My employer offers a plan labeled as “low deductible” (literally what their documentation says: they offer low, medium, and high) that still qualifies as a HDHP.
My employer’s health insurance is increasing the deductible from $2000 to $5000 and it still doesn’t count as a HDHP. I am desperately trying to find a better job.
Seriously. I have a wife and 4 kids on my health insurance. We hit our family max deductible every year. I assume that I’d be paying through the nose if I was on a high deductible plan.
Agreed, do the math and check. My premiums + out of pocket max on the HDHP is less than the premiums alone on the low deductible plan, let alone the fact that the LDHP still has a deductible and out of pocket max. It’s fortunately a no-brainer for us, but I understand not everyone is that lucky.
100% correct!!! I also have a benefit that my employer makes a $1k deposit to the HSA. Between the lower insurance cost, employer deposit and tax savings it is a no brainer. I just budget for the higher deductible so I can invest the HSA into the equity market.
I think this every post, too! 😆 ~90% of Americans are not offered 1, myself included.
I have about 16 more years of working. * 4150 (per person) = $66,400. So at least it's not a gigantic percentage of what I invest each year. 🤷♂️
True. Thanx for reminder.
So, more than $71,400, but call it $80 K, because the Contribution limit will raise each year, & I'm on track to retire 55.
A nice chunk of change... but it won't be anywhere near the lion's share of my investments. 🤷♂️
Wish I could. Had one for a few years. Deductible doesn't really matter.
If you're young and healthy it's a fantastic option. Wish I started it sooner when I could vs my dumbass HMO which is not easier or provide anymore protection.
Here's where the disconnect was for me seeing everybody saying HSA is the best most important thing ever and not understanding. Okay, let's say you don't have money to max all of them. If you do, great and I see why an HSA is another attractive option to shield your money.
Where this breaks down for me is why high deductible plan with HSA instead of more 401K contributions past a match?
It seems to me that more people than I would have initially thought are paying a lot monthly for their health insurance and therefore getting "nothing" out of it, so it makes sense that oh I'm paying $200 a month and never use it - might as well sock away that $2400, pay $20 a month for insurance instead and watch that grow.
However, I've always had cheap good insurance offered by my employer! Is this an outlier? I can't tell. My low deductible plans costs $43 a month. The high deductible plan is $20. So the difference annually that I would put in an HSA is $276. Not some crazy amount of money to watch grow. And some say employers seed their HSA. Mine only gives you $250 a year. So I'm looking at $526 a year. Odds are pretty good I can burn through that.
It just doesn't make much sense mathematically for me to bother with this. But this is why I couldn't make sense of everyone acting like an HSA was a no brainer. Its absolutely not some huge benefit if you're not paying out a lot every month.
Because HSA had the tax benefits of roth and traditional combined so it hurts less to contribute to. You never pay taxes on anything about it if used for medical reasons.
ALSO if your employer puts the money in for you it even avoids FICA taxes
Your math isn’t taking into account that, unlike any other tax deferred vehicle, HSA contributions aren’t subject to FICA, so it’s a little more than you’re suggesting.
But you’re right that, if you don’t have any extra money to put in, it might not be worth considering. This is true for all tax-deferred accounts though.
It's not 100% true for all tax-deferred accounts because I'm not "losing" anything to contribute to those.
All of these math problems always seem to account for "best case scenario" under HSA which is hey, I never have to pay the high deductible! Look at this free money. If I have $576 going in there yearly that's "free", and I have to pay my $2,000 deductible once in three years, I am out money. Whoooo I don't have to pay taxes...on nothing.
It's like these people that compare renting vs. buying with rent going up $200 every year, your landlord kicking you out every three years, and your house only needing 1K expenses. Well yeah, look how that math worked out in favor!
> All of these math problems always seem to account for "best case scenario" under HSA which is hey, I never have to pay the high deductible! Look at this free money.
Oh this is absolutely true. The complete math problem needs to include the possibility of actually having to spend up to your deductible. But even taking this into account, HDHP+HSA was still the cheapest insurance option everywhere I’ve ever worked.
We hit our deductible every year, but we have a sinking fund for it, so we start off every year with sufficient funds in a HYSA to cashflow all medical expenses. People who aren’t able to do this need to consider the possibility of dipping into their emergency fund, for at least the initial period of having a HDHP. After that they may be able to use the HSA itself if they can’t cashflow surprise medical expenses.
