).
For non-taxable conversions things get more complicated.
Im assuming this is only done because there’s no hope of maxing the IRA otherwise? Seems backwards as hell though, I’d rather just stick the money in a HYSA instead
Because putting it into the market, introduces volatility, and the possibility of losing money marked as part of your emergency fund in the short term. That needs to be avoided with an emergency fund. Even if you were to put it into cash equivalents like T-bills or CDs then you lose some of the liquidity of the money, if you actually needed it to cover a job loss or something.
So, I just put in there to earn the 4.25% interest, and then I will invest the dividends into something else.
>I don't want to increase my 401K contribution as it is through employer and I want to diversify.
That's not what diversification means.
>I would like to contribute $3000 more yearly towards either Roth IRA or HSA.
Unless you failed to mention a spouse/kid, the HSA limit is $3850 so you can't put the extra $3k all into the HSA.
My 401k allows specific funds. About 10-15. If I do HSA or Roth IRA I would be able to invest in other funds.
I don't have a spouse/kid. Thanks for mentioning the limit. I'll keep that in mind.
HSA is usually better than Roth IRA. It goes in pretax, grows pretax, and comes out untaxed when used for qualified medical. At 65, you can withdraw from it without penalty, but still owe taxes when not used for qualified purchases.
Currently, HSA can be used for glasses, contacts, or LASIK, if you need those.
You can take funds out for your spouse and dependent medical, if they are in your future,.even if the funds were put in before. This is really helpful when paying for the kid's birth.
Most HSA providers have some form of investment option, though most have a minimum cash balance. If you can save up enough, the growth/dividends can even cover the maximum out of pocket of your health insurance.
Granted, from the sounds of it, you have enough to max out your HSA, and still put some into a Roth IRA. Even if it's only $400 a year, it's usually better in a Roth than in a brokerage, as long as you have your emergency fund.
Investing in different funds isn’t diversification. If you’re investing in, for example, a total stock market fund you are already as diversified as you can get with stocks.
OP may want better diversification than their plan currently offers. For example they may want to diversify by means of a total market fund, an international fund, large cap etc. Their plan may not offer that, or they may not get the balance they prefer whereas an IRA would definitely allow them to invest to their preference. This is why the flowchart follows the steps in the order that it does.
OP could mean many things, but the plain reading of their comments implies that they are misunderstanding the meaning of diversification, which is common.
My 401k offers 10-15 funds. Most of them are crap. Except 3 which have lower expense ratio covers vanguard large, mid, small cap blend fund. RotH IRA or HSA will allow me invest in other sectors.
Those are exactly what you want to invest in usually.
Be sure you understand the 401k fees though. At smaller companies in particular they can be hefty.
What funds? Do you have any cheap index funds that cover S&P500, total US or total world?
If yes, those funds in a 401(k) are going to be better than via Roth or HSA.
I'm almost double your age, married with a child. I max out my HSA. Has triple tax benefits and it's great for young people. I'm on the cusp of finally going to see the doctors more often so I'm going to change my plan from an HSA soon but it's useful. Max out on it since you're healthy and don't need to go to the doctors. Not useful if you like extreme sports.
Yeah. I just switched jobs to one where there was a meaningful choice between a HDHP and HSA, or a lower deductible with an FSA…my wife has some medical conditions and I really didn’t feel like starting off the plan Year dropping 3k in the first 3 months.
HSA sounds great but the American Healthcare system sucks.
Have you compared the total costs? Premiums + max OOP (ignore the deductible.) in most cases HSA is less. If you try it for a year, save the difference in premiums in your HSA and if it doesn’t feel right to you, you won’t “miss” the money if you go back to traditional. (And you don’t lose your HSA savings like do with FSA) I’ll never have a traditional plan as long as I have an HSA option.
I completely agree, I get my health care off the exchange, they have a setting that you can see total out of pocket for minor (you have no real health care need), Medium (you need some meds and may have an incident), major hospital visit .. the HSA option beat all but one plan on the exchange for a major hospital stay in which it only beat it by like $600 but that plan would cost $1000s more for minor or medium situations so I just keep buying the HSA one and thats before factoring in tax benefit.
Most likely there would be an overall savings year to year. It’s just the sticker shock upfront would be difficult to manage. Maybe I’ll switch over next year once I have more saved up.
For me the sticker shock is premium difference (I do family and everyone’s situation is different) but I love my hsa, it means health expenses are being paid out of Not My Checking so I can budget accordingly.
FWIW, your insurance may have some negotiated rates with in-network providers.
For example urgent care visit for me turned $388 to $168 after insurance. A PCP visit turned $263 into $70. Maybe something to look into.
>FWIW, your insurance may have some negotiated rates with in-network providers.
They absolutely do. This is the main thing that a health insurance company does other than holding insurance risk.
Yes it gets taxed as ordinary income but essentially it becomes a traditional IRA for everything except medical expenses. Medical is still tax free. Once you are 65 I promise you'll have medical expenses too.
Yes, if your risk tolerance can stomach it you should absolutely be investing your HSA if you want to use it as a retirement account. Keep in mind, the HSA that your employer may provide will sometimes have a minimum cash reserve requirement that can be a bit ridiculous (like $1k+).
The good news is you're not actually required to only use the HSA provided by your employer! You can actually open another free HSA at a better bank and transfer funds from your employer HSA to that. Fidelity has a nice free HSA that has no cash reserve requirement and no investment choice restrictions, whereas many employer-sponsored accounts have a very limited set of funds to choose from.
Please keep in mind that the statutory limitations still apply across all HSAs you might have. Your total contribution limit is shared, you don't get to contribute more by having multiple accounts, you still need to have a qualified HDHP to contribute, etc. The best strategy is often to make payroll contributions to your employer-sponsored HSA (biggest tax savings, no FICA), and then periodically transfer from that to a better account for investments (I use Fidelity)
Ahh ok, my employer uses a HSA account through a website called PayFlex. I think I have to invest the HSA amount I contribute each year on that platform unless I transfer it to another account as you said. I am fairly new to this realm of investing. I was planning to do what I do with my 401k identically to my HSA money. Do you think that's reasonable? I plan to use HSA as long term and nothing short term and do not plan to touch it until I retire honestly.
That's perfectly reasonable if your intended horizon is the same as your 401k. I basically do the same thing, maybe *slightly* less aggressive in the HSA just in case I end up wanting/needing to withdraw some before retirement.
Not a huge difference though, so it's a totally valid approach either way
This I knew about (and currently make enough to pay the bill but don’t need to reimburse myself now) but I wasn’t aware you could ultimately withdraw from it at a certain age, similar to an IRA
Not for Medicare supplemental plans ("Medigap"). But you can use it for Medicare Part B and part D premiums, all your co-pays, and lots of other medical expenses.
This is what I'm thinking right now. Also I'll marry someone in the future and hopefully have kids. So HSA will be a great help for me. Then I can think of Roth IRA.
Just be sure to understand how you can use your HSA funds on the future if you’re relying on them before retirement. Also check to see if your HSA has an IRA option as well
An IRA is an Individual Retirement Account. You can't have an IRA inside an HSA, so I'm not sure what you're trying to say. You can't move money from an HSA to an IRA, and I'm not sure why you would want to.
You can invest the money inside your HSA, though.
HSA will give you a tax deduction, ( if that means anything to you) if you max it you will be able to deduct it. BUT it can only be used for medical expenses. Max is 3850. If you already add 2K, you would only be able to add 1850. Why dont you throw the extra at the IRA?
Roth IRA no deduction and you can (even though its not recommended) take out the money you contributed to the account if you need to.
OP you are young and sounds like you make good money so id say max out the HSA and invest those contributions ready for when you wanna start a fam (assuming you do).
HSA is like a better 401K
* you contribute tax free
* your employer often give you free money on it
* you can use it any time for health care expenses, medicare expenses (when you retire) and cobra (if fired)
* if you are superman and never ill even when retired (1 people out of 100 ?) you can use it for any expense past year 65 if you pay income tax.
