Another HSA question - order of contributions question

[NYCO]

I just have a quick question and couldn't find the answer when searching.

At least for my particular situation is there any reason I shouldn't contribute first to max my Roth (5,000), 2nd to my HSA (3,100 in 2012), third to single 401k?

I'm self employed with an S-corp and just joined a HDHP and started an HSA although just individually and not under my S-corp at this point. I realize that's only about $8,100 that I'm putting away, but I'm also trying to get some additional savings set aside for some other things at the moment. Ideally I will put more in - I'm really just asking if there is a reason NOT to want to max out the HSA before I would put ANY amount into my traditional 401k?

I'm healthy and plan to probably just pay any minor health expenses out of pocket for the most part.

Secondly, I can't seem to find a benefit to associating my HSA with my S-corp because the HSA is already triple tax advantaged. Are there any?

 

[ziggy29]

If you plan on using HSA funds for retirement rather than medical expenses (i.e. you intend to pay much of the deductible and co-pay out of pocket), I'd prefer 401K and IRA contributions be done first, and here's why:

* You can have penalty-free access to 401K retirement funds as early as age 55, but not until age 65 with an HSA.

* With a 401K, you have an option to roll into an IRA and take SEPP if you need access before age 55 -- again, not available with an HSA.

* Early withdrawal penalties are now 20% from an HSA as opposed to still being 10% for a 401K.

* Though usually discouraged, many 401K plans have loan provisions and HSAs do not -- you take it out for non-medical reasons, you pay the taxes and penalties.

And though it's not your situation being self-employed, people who have an employer match on their 401K should absolutely get all of that match before using IRAs or HSAs in most cases.

 

[NYCO]

* You can have penalty-free access to 401K retirement funds as early as age 55, but not until age 65 with an HSA.

Thanks for the comments. I thought it was 59 1/2 for penalty free withdrawls from HSA which is why I thought of it very close to the same (on that aspect) to a traditional 401k. 4.5 years wouldn't be much, but 10 is. Maybe it is 65.

I just figure my health expenses won't be much until I'm older as long as I live a healthy lifestyle, though I know things come up unexpectedly. I'd have accumulated a large chunk of money that never gets taxed for when I know I will have the majority of my medical expenses later in life.

 

[Animorph]

Depends quite a bit on your tax situation as well. The HSA is probably your most tax-advantaged and should maybe be first in line, barring concerns with withdrawals mentioned above. And if the HSA offers reasonable investment choices for you. But next would be the 401k if your taxes are high now due to other income. If you have no other income, then the Roth might be a good spot, even ahead of the HSA if you can put it in the Roth and still not pay any taxes. Watch out for the Roth 5 year withdrawal restriction if it's a new account. Stuff the rest in the Solo 401k. Might also watch out for any minimum investment amounts if you spread $8k too thin to buy the investments you want.

 

[jdw_fire]

If you plan on using HSA funds for retirement rather than medical expenses (i.e. you intend to pay much of the deductible and co-pay out of pocket), I'd prefer 401K and IRA contributions be done first, and here's why:

* You can have penalty-free access to 401K retirement funds as early as age 55, but not until age 65 with an HSA.

if your keep track of all you pay "out of pocket" in medical/dental/drug expenses over the years you can withdraw at a later date of your choosing with no tax or penalty owed, that total amount from your HSA.