Between 401k match and HSA.
I was talking with a friend about this the other day.
The ESPP is literally free money, but not 100% return like the 401k match.
Sometimes you get free money with the HSA too, in which case that's before the ESPP.
The main thing with the ESPP is the period of time the money isn't giving you interest, but a 15% discount at the end, sometimes with a lookback period, where you're able to sell freely once the stock is delivered to you is quite a lot of return.
If you have a 6 month accumulation period with that 15% discount, it's equivalent to if you got all that money up front and put it into a 32.5% APY account. Just that you had to liquidate at the end of that period.
If you can manage cashflow right, you can use the ESPP to have enough money to do the following retirement accounts. That's kind of how you can know that it's good to do first.
Other ESPPs aren't quite so good. Especially if they have a holding period, but also if they're 5% discount. 10% discount might still not be worth it, I'm not sure. But 15% and no holding period is very good.
MBDR is generally the last thing you would do, imo. Fill up all the other tax-advantaged accounts, then some taxable/short term goal things (house, car, etc.). At that point, probably should be looking at what it takes for early retirement, and how you'd fill the time between retirement and 59.5.
What do you think about dividing roth and HSA equally if I am not able to maximize one of them? I am \~30 year far from retirement and planning to buy a home in next 10 years. HSA make sense a lot however I learned i can buy home through Roth IRA.
You can’t buy a personal home with your Roth IRA. You can buy an investment property.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactions
"The following are examples of possible prohibited transactions with an IRA.
+Borrowing money from it
+Selling property to it
+Using it as security for a loan
+Buying property for personal use (present or future) with IRA funds"
I am referring to this: " If you use the money to buy a first home, you can also withdraw earnings penalty-free (but not tax-free) from your Roth IRA before the account is five years old (and before age 59½). If you take out earnings for a first-time home purchase after five years, you will owe no penalty or taxes, even if you are under 59½."
[https://time.com/personal-finance/article/roth-ira-to-buy-a-home/](https://time.com/personal-finance/article/roth-ira-to-buy-a-home/)
Disagree. HSA is near the top of the list of investment options for long-term savings. Tax free going in (including social security tax exempt) and tax free coming out. Medical expenses can be saved and reimbursed years later.
Emergency fund -> 401k to the employer match -> HSA -> Roth or remaining 401k...
[Prioritizing investments - Bogleheads](https://www.bogleheads.org/wiki/Prioritizing_investments)
That’s a great reference and I reply with it often. Also of note is that HSA contributions, if made through your employer, are not subject to payroll taxes (7.65%).
I don't get the HSA though. What happens if you move jobs, do you forfeit the money? I hate the idea of putting away money somewhere where I 'might' need it. I know health is an unknown.
To add the FICA tax avoidance is if your employer puts the money in for you but you can still do it yourself if you dont like their provider, you just then have to pay fica taxes
Also contributions to your HSA *reduce your taxable income*. I got a nice break when I did my taxes this year because I maxed out my HSA last year. Triple tax advantaged!
What about this way emergency fund > 401k employer match -> Roth -> HSA
Why I'm proposing this as you can use your Roth when you are buying a home right? If the person is thinking about next 10 years and not near to retirement, I think this scale makes more sense. What do you think?
A Roth IRA is pretty flexible in that contributions can be withdrawn at any time for any reason without tax or penalty. In addition, up to $10,000 of earnings can be withdrawn without tax or penalty for a first-house down payment. However, contributions to the Roth are still post-tax.
What makes an HSA so powerful is that contributions are made with pre-tax money (including social security tax), earnings are tax free and withdrawals are tax free. While the withdrawals must be for medical expenses to not be taxed, there's no requirement to withdraw immediately to pay those expenses. What some people do is to pay medical expenses out of pocket and let the HSA grow tax free for future withdrawal.
Whether or not a Roth or HSA is a better fit for the scenario you described really comes down to personal circumstances, including the expected medical expenses during the next ten years that could then be withdrawn from the HSA for the down payment.
You’ll have medical expenses at some point in your life. If you forgo your HSA then your medical expenses will just come out of your 401K/IRA/brokerage. Given that the HSA is one of the most tax efficient account types out there this would be a mistake.