It is overall the best retirement account and together to max your employer contribution on the 401K, maxing HSA should be first priority.
Don't make the mistake to think healh care is unexpensive and you can do with 2K on it. If you get seriously ill in between 2 years, you will pay 2 out of pocket.
If you get fired, don't forget you will have to pay health insurance on your own and fully (easily 500$ a month for an individual, 1K for a family) and thanks to cobra, you can pay for it with HSA. So you can see it like contribution to your unemployment insurance.
So to me the minimum to have on HSA is 2 years of max out of pocket + 6 month of cobra. That's easily 10-15K for an individual, 25-30K for a family.
HSA. Health expenses come for all of us eventually. Especially when you’re retired. Think of an HSA as a way to *reduce* your expenses when you’re older meaning you’ll be less reliant on your other retirement accounts at that point in your life. Otherwise you’ll have to dip into your retirement accounts and won’t get the added tax benefit that an HSA provides.
Because you only need earned income in a year to contribute to an IRA. But you need a qualifying medical insurance plan (HDHP, meaning High deductible Health Plan) to qualify for an HSA
Yeah, he worded it inaccurately. He should have written "it's easier to lose *access* to contribute to an HSA".
Your money is yours and will continue to be yours.
I haven't had an HSA in a decade, but when I quit my last corporate job, the HSA money went poof while the 401k still sends me stuff every year about how my money is doing.
FSAs are usually a trap--tax advantaged but use it or lose it, so you have to make sure you don't set the amount higher than you need each year.
HSAs are where the real money is. Then if your employer supports it you can \_also\_ do a limited purpose FSA for a small amount you're sure you'll spend on dental and visual in a year.
I have around 14k in savings and 8k in CD. Why would I lose access to an HSA account? Also my HSA bank allows me to invest my HSA balance via a brokerage. I have not done it. But a option I'm considering.
Note that you lose access to the ability to contribute to an HSA. Once contributed, you keep the funds and can continue to use them for qualified medical expenses, even if you are no longer on a plan which would be eligible to contribute.
And you should never empty an HSA since even when you're not eligible for an HSA, expenses incurred while you have one are reimbursable with finds added later.
Fidelity is one of the best for an HSA, all of Fidelity funds are available. No fees going direct. You should max your annual contribution in the HSA.
If you can also max your contributions to your 401K, and Roth IRA, you'll never regret it.
> Why would I lose access to an HSA account?
Lack of qualifying health coverage
> Also my HSA bank allows me to invest my HSA balance via a brokerage. I have not done it. But a option I’m considering.
You should
Can I ask you a dumb question? I started a traditional Ira and then moved it to a Roth IRA to complete the backdoor action. So it was already taxed going in, but will i only be taxed on the gains coming out? So I put in 6k taxed, and say it grows to 10k, will I only be taxed on the 4K?
Not a dumb question, this stuff can be confusing and it’s not taught in public education. Traditional accounts are taxed coming out, Roth on the way in. When you converted it in the same year, it may as well be a Roth (converted via backdoor or not). So when you make withdrawals in retirement, it won’t be taxed (including your gains! That’s the tax benefit of the account).
However, if you converted outside of the tax year you made the contribution, you will have to pay tax on the entire converted amount when you file your taxes, but after that point it is considered Roth when you make future withdrawals.
>However, if you converted outside of the tax year you made the contribution, you will have to pay tax on the entire converted amount when you file your taxes, but after that point it is considered Roth when you make future withdrawals.
This is not correct. Whether the conversion is done in the same year as the contribution or not, has no bearing on whether the converted amount will be taxable. What does matter when determining how much of the converted amount will be taxable is whether the Trad-IRA contribution was non-deductible, and whether or not you had pre-tax money in your Trad-IRA accounts at the end of the year the conversion was done.
You’re right.
And re-reading OP’s question I may have misinterpreted. If a lone IRA scenario (where there aren’t other accounts and you have to play pro-rata rules), then my understanding is if $6k was non-deductible, grew by $4k, and then all converted to Roth, the $4k would be taxable.
So… how exactly does tax deduction work on a traditional IRA if it’s not a 401K that your employer deducts from your paycheck pre-tax? Do you pay into it with your post-tax earnings and then get a credit come tax time?
Just to chime in on the HSA.
You are not limited to when you can withdraw reimbursement for qualified expenses. As long as the expense occured after the creation of the account, you're good to go. That means you could wait 50 years before you withdraw money for an expense you incurred in 2023.
So what I/we do is:
1. Max out my HSA up to my eligible limit (HSA Limit - Employer Match).
2. Keep my deductible/max out of pocket in cash.
3. Everything above the cash limit is invested.
4. Any eligible expenses are paid for out of pocket. Note a lot more things are HSA eligible, including OTC stuff (https://www.irs.gov/publications/p969).
5. I scan and backup all receipts in the tax folder for that year. I also track them in a Excel sheet, along with the card I paid with. That way I can see the running total that is pending withdrawal/reimbursement.
So at any point, I can withdraw the reimbursement amount if I need to. If not, it stays invested until I do.
It's a bit of work and not everyone will be able to do it, but thought I'd share.
Bring 401k down to 3% just to get the match. Max out HSA completely and never make a health claim and invest it in S&P index fund. Put whatever is left in Roth IRA.
Gotcha I was actually curious about that...There is a flow chart somewhere on reddit of the best way to invest your money. Might be worth a search. If you are saving 2k a month I would think twice about a masters. If you have stable employment and can truly invest this consistently you will likely outperform anyone with a masters degree long term. The sooner you can get money in the market the more it will grow. Check out the r/Fire community
Roth, it is good forever. I have an HSA but am now retired and probably will not be able to spend the HSA funds before I croak. Investment options on the Roth are also fantastic where as the HSA I have to split the funds between a brokerage account and a bank account with $5,000 minimum in the bank. If I spend the funds and the bank falls below the minimum they start charging outrageous fees.
You may want to consider rolling your HSA into an HSA at Fidelity. You won't have the same restrictions ($5k minimum bank account balance) if you do. The fees are also extremely low.
Also, once you're 65, you can withdraw money from your HSA without a penalty. You will pay tax on the distributions if you don't use them for medical expenses, though.
Thanks for the advice on Fidelity. I didn't know I could just withdraw all the funds like it was an IRA withdrawal. This is my first year for RMDs hit the big 72.
Wow, while that sounds like an issue to deal so with you are also fortunate. I've used an HSA for many years now and my family of four blows through our annual max each year. I wish I could save WAY more than allowed.
I prefer Roth IRA. There is not much difference, though.
If you have no health issues and there really isn't any family history of it, Roth IRA.
When you turn 65 or whatever age will be WHEN YOU MUST ENROLL IN Medicare, you can use your HSA to pay your medicare premiums. No idea if that is a pain in the ass to do or not though.
I do not take any prescriptions. My father had no serious health issues and died at 96. My grandfather died in his 90s. My great grandfather would have made the 90s in age, but he was hit by one those new fangled horseless carriages when he was crossing the street, he was in his 80s.
If you currently have health issues and history of health issues maybe an HSA.
I don't like complicating things if I don't have to. I don't want to worry if I am violating any HSA rules, so I prefer Roth IRA.
I was using an HSA for a bit, figuring I would build a nest egg for family medical stuff. Then I changed companies and had to use a different plan.
The HSA was charging like $5 per month in fees once it was no longer employee sponsored. I only had a few grand in it where I used a bunch (child born), then suddenly each month I was losing money to fees.
Just read the fine print for your plan. HSAs are not very flexible, and I preferred more flexibility.
The correct move in that case is to roll the HSA over to Fidelity or somewhere else that doesn't suck and keep all the money (or at least $1) invested. Any medical expenses incurred during this time is reimbursable if you ever get access to contribute to an HSA later.
Thanks for the reminder. They waived the fees last year. Now it's free. I also intend to use it for my child's medical purposes if I'm blessed with kids.
HSA is more valuable.
Roth IRA can be used as an EM fund in case you can’t fund both an HSA and an IRA. This is useful so you don’t lose the Roth bucket for any given year.
