HSA versus 401K

[Ava]

My job is offering an HSA plan for employees for the first time, starting January 1st.

I read all the information they uploaded in the internal website and I understand how it works. The money is pre-tax and it's yours after it hits your account, even if you change jobs. It does not expire, so you can keep it there for years. The maximum we are allowed to save is $3,500 a year.

We also have a 401k plan where the company matches the first 4% of savings.

Right now I have maxed my Roth IRA for 2014 and 2015 and I'm contributing 6% of my income to the 401K.

Would it be smart of me to divert the extra 2% to an HSA or should I keep contributing that money to the 401K?

Thanks for your input. 

[yogiii]

I like it because like a Roth, the earnings will grow tax free.  Have you checked what investments are offered in your HSA or how big of a balance you need to start investing.  Also check out if there are any monthly fees related to the account.  If the fees are not bad and the investments offered are good I would put 2% in the HSA.

[Deleted]

I think of the 3 (Roth, 401K, HSA), the HSA is the best retirement savings vehicle. It's tax-deferred going in AND tax-free coming out (if you use it for medical expenses).  I wouldn't give up the 401K match, but I'd be all over the HSA after that. 

[Ava]

I have no idea what investments will be offered and the fees they are going to charge us.

I have to look into that, but I'm not sure they released that information yet.

For some reason, I thought everybody here would tell me to keep putting the extra money on the 401k.

Yes, I still plan to keep the first 4% there, so I can get the match.

[Deleted]

I'd put the extra into the HSA, too. I'm retired so 401(k)s aren't an option, but I can still contribute to an HSA because I have a high-deductible policy. I maxed it out and will do that every year till I get Medicare. Not taxed going in OR coming out is a great deal!   

Note that if you leave your employer, you're free to shop around and move your HSA elsewhere. Mine is with healthsavings.com where I invested it in Vanguard Wellington Fund.

[Deleted]

Oct 10, 2015 17:16:23 GMT -5 Ava said:

For some reason, I thought everybody here would tell me to keep putting the extra money on the 401k.

The thing is, even if you don't end up using the HSA funds for medical expenses to get the double tax break, it's treated just like a 401K in retirement as far as taxation.  So unless the investment options are horrible in comparison, you're better off going with the HSA. 

[Tiny]

Just make sure you have $$ on hand to cover your medical expenses since you'll probably have to sign up for a High Deductible health plan that may not cover as much stuff as the old plan. You might be able to take advantage of an FSA for eye/dental that goes along WITH the HDHP/HSA (you can't use the FSA for stuff the HDHP/HSA cover).

That said, I too would say take the HDHP and HSA if that fits your medical needs.


I switched to the HDHP/HSA this year (because I generally don't have much in the way of health care expenses) and of course this was the year I had a lot of doctor's visits and a couple of 'procedures' and whatnot. I was out of pocket the $1300 deductible and some spare change for perscriptions. If I had stayed with my old PPO plan - I would have been out the co-pays - so probably less than $300 for the same stuff. I'm 51 so I don't have a 'lifetime' to let my HSA grow. It's still a good deal though. Hopefully, for the next 5 or 6 years I'll go back to NOT having much in the way of medical expenses.

[justme]

Definitely make sure the HSA fits your medical needs too. My work offers one but I can't switch because I use my insurance and the deductible/oop max are twice as high as the other plan and I have several daily medications. I wouldn't be able to save any money in my HSA if I switched to it unfortunately.

[Deleted]

I agree on making sure an HDHP works for you if you have a choice. We didn't when I was working. I started in September, 2012 and DH needed an endoscopy. Well, that blew the $2,500 deductible. I didn't realize he'd need a follow-up endoscopy. They did it January. There went the deductible again. Ouch.

DH is on Medicare now and I have a plan with a $6K deductible because 99% of the time I'm very healthy.

[Ava]

We have two plans, but really, there's not that much of a difference between deductibles. Both are high. The other plan costs $19 more biweekly. The deductible difference is $500. The amount you have to pay out of pocket for going out of network is higher in the HDHP.

I looked at both options and still think the HDHP is the most convenient.

Can I use the money in HSA for dental expenses or only medical?

[bean29]

I have had a HDHP and HSA for about 7 years now.  I just started trying to get extra $$ in my HSA last year.

I put in about 6,000 last year and am on track to max it this year.  My HDHP has a family deductible of 2500 then pays 100% of medical claims once deductible is met.  Prescription coverage is not the best, there is another 1,000 deductible and then still co pays beyond the deductible, so last year I took out almost as much as I put in my HSA, but we all got glasses and DS had a root canal and crown, and there were some other dental expenses.  This year I am again trying to put 6,000+ in the account and now have about 2,000 balance with my Deductible met on my HDHP.  I got a crown this year also, so that was over $600.  

But I think the HSA is an important part of our financial planning, because, it is available not only in retirement but before you retire as long as you use it for medical expenses, so it is kind of like an emergency fund with out taxes and penalties.

I have mine in a regular checking account (it has to go there from my payroll deduct, but then you can re-invest it somewhere else), but my goal is to get a thousand or two a year in some sort of index fund like althena53 is using.

I did reduce my 401K w/h this year and increase my HSA, so I want to transfer some $$ to an investment...but I want to keep at least part of my deductible in ready "emergency like" available funds to pay next year's medical expenses.

[gooddecisions]

I recall you said in another post, you'll be retiring in a different country. So, I suppose whether you choose an HSA depends on how medical insurance for retirees works in the country you'll return to. I specifically choose a HDHP because of the HSA option and max out the HSA because I'd like the option to retire before medicare and an HSA gives me more confidence. I max it out and do not touch it. But, I also max out my 401(k) and send a good chunk of change to a brokerage account each year, so it's not an either or situation.

[justme]

Ugh I'm jealous of your guys HSA. My choices are deductible 750/1500 with oop max 3000/6350. It's insane that the max oop for hdhp can be higher than the max allowed to into an HSA. If I had a 2500 oop max I'd switch to HSA in a heartbeat.

[ArchietheDragon]

You should be contributing at least enough to the HSA to cover what your out of pocket medical expenses will be. That is money you will have to spend, so there is no good reason to not put it in the HSA first.

[Deleted]

Oct 11, 2015 8:31:18 GMT -5 Ava said:

Can I use the money in HSA for dental expenses or only medical?

Dental as well. They pretty much allow anything that would be deductible as a Medical expense on your taxes, except for the limitation on using it for insurance premiums before a certain age.

Back when we had a Flexible Spending Account, we were able to use it to pay airfare for DH to visit a specialist in his disease (polycythemia) at Johns Hopkins. I had to kick the request up one level to a manager but they allowed it.