Funding HSA: brokerage + Roth conversion or pull from 401k?

Finally FI

Dryer sheet aficionado
Joined
Nov 12, 2022
Messages
43
I’d like to make my 2024 HSA contribution before year-end. I also want to complete an in-plan $39k Roth conversion (in my 401k) to bring our AGI up to 60k (the estimate we used for ACA).

I want to make sure I understand my options correctly.

Option 1
  • Pull $9300 after-tax money from brokerage account.
  • Contribute $9300 to the HSA
  • Increase my planned $39k Roth conversion to $48,300 because my AGI will be reduced by the $9300 HSA contribution when I do taxes
Option 2
  • Complete a $9300 withdrawal from my 401k, netting me ~$7300 after taxes (the brokerage where the 401k resides says they pull taxes on all withdrawals)
  • Pull ~$2000 after-tax money from brokerage account
  • Contribute $9300 to the HSA
  • Complete the planned $39k Roth conversion
Am I understanding the processes correctly?

If so, it seems like option 1 is better, as that moves additional money into Roth. Does that sound right?
 
Seems like a pure HSA play with the roth as a bonus.

You can do a one time only finding of an HSA an IRA, not sure about a 401k.

Otherwise, yes, I like option 1 better.
 
The HSA contribution is independent of the Roth conversion except that it gives you that direct AGI lowering. And you can do a larger Roth conversion without any required tax withholding.

Why would you neutralize your HSA tax deduction opportunity by withdrawing the same amount from your 401K to fund it?
 
If I'm understanding the replies, it sounds like both options are technically correct, and yes, option 1 is the best because it moves money into Roth. Please let me know if that's not right. :)

The HSA contribution is independent of the Roth conversion except that it gives you that direct AGI lowering. And you can do a larger Roth conversion without any required tax withholding.
Thank you, yes. I believe that's what I outlined under option 1. Please let me know if I missed something.

Why would you neutralize your HSA tax deduction opportunity by withdrawing the same amount from your 401K to fund it?
I think you're referencing option 2. I would still be contributing the full $9300 to the HSA. $7300 would come from the 401k (after tax) and $2000 would come from our brokerage account, allowing me to still get the full HSA tax deduction (I think, but am asking). The taxes paid from the 401k withdrawal would reduce the estimated taxes I will pay for the Roth conversation, making that part a wash.
 
I think you're referencing option 2. I would still be contributing the full $9300 to the HSA. $7300 would come from the 401k (after tax) and $2000 would come from our brokerage account, allowing me to still get the full HSA tax deduction (I think, but am asking). The taxes paid from the 401k withdrawal would reduce the estimated taxes I will pay for the Roth conversation, making that part a wash.
You’ve would take $9300 in taxable income from your 401K which simply erases the HSA deduction. So I don’t see any benefit of doing it that way. And you’ve missed out on a Roth conversion opportunity.

Can you fund your HSA from taxable accounts? That’s generally better.

And then use the HSA tax deduction to do a larger rollover?
 

Latest posts

Back
Top Bottom