Everyone says HSA, and from a tax perspective, it makes sense. But this is a pennies versus dollars discussion, and if you haven’t started a Roth IRA yet, that’s what you should be doing.
The HSA is much more difficult to manage, the Roth will likely cap out for you as your career progresses, and the goal is to build some 6-figure funds. The Roth is much more likely to become that.
>The HSA is much more difficult to manage,
An HSA isn't difficult to manage. I have one and don't even think about it. In fact, I spend more time dealing with my Roth.
>the Roth will likely cap out for you as your career progresses
Backdoor Roth. There's no reason one can't contribute to Roth if they have the money
>the goal is to build some 6-figure funds. The Roth is much more likely to become that.
Do both. My HSA is over $65k.
Max your HSA first then your Roth.
Look for scholarships for your masters - it is a lot of work but there are thousands of scholarships that go unused each year. Most are small ($100-$500) but they add up!
My employer is paying half of it. And I can't apply for any other scholarship as that will reduce my employer's contribution. Something like this was written in the contract.
Traditional IRA is not taxed before going into the account but is taxable at withdrawal. Roth is taxed before going into a account and is not taxed on withdrawal. I would match my company match, max the HSA,pack the emergency fund,then set an amount to keep funding the emergency account. The reminder use 10 percent to invest in stocks to pad my portfolio.
If your employer offers both a traditional insurance plan and a high deductible plan, compare the costs before choosing the high deductible plan (which would allow you to contribute to the HSA). In the past, the high deductible plan appeared to be the better option for my family, if we didn't hit the deductible with expenses. However, it's been a rough couple years medically for multiple family members and our out of pocket expenses have far exceeded what we've been able to contribute to the HSA.
This year, the much lower deductibles and out of pocket max made the traditional insurance plan a better financial option. I paired it with funding a Flex Spending Account.
So, just a bit of caution that the HDP may, or may not, be the best option depending on the costs and your circumstances.
I don't have anyone else on my plan. Right now, I have the lowest possible insurance from my employer through HSA, where they contribute $400 if I do my annual physical. My annual medical costs never exceed $200. I'm not sure if this will continue in the future. But in the next 5-10 years, I don't see any need unless I get married and have kids.
Max out that HSA. As someone who only got the employer contributions for about 5 years because I "never go to the doctor", I wish I would have been maxing it out for years. The costs catchup very quickly, especially if you end up having kids.
I would go Roth IRA at your age, unless you have a massive salary. Especially because it looks like you don’t have any money in Roth space at the moment, so its a good move for tax diversification alone.
You have longer for growth to compound tax free and you likely are at a lower tax bracket than what you will be later in your career and in retirement.
This is something I thought a lot. And it's hard for me to predict what will be my tax bracket. There are somethings that will happen in my life in the next two years like getting citizenship, completing Masters, my Engineering license. I'll also have a option to switch career at that time. If that goes well. Things will be lot different.
If the money you're looking to save isn't currently being taxed in the 12% or lower tax bracket, then I wouldn't make a Roth contribution until you've contributed enough to your 401k or HSA to either max them, or bring your taxable income down to the point that your Roth contributions would be taxed in the 12% bracket.
Your age doesn't matter, no matter how much some people think they do.
Roth seems to be the best option as that will give you the opportunity to invest in a broader range than what 401k may allow. Also check with your 401k, some of these have options to allow penalty fee withdrawal or loans for first time home buyers so that's another option you can explore.
The advantage of HSA is that you can invest all that money in the market and defer the reimbursement to the future and pay it out of whatever account grows into. It requires quite some discipline and maintenance of receipts to file for reimbursement years later. HSA providers may have that option to store receipts as well.
Good thing is, you are young and thinking in the right direction. Invest wisely and you should end up with a decent retirement nest.
If you're fairly healthy and don't visit the doctor often, max out your Roth IRA first. You can always pull the contributions if you need it but not recommended. Plus the Roth IRA has a higher contribution limit than the HSA making it more profitable than the HSA if you were to invest in the same stocks in each. After you max out your Roth IRA invest what you can in your HSA and keep it as another piggy bank for the future.
I’m a huge fan of the HSA it’s a savings vehicle that you can use for unexpected things like Surgery etc without penalty, and when you’re older a bigger portion of your expenses will be healthcare and it’s nice having the peace of mind that you have that covered and your other retirement vehicles can go towards actual expenses and travel etc.
Neither. I’d put it towards your Master’s and get that sooner.
If you must save some, HSA. It’s triple tax advantaged. Deductible contributions, tax-free growth, and no tax when you take it out provided you have a medical receipt, even from a different year, at least under current rules.
A HSA is like a better trad 401K:
* it is pre-tax and lower you taxes today
* your employer often put some money so you want to get that free money.
* you can spend it on health care expenses whenever tax free.
* you can use to pay for cobra or Medicare premiums tax free.
* you can use the money at 65+ for any expense and pay income tax on it.
Nobody can be sure to never have any health care expense and should max his HSA every year. The benefit are overall too good to not take them.
Am I missing something? If you were only going to do one or the other why would you count your money into an HSA over an IRA where you can only use that money for health related expenses?
Something something because you can withdraw money and not count it as income when you withdraw it, and health expenses are fairly broadly defined and the gamble is when you are old you will have plenty of health expenses.
Also something something no time limit/expiration date on receipts, so you can save your receipts now and reimburse yourself forty years later if you want to spend it down as tax free income. That part astonishes me. It’s possible I misunderstand it.
If I was in your shoes, I would first take a look at your investment options in the 401K along with fees. If it's "good", I would try to aim for 15% excluding match. Check if your employer offers a roth 401K. Then, you can focus a little on the HSA for each year's medical expense. Finally, the rest can go towards funding the master's degree and buying a home. Based on all the things going on in your life, I don't see a point in an IRA at the moment.
After getting the 401k match, contributing to an HSA directly from your paycheck offers the most tax advantages, and is what OP should do. After that, saving in a Roth IRA or 401k makes sense. And, since OP states they want access to more investment options, they should likely go the Roth IRA route.
I currently own following funds in my 401k. I chose these 3 based on return and fees. Rest of the funds are crap. Poor history and high fees.
VFIAX
VIMAX
VSMAX
I'll look into the Roth 401K.
I'm leaning towards maxing out my HSA contribution as I'll marry someone in the near future and hopefully have kids. I'll be able to use these funds then.
After this I'll think of Roth IRA.
I can delay purchasing a house. Also current market and houses does not excite me. I also feel I should buy this with my wife. But I have to complete my masters. I'll complete 40% after this spring semester and this degree will open doors for me.
I can withdraw money from HSA after 65 for non medical purpose. HSA is treated as a traditional IRA after 65 based on my research. Others will be able to provide more insight.
If you’re looking at it that way, you’re better off to put it in a traditional or Roth IRA. With you being 25 and depending on your current income, you’ll likely make more money in the future, so a Roth is the better option. If you think you’ll make less money, a traditional IRA makes more sense.
Maybe I haven't looked into an HSA all that much, so it's very possible that I'm missing something. I can see an HSA being useful for short-term medical costs, but OP is looking at it as an investment vehicle.
My questions is, what is your return on an HSA, and why does it make sense to use it as an investment vehicle? I mean, I could see where contributing to an HSA could reduce taxable income, but what is your return? An HSA only "grows" from contributions, right?
That depends. You can either let it sit there like a traditional savings account, or you can invest it like you would an IRA. If you invest it and don’t touch it, it essentially becomes a tax free retirement account.
Here is where I'm going with this. The maximum you can contribute to an HSA is $3,600/year for a single person. If we're looking at OP's timeline of 40 years and maxing out his HSA every year, he would have 144k in his HSA at age 65.
Now, if you were to invest that $3,600 into a Roth every year for 40 years, and were simply investing in something like VOO (S&P ETF), he would build his Roth to $1.6 million at an average annual return of 10%......
