Roth IRA vs. HSA: Which One Should You Prioritize?
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I think the decision depends on whether you already have a well-funded emergency fund and your deductible and max out-of-pocket for your health insurance. As others have noted some companies match your HSA, so you should at least contribute to this level from the doctrine of not turning down free money.
I had a similar question I was hoping you guys would answer. I have a traditional 401k through work (They don't offer Roth 401k) and I have my own Roth IRA through Vanguard. Should I contribute more to the Roth IRA and aim for the max contribution, or contribute more to the 401k?
This is exactly the video I needed to see. HSA all the way.
I want to make a correction to what was said here. It was mentioned that the HSA must be used for medical expenses to use HSA money tax free. No. If you pay out of pocket for medical expenses, save documentation proving that. Then you can remove the money from the HSA equivalent to your documented out-of-pocket medical expenses tax free.
I would say the HSA is better. The HSA contribution is not taxed up front. The Roth IRA is taxed up front. After that, they are essentially equivalent. And even more so when your company makes a contribution to your HSA.
roth IRA all the way. Just move to Europe when you retire in a country that reconizes its tax free status(The UK does). Healthcare taken care of and no taxes to pay.
I'd fund the HSA first and max it out. you are going to spend the money on healthcare in the current year anyways. may as well get the tax deduction. once you max it out start contributing to the Roth.
This was a fight? I thought we were going to see a UFC battle with HSA vs ROTH on their trunks.
Order of Retirement Contributions Should be the following. 1) Max out 401(k) up to company's match. 2) Max out HSA (if under high deductible health insurance). 3) Max out Roth IRA. 4) Max out percentage limit towards ESPP. 5) If steps 1 to 4 is maxed out, Max out the rest of the 401(k) up to the calendar year limit.
Oh, yeah – get the tax-free reimbursement, and then use that to fund the Roth. There's a clever girl…
My thought is that all of us are going to have medical expenses in retirement; thus, it makes sense to get enough funding in the HSA to cover the 100k or so (in today's money) that you'll need in your later years. Once you've got the principal down in the HSA in a targeted index fund, sure – switch over to funding the Roth.
We do kind of a 50/50 split, pay for HSA eligible expenses out of pocket, take the reimbursement and send it to our Roth IRAs as supplemental contributions over our regular contributions. Our income isn't high enough to max out both our Roth IRAs and HSA at 20-25% but this way we can get the triple tax advantage and it helps avoid some of the book keeping required in keeping medical receipts for decades.
Just because you can't max both doesn't mean you can't contribute to both! Put 50/50 of whatever you have to invest.
Roth IRA
My complany offers 2 high deductible plans 90/10 with an FSA and a 80/20 with an HSA. I am one of the few that opt for the 80/20, but what a deal it is. I try to tell people the 80% or 90% is only from your deductible to your maximum out of pocket. You pay more for a 90/10 in premiums and maximum out of pocket if you max out benefit, PLUS you have a closet full of band aids at the end of the year. I choose to pay my medical out of pocket with a credit card with 2% cash back, and save and invest my HSA for retiirement. I now have $25K in my HSA .
1a. HSA (especially if job gives free $$$)
1b. Roth IRA
When my company first started offering an HSA, our executives were very excited about HSAs. They talked about the triple tax savings, and they also said that they plan to pay for medical expenses out of pocket so that money can grow. At the time, I wasn’t in a position to do the same, but I now prioritize maxing out my HSA over funding any other retirement account. I also do my best to not touch that money if at all possible, which is much easier with only one kid.
I have an HSA and invest everything over 1k. I pay for my medical expenses out of pocket (the $4,000 deductible). And at 65 you can utilize the HSA as a normal retirement account
being retired military we can have an HSA, which stinks, cause i would love to use that as well.
Ending with a high five, I wish all heated arguments could end this way!
I would Do the HSA. I've done both but am looking to switch jobs and it might not be within my current organization so I might not have access to an HSA in my next job.
Some employers will match HSA’s as well so that’s another consideration.