Should You Max Out Your Roth IRA or HSA?
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When it comes to saving for retirement and healthcare expenses, two popular options for many individuals are the Roth IRA and Health Savings Account (HSA). Both offer tax advantages and can help secure a financially stable future. But should you prioritize maxing out your Roth IRA or HSA?
Let’s take a closer look at both options to help you make an informed decision.
Roth IRA:
A Roth IRA is a retirement savings account that allows you to contribute after-tax dollars, meaning you won’t get a tax deduction now, but your investments can grow tax-free and withdrawals in retirement are tax-free. This can be advantageous if you expect to be in a higher tax bracket in retirement.
For 2021, the maximum contribution limit for a Roth IRA is $6,000, with an additional $1,000 catch-up contribution for those aged 50 or older.
HSAs:
An HSA is a tax-advantaged savings account that is specifically designed to help individuals save for qualified medical expenses. Contributions to an HSA are tax-deductible, withdrawals for qualified medical expenses are tax-free, and the account can grow tax-free.
For 2021, the maximum contribution limit for an HSA is $3,600 for individuals and $7,200 for families, with an additional $1,000 catch-up contribution for those aged 55 or older.
So, which should you prioritize?
It ultimately depends on your individual financial situation and goals. If you are relatively healthy and don’t anticipate high medical expenses in the near future, you may want to prioritize maxing out your Roth IRA first. This can help you build a substantial nest egg for retirement and take advantage of tax-free withdrawals in the future.
On the other hand, if you have high healthcare expenses or want to save specifically for future medical costs, maxing out your HSA may be the better option. Not only will you benefit from tax deductions on contributions and tax-free withdrawals for medical expenses, but you can also use HSA funds for retirement expenses once you turn 65.
In an ideal scenario, you may want to contribute to both your Roth IRA and HSA if your budget allows. This can help you maximize your tax advantages and secure your financial future in both retirement and healthcare.
In conclusion, whether you should max out your Roth IRA or HSA depends on your personal financial goals and circumstances. Consider factors such as your health, expected medical expenses, retirement goals, and tax situation to determine the best approach for your situation. Ultimately, both options can help you build a secure financial future, so it may be beneficial to contribute to both if possible.
So theoretically if you knew exactly the amount of medical expenses you were going to pay in your lifetime, you would want the HSA account to grow to that amount and use it. Anything else I think should be put into Roth unless you are in a high tax bracket and pretax beyond 65 makes more sense?
Can i deposit after tax dollars ,specifically non employment money like dividends, and a state government pension? Or do i have to “work” to be able to deposit into an hsa? Im newly retired and after my cobra insurance runs out we are going to need to buy insurance for a few years.
lol money's not laying around for those in their 40s or 50s either…you seen the retirement statistics for older generations? (i assume you have)…scary.
Max HSA and keep it until you get to 65 then it will be same us Roth IRA, u pay only income tax, but keep all your medical bill receipts so you can reimburse them as medical expense
Save up to company match, max HSA, if you have anything left over, max out Roth IRA, still have more left over, max out 401k
My employer dumps $1k in a HSA if I choose the high deductible plan. Free money is my favorite cousin.
On a budget and have previously had some high medical expense years, so my current order of operations is:
*get 401k match
*fund HSA to insurance deductible amount
*leftover $$$ go into savings, Roth, and brokerage
One thing to consider: if you reimburse yourself from HSA for a medical expense you paid out of pocket, that's tax-free money you can then put into your Roth. My current HSA has no investment options, whereas my Roth has tons.
my current employer only offers fsa. how do i get an has? i am only interested in the has for investing so all the money that i put in an has will increase in value with the interests when i collect at 65years young.
HSA first. The reason is let's say you can pay your medical taxes as you go out of pocket, you can save those receipts and reimburse yourself YEARS later there's no expiration on the reimbursement. So the account is eventually funded on just compounded gains. And the fact is average medical expenses post 65 are over $100k. If you max out your account every year and reimburse yourself you'd be lucky to have 100k in there at 65.
My HSA rollover stays does not expire( rolls over every year), I fully funded both this year again.
Thanks guys, much appreciated for all that you guys do. //Anf
Literally just found out TODAY that my employer offers an HSA-eligible plan. Perfect timing Money Guy! You are the best!
One account is for retirement, the other for medical. What do you need more of right now?
On the hsa my thought is if you are going to use it for medical expenses that year, you might as well bulk up just in case to cover deductibles. Why risk having to spend post tax money on medical if you don’t have to? That’s a 10-30 percent savings on that money if you can pay it pre tax.
For those here who might not know, what do you consider a high tax bracket?
HSA all the way. Pre tax credit, no post tax liability if used correctly, if contribution is from payroll deduction you can even avoid FICA Taxes! That's a triple tax savings. Best of all tax sheltered plans.
First. Great topic!