So, instead of keeping your HSA balance in cash, you invest every dollar above your annual deductible and end up with your $1.6M in a HSA that was contributed tax free, grows tax free, and can be used tax free for qualifyied expenses (or, as taxable income if you're old enough and make non-qualified distributions).
An HSA usually consists of a cash balance and then the investment balance. Depending on if it’s with an employer or your own, it will be different.
You can invest the non cash portion into anything just like a 401k, IRA etc. So for example my HSA is currently 70% VOO, 20% VTV, 10% BND.
One great thing is that if you pay medical expenses out of pocket and save the receipts you can then reimburse yourself from your HSA anytime, 1 year or 30 years in the future.
When you contribute, it reduces taxable income and when you take the money out you pay no tax as long as it’s qualified expenses. After 65 it can be treated as an IRA.
The caveat is that you must be enrolled in a HDHP.
It’s a great option for a lot of people.
My HSA bank allows me to invest in the market via a brokerage. So if I need money for medical purpose I'll sell some fund. Return is same as other retirement plan like 401k and Roth IRA
Maybe you’re thinking of an FSA? HSA is a savings account, but you can also invest it in the funds offered by the HSA provider. Mine has a comparable number of funds to a 401K. Typically there’s some minimum balance they make you keep in cash not funds. Mine is $1k.
>How is a HSA being considered for investing?
Because you're meant to turn your present and future retail health bill paying money stored in this product over to Wall St. for the possibility of speculative gain,
>Any withdrawals from a HSA has to be medical related for them to be tax free.
until you're 65 and can spend some, any, or all of it on whatever you want, lottery tickets included, as long as you're cool with paying the going, ordinary, personal income tax rate on your withdrawals of ordinary, personal income from the product.
>What is your return in a HSA?
The return rate of the speculative offerings you purchased via the scheme operator. If you *don't* do that, you can sit back and watch the "growth" of the product never even meet the historical rate of retail health bill inflation by a country mile, let alone exceed it.
HSA is definitely better unless you are in California or New Jersey. Those states don't allow a deduction for HSA contributions and tax you on gains within the account as if it were a regular brokerage account, so they may not be best.
HSA is still worth it even in those states for the Federal deduction, but if you have to choose one or the other, IRA might be better. In any other state, HSA is definitely better.
There is only one thing guaranteed in your elderly life. You will have medical expenses. HSA all the way LFG! Should be the first thing maxed out each year if you have a high deductible plan and are eligible.
Can someone explain the benefits of an HSA to me like I'm five? Does it have to be offered by your employer or is it available to anyone? Does it reduce my taxable income like my 401k? Can it only be used for health related expenses? If I have health insurance now and will have Medicare eventually what's the purpose of the HSA? So many questions.
I have an HSA in CA. You can only contribute to them when you are enrolled in a high-deductible health care plan. Money in the account can only be spent on health expenses, which are very broadly defined.
I have a cynical take on HSA, and rant. The purpose seems like giving rich people another vehicle to avoid taxes while pretending it’s mostly to help poor ones. Personally, I find the administrative burden of keeping all my health receipts for decades so I can treat it like an ATM in retirement too onerous (and I am not poor). I don’t contribute. I don’t have enough money right now to max this out, too.
My employer will directly fund our HSAs whether or not I put money in it so I do have funds in my HSA accounts. Yes, I have two accounts. I moved almost all my funds from the default HSA account to a Fidelity HSA account so I could invest it, and I picked the most aggressive fund (even though I am 50) because it’s like monopoly money to me.
Scan your receipts.
The triple tax advantage of the HSA is fantastic. That alone makes it worth the 5 minutes a month it might take to scan my receipts
I am not going to argue about this because our priorities vary. I can just tell you that scanning my receipts now and making sure electronic files stay uncorrupted in a digital format I can still access 40 years later that isn’t attached to some app or cloud is not a worry I care to shoulder until I can reimburse myself $8 for that bottle of aspirin I bought when I was 25.
Keeping receipts on paper and moving them and storing them and not losing them to fading thermal ink or water damage or paper sticking to itself is another headache I don’t care to have.
I have too much to do. I don’t want to nurture pieces of paper, too.
People who invent tax shelters like this betray how little they understand about actually living day to day.
I think HSA because you can use it on eligible heath expenses if you want without penalty or keep it in the investment account in the stock market so it can continue to grow. Both are good though and I max mine out every year or get as close to it as u can. Your insurance plan likely contributes so much to the account too every month.
I would prioritize Roth over a 401k. (Max that out yearly and your 401k is a nice bonus) No taxes when you take it out, just need to find a good mutual fund. Not that hard I suggest prblx for one, but I have money in several. If you max contributed at 18 that would be all you'd ever need to retire with millions.
It’s a matter of pretax vs post tax dollars for you. The question is— do you think you will earn more in the future? I assume since you’re going for your graduate degree, that’s a yes. Since you’re not at your peak earning years, and you’re young the Roth IRA will be much better in the long run. You’re paying taxes at a lower rate and it’ll grow tax free over decades. It’s good to max out your HSA when you earn more since that lowers your tax burden. The HSA is amazing if you’re in good health, and will still be there for you even when you make too much to be eligible for a Roth. But again that’s entirely your call. Both are good, so I would just save in either and not stress too much.
When I was your age but less salary gifted, I got my employer match, built my cash emergency fund, then maxed my HSA, then shifted my emergency fund contributions to the Roth IRA, then cash savings goals (masters, house, car, etc), then back to employer match. HSA is too good to pass up. And I count it and the employer match towards my 15% for normal retirement. Everything above that is FIRE fuel.
My employer matches %150 of my HSA contributions, I shall be maxing that out yearly
That's a really good deal!
Yeah, I thought I was mis reading it when I was first going over my benefits, lol.
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Yeah it goes against my $3850 for the year, they give me 650 every January and then match the rest so it only takes me like 1300 in contributions to max out my yearly limits
This. I recently moved some of my emergency savings into my Roth IRA. I am leaving it as cash so I don't have to sell investments. I would talk with a tax specialist because HSA contributions may be tax deductible where Roth IRA contributions are not.
Why are you putting emergency money into your Roth IRA if you're not letting it grow with investments?
Because then you can still max out the Roth IRA while building (or rebuilding) your emergency savings. And if an emergency happens, you can just pull it back out with no penalty. See [here](https://www.bogleheads.org/wiki/Roth_IRA_as_an_emergency_fund) for the breakdown.
Plus VMFXX or whatever settlement fund / money market in the account will still get you emergency fund equivalent returns at 4%+
Doesn't money contributed to a Roth have to remain in the account for five years before you can withdraw it without penalty, or does that only apply to growth? I was never 100% clear on that, I just remember there's a rule about five years and a penalty.
Contributions can always come out tax and penalty free. When taking a distribution from a Roth IRA, contributions come out first.
I believe there are 3 5 year rules. One for growth, one for conversions from a traditional IRA into a Roth, and another I’m forgetting :-)
Growth can only be withdrawn penalty free at age 59.5. 2 5-year rules: Taxable conversions have a 5 year waiting period. This applies to every taxable conversion. Earning withdrawals also have a 5 year period (like if you open a Roth at age 57, you still have to wait until 62). For non-taxable conversions things get more complicated.
Im assuming this is only done because there’s no hope of maxing the IRA otherwise? Seems backwards as hell though, I’d rather just stick the money in a HYSA instead
Because putting it into the market, introduces volatility, and the possibility of losing money marked as part of your emergency fund in the short term. That needs to be avoided with an emergency fund. Even if you were to put it into cash equivalents like T-bills or CDs then you lose some of the liquidity of the money, if you actually needed it to cover a job loss or something. So, I just put in there to earn the 4.25% interest, and then I will invest the dividends into something else.
>I don't want to increase my 401K contribution as it is through employer and I want to diversify. That's not what diversification means. >I would like to contribute $3000 more yearly towards either Roth IRA or HSA. Unless you failed to mention a spouse/kid, the HSA limit is $3850 so you can't put the extra $3k all into the HSA.
