Should I max out HSA or Roth IRA first?

Asked by: Katrine Greenholt DDS  |  Last update: May 19, 2023
Score: 4.1/5 (60 votes)

Once you've contributed enough to your 401k/403b to get 100% of your employer's match, and you've maxed out your eligible HSA contributions, your next priority should be to max out your eligible Roth IRA contributions – $6,000 if under 50. There are income restrictions on who can contribute to a Roth IRA.

Should you max out HSA first?

To summarize, when prioritizing long-term savings while enrolled in HSA-eligible healthcare plans, I would strongly suggest that the order of dollars should go as follows: Contribute enough to any workplace retirement plan to earn your maximum match. Then max out your HSA.

Which accounts to max out first?

The rule of thumb for retirement savings says you should first meet your employer's match for your 401(k), then max out a Roth 401(k) or Roth IRA, then go back to your 401(k).

Should I max out my Roth IRA as soon as possible?

Maxing out your Roth IRA can help you make the most of this retirement savings vehicle, but it might not make sense if you have competing financial priorities. Some experts advise saving up an emergency fund, paying off high-interest debt, and max out an employer's 401(k) match before maxing out your Roth IRA.

Should I max out my Roth IRA in my 20s?

The Bottom Line

Because of the Roth IRA's unique tax benefits, 20-somethings who are eligible should seriously consider contributing to one. A Roth IRA can be a wiser long-term choice than a traditional IRA, even though contributions to traditional IRAs are tax deductible.

Roth IRA vs HSA: Which One Should You Fund First?

28 related questions found

What is the downside of a Roth IRA?

Key Takeaways

One key disadvantage: Roth IRA contributions are made with after-tax money, meaning that there's no tax deduction in the year of the contribution. Another drawback is that withdrawals of account earnings must not be made until at least five years have passed since the first contribution.

In what order should you invest?

Prioritize high interest, non-deductible debt (credit cards, etc).... pay these debts off first. Basically, if the interest rate on your debt is higher than the return you expect to achieve from investing your money elsewhere, then you should pay down your debt before you invest elsewhere.

Why should I max out my HSA?

You keep your HSA if you switch jobs or retire, and funds rollover year-after-year. HSAs are triple tax advantaged. Contributions aren't federally taxed; funds grow tax-free; and funds used to pay for qualified expenses aren't taxed! (Most state laws treat HSAs similarly, but there are exceptions).

What if you max out your Roth IRA every year?

By maxing out your contributions each year and paying taxes at your current tax rate, you're eliminating the possibility of paying an even higher rate when you begin making withdrawals.

How much should I have in my HSA at retirement?

But how much should you save? According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

How much should I contribute to my HSA 2022?

Maximum contribution amounts for 2022 are $3,650 for self-only and $7,300 for families. The annual “catch-up” contribution amount for individuals age 55 or older will remain $1,000.

How much money should I put in my HSA each paycheck?

How much should I contribute to my health savings account (HSA) each month? The short answer: As much as you're able to (within IRS contribution limits), if that's financially viable.

How much should a Roth IRA be to be a millionaire?

IRA Millionaire: A Detailed Breakdown

If you contribute this year's IRA maximum of $6,000 every year and earn a 7% average annual return on investment (ROI), it would take a little more than 37½ years to grow your account to $1 million.

How much do I need to contribute to Roth IRA to be a millionaire?

It would take you more than 166 years to reach $1 million if you only contributed $6,000 every year and let the money sit in your account. There's a faster way to achieve your goals, and that's where investing comes in. There are many types of assets you can buy with your Roth IRA funds, including: Individual stocks.

How much can a Roth IRA grow in 20 years?

How much will a Roth IRA grow in 20 years? While a $6,000 initial deposit in a Roth IRA can grow to $23,218 in 20 years at a 7% annual rate of return, it will grow much more if you continue to make monthly or yearly contributions to the Roth IRA.

Should I invest all of my HSA?

Investing your HSA funds can be a great way to save for the future. But it's generally only a good option if you're not consistently dipping into the account to cover current medical expenses.

How much does the average 35 year old have saved?

Join the club. The average 35-year-old doesn't have $105,000 saved either. The median retirement account balance is $60,000 for the 35-44 age group, according to the Federal Reserve's 2019 Survey of Consumer Finances.

How much savings should I have at 35?

By the time you are 35, you should have at least 4X your annual expenses saved up. Alternatively, you should have at least 4X your annual expenses as your net worth. In other words, if you spend $60,000 a year to live at age 35, you should have at least $240,000 in savings or have at least a $240,000 net worth.

Where should I invest my money first?

Here are six investments that are well-suited for beginner investors.
  • 401(k) or employer retirement plan.
  • A robo-advisor.
  • Target-date mutual fund.
  • Index funds.
  • Exchange-traded funds (ETFs)
  • Investment apps.

At what age does a Roth IRA not make sense?

But even when you're close to retirement or already in retirement, opening this special retirement savings vehicle can still make sense under some circumstances. There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one.

What is the 5 year rule for Roth IRA?

The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it's been at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether they're 59 ½ or 105 years old.

At what age must you stop contributing to a Roth IRA?

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.

Do billionaires have Roth IRAs?

Some ultra-wealthy individuals have amassed hundreds of millions — or even billions — of dollars in tax-sheltered Roth individual retirement accounts, according to a report released Thursday from ProPublica, an investigative news outlet.

How can I be a millionaire in 5 years?

9 Steps To Become a Millionaire in 5 Years (Or Less)
  1. Create a Plan.
  2. Employer Contributions.
  3. Ask for a Raise.
  4. Save.
  5. Income Streams.
  6. Eliminate Debt.
  7. Invest.
  8. Improve Your Skills.

How can I get rich with 30k?

Here are 12 strategies to make your $30k grow:
  1. Take advantage of the stock market.
  2. Invest in mutual funds or ETFs.
  3. Invest in bonds.
  4. Invest in CDs.
  5. Fill a savings account.
  6. Try peer-to-peer lending.
  7. Start your own business.
  8. Start a blog or a podcast.