Question

I’ve been thinking about retirement accounts lately. I max out my 401k. My wife and I can’t contribute to Traditional IRA secondary to income limitations. We can contribute to a Roth IRA and I have an HSA thru my job. Which would you contribute to after 401k is maxed out and income is high? A Roth and pay taxes on it upfront or a HSA and get the tax break. I understand that you can pull the money from an HSA 65yo while Roth at 59. 5yo.  

Answer 1

Taxable account. I love roboadvisors. Personally, I use Wealthfront

Comments

So you wouldn’t use a tax advantages account?  

Answer 2

It depends how much you’re spending on healthcare - my daughter requires a lot of medical care so we maxed out my husband’s plan because his work offers an HSA account benefit. We saved a lot of money that way, given our higher tax bracket. I would gauge how much you have spent on healthcare in the past or are planning to spend (if anything has changed) and set that aside; it doesn’t need to be the maximum amount. That way you have exhausted your HSA benefit and you may still have additional money to invest into a Roth.  

Answer 3

Honestly when it comes to pre-tax or post-tax tax-advantaged accounts, if all things are the same (rate of return, tax bracket, etc. ), you end up with the same amount of money net in the end. Personally I favor Roth over Traditional/HSA, but in the end it doesn’t really matter.  

Answer 4

Similar situation with income limits prohibiting traditional Roth, and <50 yrs old. so here’s what we do: 1. Max 401k 19. 5 2. Max mega backdoor Roth (since my 401k allows it, check to see if yours does) up to the combined employee/employer max of 34, 500. for a grand total contribution of 57k. 3. Max out a backdoor (non-mega) ira of 6k for my spouse and myself 4. Throw anything left into the hsa which is triple tax free. BUT, there are only certain things you can use that cash for. (the list is actually big). AND, under my company’s scheme, the hsa can only be left to your spouse. once you’re both dead it goes back to the employee pool. 5. Any crumbs left over go into taxable investments.  

Answer 5

Max out HSA and invest it. Pay medical bills out of pocket and keep receipts. You can pull the money out at any time as long as you have the receipts to back them. HSA’s are the triple threat. As long as you have them pulled out by your employer than not only do you not pay income tax but it comes out before SS tax. As long as you have receipts than you can pull it out without paying any tax then either. It’s better than the traditional and Roth combined. It’s a no brainer.  

Comments

@banda817 this is the answer. HSA is the no-brainer, the only one with three tax-exempt levels: going in, while in, coming out. Even if you have so much that you can’t use it al for health care, you can, at 65, withdraw and simply pay tax on it a la a traditional retirement account. Some people contribute to these and don’t use them at all until retirement, letting the account compound for decades and saving receipts. Something to think about.  

Answer 6

Both. how is this even a question?  

Answer 7

Just out of curiosity, would you say it’s ALWAYS better to max out your 401k before traditional IRA if income is sufficient to do so? if yes then why? is it because the 19. 5 limit will earn more over time in your 401k vs 6 in an IRA?  

Comments

@exegete max out the vehicle with the best investments inside of it! If your 401k has expensive mutual funds, open a Roth with low cost index funds and max that out first. If you have more money after maxing your Roth, put it in your 401k.  

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@exegete max out your 401k match. Than HSA if you have one. Than IRA and back to 401k till maxed out.  

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This is a matter of opinion. @banda817 is right, it's most important to earn your full Match. Then @extraditable is right - go with the account with the best investment options. 401ks tend to have more expensive options and less flexible withdrawals, but if yours is a good one, then congrats! Beyond those factors, it doesn't really matter.  

Answer 8

How do you protect yourself if tax brackets increase? What can I do now?  

Comments

@banda817 Miller know your income and the brackets. HSA covers you either way. Company match is a no brainer. There are also A back door Roth IRA. Depending on income, doesn’t hurt to have money in traditional and Roth IRA. With your company 401k the match will always be in a traditional IRA even if you put your portion in a Roth