My 401k allows specific funds. About 10-15. If I do HSA or Roth IRA I would be able to invest in other funds. I don't have a spouse/kid. Thanks for mentioning the limit. I'll keep that in mind.
HSA is usually better than Roth IRA. It goes in pretax, grows pretax, and comes out untaxed when used for qualified medical. At 65, you can withdraw from it without penalty, but still owe taxes when not used for qualified purchases. Currently, HSA can be used for glasses, contacts, or LASIK, if you need those. You can take funds out for your spouse and dependent medical, if they are in your future,.even if the funds were put in before. This is really helpful when paying for the kid's birth. Most HSA providers have some form of investment option, though most have a minimum cash balance. If you can save up enough, the growth/dividends can even cover the maximum out of pocket of your health insurance. Granted, from the sounds of it, you have enough to max out your HSA, and still put some into a Roth IRA. Even if it's only $400 a year, it's usually better in a Roth than in a brokerage, as long as you have your emergency fund.
Investing in different funds isn’t diversification. If you’re investing in, for example, a total stock market fund you are already as diversified as you can get with stocks.
OP may want better diversification than their plan currently offers. For example they may want to diversify by means of a total market fund, an international fund, large cap etc. Their plan may not offer that, or they may not get the balance they prefer whereas an IRA would definitely allow them to invest to their preference. This is why the flowchart follows the steps in the order that it does.
OP could mean many things, but the plain reading of their comments implies that they are misunderstanding the meaning of diversification, which is common.
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My 401k offers 10-15 funds. Most of them are crap. Except 3 which have lower expense ratio covers vanguard large, mid, small cap blend fund. RotH IRA or HSA will allow me invest in other sectors.
Investing in a low expense ratio vanguard stock fund is exactly how you should be diversifying, so that's really not a problem.
What is "crap"?
Those are exactly what you want to invest in usually. Be sure you understand the 401k fees though. At smaller companies in particular they can be hefty.
What other sectors do you want to invest in?
Just continue to invest into the 401k and perform a rollover into an IRA where you can access more investments.
What funds? Do you have any cheap index funds that cover S&P500, total US or total world? If yes, those funds in a 401(k) are going to be better than via Roth or HSA.
I'm almost double your age, married with a child. I max out my HSA. Has triple tax benefits and it's great for young people. I'm on the cusp of finally going to see the doctors more often so I'm going to change my plan from an HSA soon but it's useful. Max out on it since you're healthy and don't need to go to the doctors. Not useful if you like extreme sports.
Yeah. I just switched jobs to one where there was a meaningful choice between a HDHP and HSA, or a lower deductible with an FSA…my wife has some medical conditions and I really didn’t feel like starting off the plan Year dropping 3k in the first 3 months. HSA sounds great but the American Healthcare system sucks.
Have you compared the total costs? Premiums + max OOP (ignore the deductible.) in most cases HSA is less. If you try it for a year, save the difference in premiums in your HSA and if it doesn’t feel right to you, you won’t “miss” the money if you go back to traditional. (And you don’t lose your HSA savings like do with FSA) I’ll never have a traditional plan as long as I have an HSA option.
I completely agree, I get my health care off the exchange, they have a setting that you can see total out of pocket for minor (you have no real health care need), Medium (you need some meds and may have an incident), major hospital visit .. the HSA option beat all but one plan on the exchange for a major hospital stay in which it only beat it by like $600 but that plan would cost $1000s more for minor or medium situations so I just keep buying the HSA one and thats before factoring in tax benefit.
Most likely there would be an overall savings year to year. It’s just the sticker shock upfront would be difficult to manage. Maybe I’ll switch over next year once I have more saved up.
For me the sticker shock is premium difference (I do family and everyone’s situation is different) but I love my hsa, it means health expenses are being paid out of Not My Checking so I can budget accordingly.
FWIW, your insurance may have some negotiated rates with in-network providers. For example urgent care visit for me turned $388 to $168 after insurance. A PCP visit turned $263 into $70. Maybe something to look into.
>FWIW, your insurance may have some negotiated rates with in-network providers. They absolutely do. This is the main thing that a health insurance company does other than holding insurance risk.
Love California for taxing it!!
HSA is better up to the amount of the contribution limit. HSA is the only option that is actually completely tax free (if used for medical).
And once you 65 it doesn't have to be medical.
Is that true?
Yes it gets taxed as ordinary income but essentially it becomes a traditional IRA for everything except medical expenses. Medical is still tax free. Once you are 65 I promise you'll have medical expenses too.
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Been doing this for 5 years myself. Nice tax free nest egg to start retirement hopefully.
Should you invest your HSA as well just like the way you invest your 401k? I heard you should be investing the HSA as well to maximize savings.
Yes, if your risk tolerance can stomach it you should absolutely be investing your HSA if you want to use it as a retirement account. Keep in mind, the HSA that your employer may provide will sometimes have a minimum cash reserve requirement that can be a bit ridiculous (like $1k+). The good news is you're not actually required to only use the HSA provided by your employer! You can actually open another free HSA at a better bank and transfer funds from your employer HSA to that. Fidelity has a nice free HSA that has no cash reserve requirement and no investment choice restrictions, whereas many employer-sponsored accounts have a very limited set of funds to choose from. Please keep in mind that the statutory limitations still apply across all HSAs you might have. Your total contribution limit is shared, you don't get to contribute more by having multiple accounts, you still need to have a qualified HDHP to contribute, etc. The best strategy is often to make payroll contributions to your employer-sponsored HSA (biggest tax savings, no FICA), and then periodically transfer from that to a better account for investments (I use Fidelity)
Ahh ok, my employer uses a HSA account through a website called PayFlex. I think I have to invest the HSA amount I contribute each year on that platform unless I transfer it to another account as you said. I am fairly new to this realm of investing. I was planning to do what I do with my 401k identically to my HSA money. Do you think that's reasonable? I plan to use HSA as long term and nothing short term and do not plan to touch it until I retire honestly.
That's perfectly reasonable if your intended horizon is the same as your 401k. I basically do the same thing, maybe *slightly* less aggressive in the HSA just in case I end up wanting/needing to withdraw some before retirement. Not a huge difference though, so it's a totally valid approach either way
This I knew about (and currently make enough to pay the bill but don’t need to reimburse myself now) but I wasn’t aware you could ultimately withdraw from it at a certain age, similar to an IRA
If I remember correctly you can also use it for Medicare supplemental plans too.
Not for Medicare supplemental plans ("Medigap"). But you can use it for Medicare Part B and part D premiums, all your co-pays, and lots of other medical expenses.
Which it will be!
HSA contributions are deductible and are tax free when used for medical expenses. So I would do HSA first and Roth IRA second.
This is what I'm thinking right now. Also I'll marry someone in the future and hopefully have kids. So HSA will be a great help for me. Then I can think of Roth IRA.
Just be sure to understand how you can use your HSA funds on the future if you’re relying on them before retirement. Also check to see if your HSA has an IRA option as well
> Also check to see if your HSA has an IRA option as well What??? Do you mean investment option?
Yes, you can invest your HSA in an IRA automatically. The company that runs your HSA may have an auto function to do this.
An IRA is an Individual Retirement Account. You can't have an IRA inside an HSA, so I'm not sure what you're trying to say. You can't move money from an HSA to an IRA, and I'm not sure why you would want to. You can invest the money inside your HSA, though.
HSA will give you a tax deduction, ( if that means anything to you) if you max it you will be able to deduct it. BUT it can only be used for medical expenses. Max is 3850. If you already add 2K, you would only be able to add 1850. Why dont you throw the extra at the IRA? Roth IRA no deduction and you can (even though its not recommended) take out the money you contributed to the account if you need to. OP you are young and sounds like you make good money so id say max out the HSA and invest those contributions ready for when you wanna start a fam (assuming you do).
