Should I maximize HSA or 401k first?

Should I max out my HSA or 401k first?

#4 Max out your 401(k)

After maxing HSA contributions, then contribute additional money to a 401(k). Maxing contributions to both your HSA and retirement accounts should help you build a nest egg your future self will appreciate.

Should you max out HSA or Roth IRA first?

Is It Better to Max Out an HSA or a Roth IRA? If you have to choose, prioritize the HSA for its triple tax benefits, especially if you anticipate significant healthcare costs in retirement. However, if you expect higher taxes in the future, a Roth IRA could be more advantageous.

How much should I contribute to my HSA in my 30s?

The short answer: As much as you're able to (within IRS contribution limits), if that's financially viable. If you're covered by an HSA-eligible health plan (or high-deductible health plan), the IRS allows you to put as much as $4,300 per year (in 2025) into your health savings account (HSA).

Should I max out my Roth or 401k first?

If you don't have enough money to max out contributions to both accounts, experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match.

What is the downside of an HSA?

Drawbacks of HSAs include tax penalties for nonmedical expenses before age 65, and contributions made to the HSA within six months of applying for Social Security benefits may be subject to penalties. HSAs have fewer limitations and more tax advantages than flexible spending accounts (FSAs).

Can you use HSA for dental?

Your HSA also covers expenses for standard dental cleanings and dental check-ups. One thing to keep in mind is that some of these procedures may have a co-payment, so it's important that you check with your dental insurance provider to find out exactly what you'll have to pay out of pocket.

When should I stop contributing to my HSA?

Once you turn 65, you can use the money in your HSA for anything you want. If you don't use it for qualified medical expenses, it counts as income when you file your taxes. Six months before you retire or get Medicare benefits, you must stop contributing to your HSA.

At what age should I stop contributing to my 401k?

Most experts recommend contributing to your 401(k) for at least as long as you're working.

In what order should I max out my investment accounts?

What is a backdoor Roth?

A backdoor Roth IRA is a strategy rather than an official type of individual retirement account. It is a technique used by high-income earners—who exceed Roth IRA income limits for making contributions—to contribute indirectly–through the back door–by converting their traditional IRA to a Roth IRA.

Is it smart to max out your HSA?

If you're able to make the maximum contribution each year, then it's suggested that you do so. Some years you may need to use more of your HSA contributions than other years. Just remember, there's no yearly minimum you have to spend from your HSA and your entire HSA automatically rolls over each year.

Is HSA better than 401k?

Comparing HSAs and 401(k)s

The triple-tax-free aspect of an HSA makes it better for tax management than a 401(k). However, since HSA withdrawals can only be used for healthcare costs, the 401(k) is a more flexible retirement savings tool. The fact that an HSA has no RMD gives it more flexibility than a 401(k).

What happens to unused HSA funds?

Unlike many flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs), unused HSA funds automatically carry over to the following year. Even if your employer provided the account and made contributions, the account belongs to you — so any remaining funds are carried over every year.

Is maxing out 401k and HSA enough?

First off, most experts would recommend maxing out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There's no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back.

Which account should I max out first?

In a bull market, you want to at minimum, max out your tax-advantaged accounts first. Then aggressively invest in taxable risk assets. This is the time to increase your saving rate to a painfully high amount so you can invest as much money in your taxable investments as possible.

Should I max out pre tax or Roth 401k?

Try to estimate which one best reflects your present and future tax situation. If you expect your tax bracket to increase, the Roth contribution option will clearly make more financial sense. If you predict the reverse, pretax contributions will benefit you more in the long run.

What is a good HSA amount?

The amount of money you should have in your HSA during retirement depends on your healthcare needs and circumstances. According to the Fidelity Retiree Health Care Cost Estimate, a single person who is age 65 in 2023 should aim to have about $157,000 saved (after tax) for healthcare expenses during retirement.

What happens if you put too much in your HSA account?

5. What happens if I contribute more than the IRS annual maximum? If your HSA contains excess or ineligible contributions you will generally owe the IRS a 6% excess-contribution penalty tax for each year that the excess contribution remains in your HSA. It is recommended you speak with a tax advisor for guidance.

How much should I put in my HSA per paycheck?

You can start small, perhaps setting aside $25 to $50 per paycheck. Consider also trying to cut back on non-essential spending, such as foregoing one of your app subscriptions, reducing meals out or making your morning cup at home versus going to a coffee shop.