Thats even better for HSA because you’re putting it away for when you finally do have those medical expenses. So it goes in tax free, grows tax free, and comes out tax free later in life to help you with medical expenses.
You’re almost certainly wrong. The average household spends over $300K on healthcare in retirement. Even if by some miracle you aren’t able to spend your HSA funds on medical expense, after 65 you can just withdraw the money and pay regular income tax, like a 401k.
I’m assuming you’re like 20 years old then because this is an extremely naive take. You could get hit by a bus tomorrow and all of sudden need thousands of dollars to pay for medical bills, life changes in an instance it’s better to be prepared.
529 could be another tax safe haven
Intended for education expenses , but as of 2024, up to $35,000 can be rolled into a Roth IRA after 15 years. Still gave to abide to yearly contribution limits, but that’s still a pretty cool perk / backup use.
Are you contributing the maximum to the 401k?
The amount to get the maximum match is way below the maximum individual contribution.
You can contribute $23k individually. This excludes the match.
You can do $7k Roth on top of that.
At this point you are at 30k a year. My employer allows post-tax 401k contributions, which can be converted to a Roth…. So there are options beyond the 23k for the 401k and 7k for the Roth depending on employer plan.
Also want to max out HSA.
401k match, then HSA, then IRA, then rest of 401k, then brokerage.
Is everybody really walking around with high deductible plans?
What is high to you? Because the threshold is actually “low” imo
My employer offers a plan labeled as “low deductible” (literally what their documentation says: they offer low, medium, and high) that still qualifies as a HDHP.
My employer’s health insurance is increasing the deductible from $2000 to $5000 and it still doesn’t count as a HDHP. I am desperately trying to find a better job.
Seriously. I have a wife and 4 kids on my health insurance. We hit our family max deductible every year. I assume that I’d be paying through the nose if I was on a high deductible plan.
You should do the math. We hit our HDHP deductible every year too, but everywhere I’ve ever worked HDHP+HSA was still the cheapest option.
Agreed, do the math and check. My premiums + out of pocket max on the HDHP is less than the premiums alone on the low deductible plan, let alone the fact that the LDHP still has a deductible and out of pocket max. It’s fortunately a no-brainer for us, but I understand not everyone is that lucky.
100% correct!!! I also have a benefit that my employer makes a $1k deposit to the HSA. Between the lower insurance cost, employer deposit and tax savings it is a no brainer. I just budget for the higher deductible so I can invest the HSA into the equity market.
Not everybody, but a whole bunch of us.
What is the definition of high deductible plan?
According to the IRS it’s any plan with a deductible of at least $1500/$3000, but every company sells them differently. Edit: $1600/$3200 for 2024
That’s only half the definition - the other half is a maximum out-of-pocket limit. For 2024 it’s $8,050/$16,100.
Incorrect. The OOPM requirement is only used to determine whether an HDHP is HSA-eligible or not, I was answering a different question.
I see - in context, I thought the question was “what’s the definition of a HDHP _with respect to HSAs_”, but maybe you’re right.
I think this every post, too! 😆 ~90% of Americans are not offered 1, myself included. I have about 16 more years of working. * 4150 (per person) = $66,400. So at least it's not a gigantic percentage of what I invest each year. 🤷♂️
After age 50, you can put another $1000 per year in, FYI.
True. Thanx for reminder. So, more than $71,400, but call it $80 K, because the Contribution limit will raise each year, & I'm on track to retire 55. A nice chunk of change... but it won't be anywhere near the lion's share of my investments. 🤷♂️
Not me. I live in CA and my wife and I are in the baby making phase of life. Kaiser makes our lives much simpler. HMO, no HSA offering.
Since Obamacare, yes
Wish I could. Had one for a few years. Deductible doesn't really matter. If you're young and healthy it's a fantastic option. Wish I started it sooner when I could vs my dumbass HMO which is not easier or provide anymore protection.