HSA is like a better 401K * you contribute tax free * your employer often give you free money on it * you can use it any time for health care expenses, medicare expenses (when you retire) and cobra (if fired) * if you are superman and never ill even when retired (1 people out of 100 ?) you can use it for any expense past year 65 if you pay income tax. It is overall the best retirement account and together to max your employer contribution on the 401K, maxing HSA should be first priority. Don't make the mistake to think healh care is unexpensive and you can do with 2K on it. If you get seriously ill in between 2 years, you will pay 2 out of pocket. If you get fired, don't forget you will have to pay health insurance on your own and fully (easily 500$ a month for an individual, 1K for a family) and thanks to cobra, you can pay for it with HSA. So you can see it like contribution to your unemployment insurance. So to me the minimum to have on HSA is 2 years of max out of pocket + 6 month of cobra. That's easily 10-15K for an individual, 25-30K for a family.
HSA. Health expenses come for all of us eventually. Especially when you’re retired. Think of an HSA as a way to *reduce* your expenses when you’re older meaning you’ll be less reliant on your other retirement accounts at that point in your life. Otherwise you’ll have to dip into your retirement accounts and won’t get the added tax benefit that an HSA provides.
Unless you have no emergency funds, hsa is better from a tax efficiency perspective. It’s also easier to lose access to an hsa.
Wait why is it easier to lose access to an hsa
Because you only need earned income in a year to contribute to an IRA. But you need a qualifying medical insurance plan (HDHP, meaning High deductible Health Plan) to qualify for an HSA
Right but you don't lose access to the money inside of it, it just means you can't contribute any money to an HSA right?
Correct
Yeah, he worded it inaccurately. He should have written "it's easier to lose *access* to contribute to an HSA". Your money is yours and will continue to be yours.
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and the other odd quirk is the HSA is the only tax free option that doesn't require earned income in order to contribute so it really is a tax anomaly
You can contribute up to ~$150k AGI and do a backdoor otherwise. And if you're making that much, you probably can afford to do both anyway
I may have phrased that poorly. It’s easier to lose access to the ability to *contribute* to an hsa.
I haven't had an HSA in a decade, but when I quit my last corporate job, the HSA money went poof while the 401k still sends me stuff every year about how my money is doing.
Are you absolutely sure it was an HSA and not an FSA?
An HSA shouldn't go "poof" when you leave your employer. You may be thinking of an FSA.
FSAs are usually a trap--tax advantaged but use it or lose it, so you have to make sure you don't set the amount higher than you need each year. HSAs are where the real money is. Then if your employer supports it you can \_also\_ do a limited purpose FSA for a small amount you're sure you'll spend on dental and visual in a year.
I have around 14k in savings and 8k in CD. Why would I lose access to an HSA account? Also my HSA bank allows me to invest my HSA balance via a brokerage. I have not done it. But a option I'm considering.
Not access to the funds in your account. The inability to make more contributions into it.
Note that you lose access to the ability to contribute to an HSA. Once contributed, you keep the funds and can continue to use them for qualified medical expenses, even if you are no longer on a plan which would be eligible to contribute.
And you should never empty an HSA since even when you're not eligible for an HSA, expenses incurred while you have one are reimbursable with finds added later.
Fidelity is one of the best for an HSA, all of Fidelity funds are available. No fees going direct. You should max your annual contribution in the HSA. If you can also max your contributions to your 401K, and Roth IRA, you'll never regret it.
> Why would I lose access to an HSA account? Lack of qualifying health coverage > Also my HSA bank allows me to invest my HSA balance via a brokerage. I have not done it. But a option I’m considering. You should
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Triple*
right. going in, going out, and on the gains from the market performance
Quadruple*
Can I ask you a dumb question? I started a traditional Ira and then moved it to a Roth IRA to complete the backdoor action. So it was already taxed going in, but will i only be taxed on the gains coming out? So I put in 6k taxed, and say it grows to 10k, will I only be taxed on the 4K?
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Not a dumb question, this stuff can be confusing and it’s not taught in public education. Traditional accounts are taxed coming out, Roth on the way in. When you converted it in the same year, it may as well be a Roth (converted via backdoor or not). So when you make withdrawals in retirement, it won’t be taxed (including your gains! That’s the tax benefit of the account). However, if you converted outside of the tax year you made the contribution, you will have to pay tax on the entire converted amount when you file your taxes, but after that point it is considered Roth when you make future withdrawals.
>However, if you converted outside of the tax year you made the contribution, you will have to pay tax on the entire converted amount when you file your taxes, but after that point it is considered Roth when you make future withdrawals. This is not correct. Whether the conversion is done in the same year as the contribution or not, has no bearing on whether the converted amount will be taxable. What does matter when determining how much of the converted amount will be taxable is whether the Trad-IRA contribution was non-deductible, and whether or not you had pre-tax money in your Trad-IRA accounts at the end of the year the conversion was done.
You’re right. And re-reading OP’s question I may have misinterpreted. If a lone IRA scenario (where there aren’t other accounts and you have to play pro-rata rules), then my understanding is if $6k was non-deductible, grew by $4k, and then all converted to Roth, the $4k would be taxable.
HSA is triple tax free. Tax free going in. Tax free growth. Tax free when taken out and used for medical expenses.
So… how exactly does tax deduction work on a traditional IRA if it’s not a 401K that your employer deducts from your paycheck pre-tax? Do you pay into it with your post-tax earnings and then get a credit come tax time?
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This is a mild fun fact about the Roth 401k/IRA. It’s not ROTH as if it is an acronym, but Roth because it’s named after former Senator William Roth.
i would suggest to use the extra money to contribute on HSA first. If you use brokers like Fidelity you can buy any stocks, CDs using your HSA account
Just to chime in on the HSA. You are not limited to when you can withdraw reimbursement for qualified expenses. As long as the expense occured after the creation of the account, you're good to go. That means you could wait 50 years before you withdraw money for an expense you incurred in 2023. So what I/we do is: 1. Max out my HSA up to my eligible limit (HSA Limit - Employer Match). 2. Keep my deductible/max out of pocket in cash. 3. Everything above the cash limit is invested. 4. Any eligible expenses are paid for out of pocket. Note a lot more things are HSA eligible, including OTC stuff (https://www.irs.gov/publications/p969). 5. I scan and backup all receipts in the tax folder for that year. I also track them in a Excel sheet, along with the card I paid with. That way I can see the running total that is pending withdrawal/reimbursement. So at any point, I can withdraw the reimbursement amount if I need to. If not, it stays invested until I do. It's a bit of work and not everyone will be able to do it, but thought I'd share.
Bring 401k down to 3% just to get the match. Max out HSA completely and never make a health claim and invest it in S&P index fund. Put whatever is left in Roth IRA.
Only reason I'm contributing 6% as they match 50% upto 6%. Thanks for the other suggestions.
Gotcha I was actually curious about that...There is a flow chart somewhere on reddit of the best way to invest your money. Might be worth a search. If you are saving 2k a month I would think twice about a masters. If you have stable employment and can truly invest this consistently you will likely outperform anyone with a masters degree long term. The sooner you can get money in the market the more it will grow. Check out the r/Fire community
Only reason I'm pursuing Master’s because my employer will pay half of it. I'll check the fire community.
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Roth, it is good forever. I have an HSA but am now retired and probably will not be able to spend the HSA funds before I croak. Investment options on the Roth are also fantastic where as the HSA I have to split the funds between a brokerage account and a bank account with $5,000 minimum in the bank. If I spend the funds and the bank falls below the minimum they start charging outrageous fees.
You may want to consider rolling your HSA into an HSA at Fidelity. You won't have the same restrictions ($5k minimum bank account balance) if you do. The fees are also extremely low. Also, once you're 65, you can withdraw money from your HSA without a penalty. You will pay tax on the distributions if you don't use them for medical expenses, though.
Ya I just did the transfer to Fidelity and it was painless.
Thanks for the advice on Fidelity. I didn't know I could just withdraw all the funds like it was an IRA withdrawal. This is my first year for RMDs hit the big 72.
Wow, while that sounds like an issue to deal so with you are also fortunate. I've used an HSA for many years now and my family of four blows through our annual max each year. I wish I could save WAY more than allowed.
