Starting a new series. Inspired by Matt Walsh, who likes to veer into the relationships section of Reddit to help the romantically hopeless, we will attempt to answer some Reddit questions with our takes.
I make ~$175k a year (wife makes $65k), my company matches 401k contributions up to 6% and I currently contribute 12.5% of my pre-tax salary. I also have a small Roth IRA, a company pension with ~$75k in it and contribute $3k annually to an HSA that I don’t touch, my company also matches $900 to the HSA. I’m late 30’s married with two kids in daycare ($2800/month).
Reddit
I’m wondering if my 401k contribution is too high and I’m missing out on better investment opportunities. Should I reduce my 401k contribution and max out my HSA annual limit or the Roth limit or open another IRA? Thanks for the input.
we recommend fully funding an HSA for this person. The reason is that a Health Savings Account, which is only available if you participate in a High Deductible Health Plan, gives three tax benefits
- contributions are pretax and reduce your taxable income
- your HSA funds grow tax-free
- when used to pay for eligible medical expenses, HSA withdrawals are tax-free
HSA contribution amounts are capped each year by the IRS. For 2022, an individual may contribute $3650 and $7,300 for family coverage. Individuals 55 and older are eligible for an additional $1,000 catch-up contribution.
(Source: Kiplinger finance)
Since they are already getting the 401k match, there is no reason not to redirect some 401k money to an HSA if possible. Invest in low-cost ETFs or mutual funds. Don’t “use” those HSA dollars this year if avoidable. Then at retirement (or even early retirement) use those funds for older age health expenses, which are usually sizable.