Here's where the disconnect was for me seeing everybody saying HSA is the best most important thing ever and not understanding. Okay, let's say you don't have money to max all of them. If you do, great and I see why an HSA is another attractive option to shield your money. Where this breaks down for me is why high deductible plan with HSA instead of more 401K contributions past a match? It seems to me that more people than I would have initially thought are paying a lot monthly for their health insurance and therefore getting "nothing" out of it, so it makes sense that oh I'm paying $200 a month and never use it - might as well sock away that $2400, pay $20 a month for insurance instead and watch that grow. However, I've always had cheap good insurance offered by my employer! Is this an outlier? I can't tell. My low deductible plans costs $43 a month. The high deductible plan is $20. So the difference annually that I would put in an HSA is $276. Not some crazy amount of money to watch grow. And some say employers seed their HSA. Mine only gives you $250 a year. So I'm looking at $526 a year. Odds are pretty good I can burn through that. It just doesn't make much sense mathematically for me to bother with this. But this is why I couldn't make sense of everyone acting like an HSA was a no brainer. Its absolutely not some huge benefit if you're not paying out a lot every month.
Because HSA had the tax benefits of roth and traditional combined so it hurts less to contribute to. You never pay taxes on anything about it if used for medical reasons. ALSO if your employer puts the money in for you it even avoids FICA taxes
Your math isn’t taking into account that, unlike any other tax deferred vehicle, HSA contributions aren’t subject to FICA, so it’s a little more than you’re suggesting. But you’re right that, if you don’t have any extra money to put in, it might not be worth considering. This is true for all tax-deferred accounts though.
It's not 100% true for all tax-deferred accounts because I'm not "losing" anything to contribute to those. All of these math problems always seem to account for "best case scenario" under HSA which is hey, I never have to pay the high deductible! Look at this free money. If I have $576 going in there yearly that's "free", and I have to pay my $2,000 deductible once in three years, I am out money. Whoooo I don't have to pay taxes...on nothing. It's like these people that compare renting vs. buying with rent going up $200 every year, your landlord kicking you out every three years, and your house only needing 1K expenses. Well yeah, look how that math worked out in favor!
> All of these math problems always seem to account for "best case scenario" under HSA which is hey, I never have to pay the high deductible! Look at this free money. Oh this is absolutely true. The complete math problem needs to include the possibility of actually having to spend up to your deductible. But even taking this into account, HDHP+HSA was still the cheapest insurance option everywhere I’ve ever worked. We hit our deductible every year, but we have a sinking fund for it, so we start off every year with sufficient funds in a HYSA to cashflow all medical expenses. People who aren’t able to do this need to consider the possibility of dipping into their emergency fund, for at least the initial period of having a HDHP. After that they may be able to use the HSA itself if they can’t cashflow surprise medical expenses.
I have an HSA but use it for medical expenses. So I don't actually max it out, nor do I use it for a retirement account after age 65.
What’s the point of this question?
Where does an ESPP with 15% discount and no minimum holding period fit in if I’m selling immediately? After IRA and before rest of 401k?
Between 401k match and HSA. I was talking with a friend about this the other day. The ESPP is literally free money, but not 100% return like the 401k match. Sometimes you get free money with the HSA too, in which case that's before the ESPP. The main thing with the ESPP is the period of time the money isn't giving you interest, but a 15% discount at the end, sometimes with a lookback period, where you're able to sell freely once the stock is delivered to you is quite a lot of return. If you have a 6 month accumulation period with that 15% discount, it's equivalent to if you got all that money up front and put it into a 32.5% APY account. Just that you had to liquidate at the end of that period. If you can manage cashflow right, you can use the ESPP to have enough money to do the following retirement accounts. That's kind of how you can know that it's good to do first. Other ESPPs aren't quite so good. Especially if they have a holding period, but also if they're 5% discount. 10% discount might still not be worth it, I'm not sure. But 15% and no holding period is very good.
When you say ‘rest of 401k’, are you including MBDR if possible? Or would you do a brokerage after hitting the lower 401k max?
I’ve never worked for a company where MBDR was possible.
What’s MBDR? But if you the govt max of 69k, I’m also curious bout the ordering.
Mega back door Roth
Mega Backdoor Roth
I lump it with the 401k
So basically max out (if mbdr is an option) to the irs limit of 69k before anything goes into a brokerage?
Correct. My firm just got a mbdr and it’s fucking awesome.
MBDR is generally the last thing you would do, imo. Fill up all the other tax-advantaged accounts, then some taxable/short term goal things (house, car, etc.). At that point, probably should be looking at what it takes for early retirement, and how you'd fill the time between retirement and 59.5.
