Where my HSA pros at?

[Blender]

Does it make sense to have an HSA if I can NOT maximize it?

Currently paying $134.xx/ month for a $2,000 deductible plan.

My total out-of-pocket costs from 08/2023 - 12/2023 was <$290 (started new job, 90 day period... you know).

  - I am a relatively healthy, low risk person right now. 

>$800 in premium paid during those months.

New employer plan offers $0.00 premium (HDHP) and an HSA, but they will not contribute.

I would prefer to open a Fidelity HSA (contribute after-tax dollars and submit 8889 for tax season)

I contribute to a 401k up to the company match.

I am currently only able to contribute ~$2400/ year to my IRA.

I would contribute ~$1,700/ year to my HSA, if I chose this plan. I don't reasonably expect to need to use the funds for medical expenses this year.

Given all of the above: Does an HSA make sense for me? Should I contribute more to the HSA than I do my Roth?

[markbeiser]

If my health plan was qualified, I'd use an HSA as an additional retirement account, and pay my part of medical expenses out of pocket, rather than dip into the HSA.
With a Fidelity HSA you can invest the funds in the HSA like you can in other retirement accounts.
Contributions to it are tax free, withdrawals for medical expenses are also tax free, and after age 65 withdrawals for other expenses are penalty free, but you pay income tax on them.

If it was an option I had available, I'd contribute to a 401k up to my employers matching limit, then max out an HSA, then contribute to an IRA. If you get to where you can max both the HSA and IRA, circle back around to contributing to the 401k.

I don't have the option for a 401k, and my health plan doesn't qualify for an HSA, so I'm stuck with a Roth IRA, and a regular brokerage account. Will be opening a traditional IRA and switching my contributions to it this year since my income has grown to where I'll be in a lower tax bracket when I retire.

[Blender]

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@markbeiser wrote:

If my health plan was qualified, I'd use an HSA as an additional retirement account, and pay my part of medical expenses out of pocket, rather than dip into the HSA.
With a Fidelity HSA you can invest the funds in the HSA like you can in other retirement accounts.
Contributions to it are tax free, withdrawals for medical expenses are also tax free, and after age 65 withdrawals for other expenses are penalty free, but you pay income tax on them.

If it was an option I had available, I'd contribute to a 401k up to my employers matching limit, then max out an HSA, then contribute to an IRA. If you get to where you can max both the HSA and IRA, circle back around to contributing to the 401k.

I don't have the option for a 401k, and my health plan doesn't qualify for an HSA, so I'm stuck with a Roth IRA, and a regular brokerage account. Will be opening a traditional IRA and switching my contributions to it this year since my income has grown to where I'll be in a lower tax bracket when I retire.

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Appreciate your insight. Seems to be the general theme: HSA before IRA, which makes sense given an extra tax-advantage leg. Just figured I'd check with the big brains first before reallocating. 

I like this part. I probably make enough to do so, in a better economy and with less projects/ expenses than I have now. So I'll just keep with the free money until it changes.

[iced]

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@Blender wrote:

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@markbeiser wrote:

If my health plan was qualified, I'd use an HSA as an additional retirement account, and pay my part of medical expenses out of pocket, rather than dip into the HSA.
With a Fidelity HSA you can invest the funds in the HSA like you can in other retirement accounts.
Contributions to it are tax free, withdrawals for medical expenses are also tax free, and after age 65 withdrawals for other expenses are penalty free, but you pay income tax on them.

If it was an option I had available, I'd contribute to a 401k up to my employers matching limit, then max out an HSA, then contribute to an IRA. If you get to where you can max both the HSA and IRA, circle back around to contributing to the 401k.

I don't have the option for a 401k, and my health plan doesn't qualify for an HSA, so I'm stuck with a Roth IRA, and a regular brokerage account. Will be opening a traditional IRA and switching my contributions to it this year since my income has grown to where I'll be in a lower tax bracket when I retire.

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Appreciate your insight. Seems to be the general theme: HSA before IRA, which makes sense given an extra tax-advantage leg. Just figured I'd check with the big brains first before reallocating. 

I like this part. I probably make enough to do so, in a better economy and with less projects/ expenses than I have now. So I'll just keep with the free money until it changes.

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I would concur that HSA should be prioritized after contribution-matching levels are met elsewhere since it does have the most tax advantage of any investment vehicle. The key, of course, is not to draw it down until retirement, but if that is done then every little bit into it helps.