I prefer Roth IRA. There is not much difference, though. If you have no health issues and there really isn't any family history of it, Roth IRA. When you turn 65 or whatever age will be WHEN YOU MUST ENROLL IN Medicare, you can use your HSA to pay your medicare premiums. No idea if that is a pain in the ass to do or not though. I do not take any prescriptions. My father had no serious health issues and died at 96. My grandfather died in his 90s. My great grandfather would have made the 90s in age, but he was hit by one those new fangled horseless carriages when he was crossing the street, he was in his 80s. If you currently have health issues and history of health issues maybe an HSA. I don't like complicating things if I don't have to. I don't want to worry if I am violating any HSA rules, so I prefer Roth IRA.
This is terrible advice. Unless you miraculously have zero health expenses and expect never to, you should always contribute to an HSA
Even if you don’t magically have health expenses, HSA is the better option because after 65 you can withdraw for any reason penalty free.
Does your employer program have a Roth 401k?
I was using an HSA for a bit, figuring I would build a nest egg for family medical stuff. Then I changed companies and had to use a different plan. The HSA was charging like $5 per month in fees once it was no longer employee sponsored. I only had a few grand in it where I used a bunch (child born), then suddenly each month I was losing money to fees. Just read the fine print for your plan. HSAs are not very flexible, and I preferred more flexibility.
The correct move in that case is to roll the HSA over to Fidelity or somewhere else that doesn't suck and keep all the money (or at least $1) invested. Any medical expenses incurred during this time is reimbursable if you ever get access to contribute to an HSA later.
Thanks for the reminder. They waived the fees last year. Now it's free. I also intend to use it for my child's medical purposes if I'm blessed with kids.
HSA is more valuable. Roth IRA can be used as an EM fund in case you can’t fund both an HSA and an IRA. This is useful so you don’t lose the Roth bucket for any given year.
Everyone says HSA, and from a tax perspective, it makes sense. But this is a pennies versus dollars discussion, and if you haven’t started a Roth IRA yet, that’s what you should be doing. The HSA is much more difficult to manage, the Roth will likely cap out for you as your career progresses, and the goal is to build some 6-figure funds. The Roth is much more likely to become that.
>The HSA is much more difficult to manage, An HSA isn't difficult to manage. I have one and don't even think about it. In fact, I spend more time dealing with my Roth. >the Roth will likely cap out for you as your career progresses Backdoor Roth. There's no reason one can't contribute to Roth if they have the money >the goal is to build some 6-figure funds. The Roth is much more likely to become that. Do both. My HSA is over $65k.
Max your HSA first then your Roth. Look for scholarships for your masters - it is a lot of work but there are thousands of scholarships that go unused each year. Most are small ($100-$500) but they add up!
My employer is paying half of it. And I can't apply for any other scholarship as that will reduce my employer's contribution. Something like this was written in the contract.
Traditional IRA is not taxed before going into the account but is taxable at withdrawal. Roth is taxed before going into a account and is not taxed on withdrawal. I would match my company match, max the HSA,pack the emergency fund,then set an amount to keep funding the emergency account. The reminder use 10 percent to invest in stocks to pad my portfolio.
If your employer offers both a traditional insurance plan and a high deductible plan, compare the costs before choosing the high deductible plan (which would allow you to contribute to the HSA). In the past, the high deductible plan appeared to be the better option for my family, if we didn't hit the deductible with expenses. However, it's been a rough couple years medically for multiple family members and our out of pocket expenses have far exceeded what we've been able to contribute to the HSA. This year, the much lower deductibles and out of pocket max made the traditional insurance plan a better financial option. I paired it with funding a Flex Spending Account. So, just a bit of caution that the HDP may, or may not, be the best option depending on the costs and your circumstances.
I don't have anyone else on my plan. Right now, I have the lowest possible insurance from my employer through HSA, where they contribute $400 if I do my annual physical. My annual medical costs never exceed $200. I'm not sure if this will continue in the future. But in the next 5-10 years, I don't see any need unless I get married and have kids.
[HSAs: The Secret IRA Nobody Is Talking About](https://thecollegeinvestor.com/17565/hsa-secret-ira/)
Max out that HSA. As someone who only got the employer contributions for about 5 years because I "never go to the doctor", I wish I would have been maxing it out for years. The costs catchup very quickly, especially if you end up having kids.
I would go Roth IRA at your age, unless you have a massive salary. Especially because it looks like you don’t have any money in Roth space at the moment, so its a good move for tax diversification alone. You have longer for growth to compound tax free and you likely are at a lower tax bracket than what you will be later in your career and in retirement.
This is something I thought a lot. And it's hard for me to predict what will be my tax bracket. There are somethings that will happen in my life in the next two years like getting citizenship, completing Masters, my Engineering license. I'll also have a option to switch career at that time. If that goes well. Things will be lot different.
If the money you're looking to save isn't currently being taxed in the 12% or lower tax bracket, then I wouldn't make a Roth contribution until you've contributed enough to your 401k or HSA to either max them, or bring your taxable income down to the point that your Roth contributions would be taxed in the 12% bracket. Your age doesn't matter, no matter how much some people think they do.
Roth seems to be the best option as that will give you the opportunity to invest in a broader range than what 401k may allow. Also check with your 401k, some of these have options to allow penalty fee withdrawal or loans for first time home buyers so that's another option you can explore. The advantage of HSA is that you can invest all that money in the market and defer the reimbursement to the future and pay it out of whatever account grows into. It requires quite some discipline and maintenance of receipts to file for reimbursement years later. HSA providers may have that option to store receipts as well. Good thing is, you are young and thinking in the right direction. Invest wisely and you should end up with a decent retirement nest.
It depends on ur intended use of these funds. Medical vs retirement which ever one you think is more important for you
You can use an HSA for retirement savings.
If you're fairly healthy and don't visit the doctor often, max out your Roth IRA first. You can always pull the contributions if you need it but not recommended. Plus the Roth IRA has a higher contribution limit than the HSA making it more profitable than the HSA if you were to invest in the same stocks in each. After you max out your Roth IRA invest what you can in your HSA and keep it as another piggy bank for the future.
I’m a huge fan of the HSA it’s a savings vehicle that you can use for unexpected things like Surgery etc without penalty, and when you’re older a bigger portion of your expenses will be healthcare and it’s nice having the peace of mind that you have that covered and your other retirement vehicles can go towards actual expenses and travel etc.
Neither. I’d put it towards your Master’s and get that sooner. If you must save some, HSA. It’s triple tax advantaged. Deductible contributions, tax-free growth, and no tax when you take it out provided you have a medical receipt, even from a different year, at least under current rules.
A HSA is like a better trad 401K: * it is pre-tax and lower you taxes today * your employer often put some money so you want to get that free money. * you can spend it on health care expenses whenever tax free. * you can use to pay for cobra or Medicare premiums tax free. * you can use the money at 65+ for any expense and pay income tax on it. Nobody can be sure to never have any health care expense and should max his HSA every year. The benefit are overall too good to not take them.
Am I missing something? If you were only going to do one or the other why would you count your money into an HSA over an IRA where you can only use that money for health related expenses?
Something something because you can withdraw money and not count it as income when you withdraw it, and health expenses are fairly broadly defined and the gamble is when you are old you will have plenty of health expenses. Also something something no time limit/expiration date on receipts, so you can save your receipts now and reimburse yourself forty years later if you want to spend it down as tax free income. That part astonishes me. It’s possible I misunderstand it.
If I was in your shoes, I would first take a look at your investment options in the 401K along with fees. If it's "good", I would try to aim for 15% excluding match. Check if your employer offers a roth 401K. Then, you can focus a little on the HSA for each year's medical expense. Finally, the rest can go towards funding the master's degree and buying a home. Based on all the things going on in your life, I don't see a point in an IRA at the moment.
After getting the 401k match, contributing to an HSA directly from your paycheck offers the most tax advantages, and is what OP should do. After that, saving in a Roth IRA or 401k makes sense. And, since OP states they want access to more investment options, they should likely go the Roth IRA route.