The ideal is to max out the HSA, (Roth) 401k, and IRA every year, but I get that's a steep hill to climb for some people.

[Blender]

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@iced wrote:

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@Blender wrote:

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@markbeiser wrote:

If my health plan was qualified, I'd use an HSA as an additional retirement account, and pay my part of medical expenses out of pocket, rather than dip into the HSA.
With a Fidelity HSA you can invest the funds in the HSA like you can in other retirement accounts.
Contributions to it are tax free, withdrawals for medical expenses are also tax free, and after age 65 withdrawals for other expenses are penalty free, but you pay income tax on them.

If it was an option I had available, I'd contribute to a 401k up to my employers matching limit, then max out an HSA, then contribute to an IRA. If you get to where you can max both the HSA and IRA, circle back around to contributing to the 401k.

I don't have the option for a 401k, and my health plan doesn't qualify for an HSA, so I'm stuck with a Roth IRA, and a regular brokerage account. Will be opening a traditional IRA and switching my contributions to it this year since my income has grown to where I'll be in a lower tax bracket when I retire.

---

Appreciate your insight. Seems to be the general theme: HSA before IRA, which makes sense given an extra tax-advantage leg. Just figured I'd check with the big brains first before reallocating. 

I like this part. I probably make enough to do so, in a better economy and with less projects/ expenses than I have now. So I'll just keep with the free money until it changes.

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I would concur that HSA should be prioritized after contribution-matching levels are met elsewhere since it does have the most tax advantage of any investment vehicle. The key, of course, is not to draw it down until retirement, but if that is done then every little bit into it helps.

The ideal is to max out the HSA, (Roth) 401k, and IRA every year, but I get that's a steep hill to climb for some people.

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Set it up today to start contributing 2/1 👍🏽

[Citylights18]

I have a HSA and am investing it within my plan. The options are more limited but preferring high yield corporate bonds over stock index at the moment. All pre-tax through my employer. I can withdraw the money when I want for medical expenses and will pay cobra premiums if there is a lapse in my employer coverage.

The entire roth concept is predicated on reducing tax burden. I could do a post-tax roth through my employer plan but I'd rather have those post tax dollars as cash and I have a net capital loss so I'm not taxable on the gains anyways. With my tax setup there isn't a purpose in funding a roth account (though I do have one set up). At some point there might come a day where it makes sense to go to a roth 401k but probably not with this employer since I have a 401k loan repayment set up with them and I'm getting interest paid back to may account on that as an extra contribution.

Its a little situational. If one is in their 50's and a full roth contributions is as good as your future cash then it makes sense. For someone in their 30s and retirement is decades away and you don't have that much cash on hand taking the pre tax benefit of a traditional 401k makes some sense because it will help you grow your combined cash/401k savings quicker. You can also do a roth conversion later down the road.

[markbeiser]

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@Citylights18 wrote:

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Isn't the decision between a Roth or traditional IRA more to do with if you expect to be in the same/higher vs. a lower tax bracket after you retire?
Basically: Expected to be in the same or higher tax bracket, go Roth, if expected to be lower bracket, go traditional?

My income has grown to the point that I should be in a lower tax bracket within a few years of retiring, so I was thinking of opening a traditional IRA and starting to contribute to it instead of my Roth.

[iced]

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@markbeiser wrote:

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@Citylights18 wrote:

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Isn't the decision between a Roth or traditional IRA more to do with if you expect to be in the same/higher vs. a lower tax bracket after you retire?
Basically: Expected to be in the same or higher tax bracket, go Roth, if expected to be lower bracket, go traditional?

My income has grown to the point that I should be in a lower tax bracket within a few years of retiring, so I was thinking of opening a traditional IRA and starting to contribute to it instead of my Roth.

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Yes, it's a delicate balancing game of offsetting current tax burden while taking a best-guess attempt at offsetting future tax burden in retirement. There's of course two problems with this effort:

1. Unless one is less than ~10 years from retirement, accurately guessing retirement income is a guess with a large margin of error. 

2. We just don't know what the tax code will be in the future.

And there's one other factor, though not a problem:

3. Compounding, or time to retirement. Regardless of the problems above, someone with 20+ years is likely to see Roth win out because the tax-free growth has so long to compound. 

[markbeiser]

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@iced wrote:

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Unless something goes wrong, I'm less than 10 years from retirement, which is why I've been thinking on starting a Traditional IRA.

I may just stick to the Roth, as there is almost no accounting involved with it, now or in the future.