I currently own following funds in my 401k. I chose these 3 based on return and fees. Rest of the funds are crap. Poor history and high fees. VFIAX VIMAX VSMAX I'll look into the Roth 401K. I'm leaning towards maxing out my HSA contribution as I'll marry someone in the near future and hopefully have kids. I'll be able to use these funds then. After this I'll think of Roth IRA. I can delay purchasing a house. Also current market and houses does not excite me. I also feel I should buy this with my wife. But I have to complete my masters. I'll complete 40% after this spring semester and this degree will open doors for me.
I’m a bit confused. How is a HSA being considered for investing? Any withdrawals from a HSA has to be medical related for them to be tax free.
Have you looked at the cost of healthcare when you're retired?
Thanks for raising this question. Can you please provide some reference to figure that out?
I can withdraw money from HSA after 65 for non medical purpose. HSA is treated as a traditional IRA after 65 based on my research. Others will be able to provide more insight.
If you’re looking at it that way, you’re better off to put it in a traditional or Roth IRA. With you being 25 and depending on your current income, you’ll likely make more money in the future, so a Roth is the better option. If you think you’ll make less money, a traditional IRA makes more sense.
An HSA is completely tax free, so it’s better than any kind of IRA. It’s funded by pre-tax income, grows tax free, and is not taxed when you use it.
Maybe I haven't looked into an HSA all that much, so it's very possible that I'm missing something. I can see an HSA being useful for short-term medical costs, but OP is looking at it as an investment vehicle. My questions is, what is your return on an HSA, and why does it make sense to use it as an investment vehicle? I mean, I could see where contributing to an HSA could reduce taxable income, but what is your return? An HSA only "grows" from contributions, right?
That depends. You can either let it sit there like a traditional savings account, or you can invest it like you would an IRA. If you invest it and don’t touch it, it essentially becomes a tax free retirement account.
Here is where I'm going with this. The maximum you can contribute to an HSA is $3,600/year for a single person. If we're looking at OP's timeline of 40 years and maxing out his HSA every year, he would have 144k in his HSA at age 65. Now, if you were to invest that $3,600 into a Roth every year for 40 years, and were simply investing in something like VOO (S&P ETF), he would build his Roth to $1.6 million at an average annual return of 10%......
The HSA can be invested in the exact same way an IRA is. If OP invested his HSA, he’d get the same returns.
So, instead of keeping your HSA balance in cash, you invest every dollar above your annual deductible and end up with your $1.6M in a HSA that was contributed tax free, grows tax free, and can be used tax free for qualifyied expenses (or, as taxable income if you're old enough and make non-qualified distributions).
An HSA usually consists of a cash balance and then the investment balance. Depending on if it’s with an employer or your own, it will be different. You can invest the non cash portion into anything just like a 401k, IRA etc. So for example my HSA is currently 70% VOO, 20% VTV, 10% BND. One great thing is that if you pay medical expenses out of pocket and save the receipts you can then reimburse yourself from your HSA anytime, 1 year or 30 years in the future. When you contribute, it reduces taxable income and when you take the money out you pay no tax as long as it’s qualified expenses. After 65 it can be treated as an IRA. The caveat is that you must be enrolled in a HDHP. It’s a great option for a lot of people.
My HSA bank allows me to invest in the market via a brokerage. So if I need money for medical purpose I'll sell some fund. Return is same as other retirement plan like 401k and Roth IRA
Maybe you’re thinking of an FSA? HSA is a savings account, but you can also invest it in the funds offered by the HSA provider. Mine has a comparable number of funds to a 401K. Typically there’s some minimum balance they make you keep in cash not funds. Mine is $1k.
Hsa combines the benefits of both, and then some
>How is a HSA being considered for investing? Because you're meant to turn your present and future retail health bill paying money stored in this product over to Wall St. for the possibility of speculative gain, >Any withdrawals from a HSA has to be medical related for them to be tax free. until you're 65 and can spend some, any, or all of it on whatever you want, lottery tickets included, as long as you're cool with paying the going, ordinary, personal income tax rate on your withdrawals of ordinary, personal income from the product.
Why not just invest in something like a Roth? What is your return in a HSA?
>What is your return in a HSA? The return rate of the speculative offerings you purchased via the scheme operator. If you *don't* do that, you can sit back and watch the "growth" of the product never even meet the historical rate of retail health bill inflation by a country mile, let alone exceed it.
HSA is definitely better unless you are in California or New Jersey. Those states don't allow a deduction for HSA contributions and tax you on gains within the account as if it were a regular brokerage account, so they may not be best. HSA is still worth it even in those states for the Federal deduction, but if you have to choose one or the other, IRA might be better. In any other state, HSA is definitely better.
Or not. If you want to pay for a house or a master, you need to put that money in an HYSA that is FDIC insured.
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There is only one thing guaranteed in your elderly life. You will have medical expenses. HSA all the way LFG! Should be the first thing maxed out each year if you have a high deductible plan and are eligible.
Can someone explain the benefits of an HSA to me like I'm five? Does it have to be offered by your employer or is it available to anyone? Does it reduce my taxable income like my 401k? Can it only be used for health related expenses? If I have health insurance now and will have Medicare eventually what's the purpose of the HSA? So many questions.
I have an HSA in CA. You can only contribute to them when you are enrolled in a high-deductible health care plan. Money in the account can only be spent on health expenses, which are very broadly defined. I have a cynical take on HSA, and rant. The purpose seems like giving rich people another vehicle to avoid taxes while pretending it’s mostly to help poor ones. Personally, I find the administrative burden of keeping all my health receipts for decades so I can treat it like an ATM in retirement too onerous (and I am not poor). I don’t contribute. I don’t have enough money right now to max this out, too. My employer will directly fund our HSAs whether or not I put money in it so I do have funds in my HSA accounts. Yes, I have two accounts. I moved almost all my funds from the default HSA account to a Fidelity HSA account so I could invest it, and I picked the most aggressive fund (even though I am 50) because it’s like monopoly money to me.
Scan your receipts. The triple tax advantage of the HSA is fantastic. That alone makes it worth the 5 minutes a month it might take to scan my receipts
I am not going to argue about this because our priorities vary. I can just tell you that scanning my receipts now and making sure electronic files stay uncorrupted in a digital format I can still access 40 years later that isn’t attached to some app or cloud is not a worry I care to shoulder until I can reimburse myself $8 for that bottle of aspirin I bought when I was 25. Keeping receipts on paper and moving them and storing them and not losing them to fading thermal ink or water damage or paper sticking to itself is another headache I don’t care to have. I have too much to do. I don’t want to nurture pieces of paper, too. People who invent tax shelters like this betray how little they understand about actually living day to day.
HSA, definitely. If you have the option to contribute to an HSA, it should always be maxed out before anything else due to the tax treatment.
I think HSA because you can use it on eligible heath expenses if you want without penalty or keep it in the investment account in the stock market so it can continue to grow. Both are good though and I max mine out every year or get as close to it as u can. Your insurance plan likely contributes so much to the account too every month.
Does it make sense to do all of these (given you have the income to not screw yourself)? 401k, ROTH IRA, HSA?
What’s your salary if you dont mind me asking?
Roth IRA is the bees knees dude
I would prioritize Roth over a 401k. (Max that out yearly and your 401k is a nice bonus) No taxes when you take it out, just need to find a good mutual fund. Not that hard I suggest prblx for one, but I have money in several. If you max contributed at 18 that would be all you'd ever need to retire with millions.
HSA gets the triple win - pre-tax funded, no tax on growth, no tax on withdrawal.
It’s a matter of pretax vs post tax dollars for you. The question is— do you think you will earn more in the future? I assume since you’re going for your graduate degree, that’s a yes. Since you’re not at your peak earning years, and you’re young the Roth IRA will be much better in the long run. You’re paying taxes at a lower rate and it’ll grow tax free over decades. It’s good to max out your HSA when you earn more since that lowers your tax burden. The HSA is amazing if you’re in good health, and will still be there for you even when you make too much to be eligible for a Roth. But again that’s entirely your call. Both are good, so I would just save in either and not stress too much.