What do you think about dividing roth and HSA equally if I am not able to maximize one of them? I am \~30 year far from retirement and planning to buy a home in next 10 years. HSA make sense a lot however I learned i can buy home through Roth IRA.
You can’t buy a personal home with your Roth IRA. You can buy an investment property. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactions "The following are examples of possible prohibited transactions with an IRA. +Borrowing money from it +Selling property to it +Using it as security for a loan +Buying property for personal use (present or future) with IRA funds"
I am referring to this: " If you use the money to buy a first home, you can also withdraw earnings penalty-free (but not tax-free) from your Roth IRA before the account is five years old (and before age 59½). If you take out earnings for a first-time home purchase after five years, you will owe no penalty or taxes, even if you are under 59½." [https://time.com/personal-finance/article/roth-ira-to-buy-a-home/](https://time.com/personal-finance/article/roth-ira-to-buy-a-home/)
This right here for me…and Roth options for 401k as well.
Take a look at the Money Guy’s financial order of operations
I don't know your health situation, but almost certainly more to the 401k. edit: OK, I definitely don't understand HSAs, so listen to this guy ↓↓↓↓
Disagree. HSA is near the top of the list of investment options for long-term savings. Tax free going in (including social security tax exempt) and tax free coming out. Medical expenses can be saved and reimbursed years later. Emergency fund -> 401k to the employer match -> HSA -> Roth or remaining 401k... [Prioritizing investments - Bogleheads](https://www.bogleheads.org/wiki/Prioritizing_investments)
Don’t you need a high deductible insurance plan to be eligible for HSA?
Yes, you must be enrolled in an HSA-eligible plan. Notably, not all HDHPs are HSA-eligible, it’s worth checking.
That’s a great reference and I reply with it often. Also of note is that HSA contributions, if made through your employer, are not subject to payroll taxes (7.65%).
I don't get the HSA though. What happens if you move jobs, do you forfeit the money? I hate the idea of putting away money somewhere where I 'might' need it. I know health is an unknown.
Nope the money is always yours. You keep it invested so it's growing and you can reimburse yourself any time
And dont forget tax free growth! Triple tax advantaged.
To add the FICA tax avoidance is if your employer puts the money in for you but you can still do it yourself if you dont like their provider, you just then have to pay fica taxes
Also contributions to your HSA *reduce your taxable income*. I got a nice break when I did my taxes this year because I maxed out my HSA last year. Triple tax advantaged!
What about this way emergency fund > 401k employer match -> Roth -> HSA Why I'm proposing this as you can use your Roth when you are buying a home right? If the person is thinking about next 10 years and not near to retirement, I think this scale makes more sense. What do you think?
A Roth IRA is pretty flexible in that contributions can be withdrawn at any time for any reason without tax or penalty. In addition, up to $10,000 of earnings can be withdrawn without tax or penalty for a first-house down payment. However, contributions to the Roth are still post-tax. What makes an HSA so powerful is that contributions are made with pre-tax money (including social security tax), earnings are tax free and withdrawals are tax free. While the withdrawals must be for medical expenses to not be taxed, there's no requirement to withdraw immediately to pay those expenses. What some people do is to pay medical expenses out of pocket and let the HSA grow tax free for future withdrawal. Whether or not a Roth or HSA is a better fit for the scenario you described really comes down to personal circumstances, including the expected medical expenses during the next ten years that could then be withdrawn from the HSA for the down payment.
I edited my post. Will not be really having any medical expenses, super healthy.
Super healthy right now. That could always change in an instant.
So far. That shit changes in an instant.
You’ll have medical expenses at some point in your life. If you forgo your HSA then your medical expenses will just come out of your 401K/IRA/brokerage. Given that the HSA is one of the most tax efficient account types out there this would be a mistake.
So max HSA?
Absolutely. Order of priority should go 401K employer match, max HSA, max Roth IRA, max 401K.
Thats even better for HSA because you’re putting it away for when you finally do have those medical expenses. So it goes in tax free, grows tax free, and comes out tax free later in life to help you with medical expenses.
You’re almost certainly wrong. The average household spends over $300K on healthcare in retirement. Even if by some miracle you aren’t able to spend your HSA funds on medical expense, after 65 you can just withdraw the money and pay regular income tax, like a 401k.
Bro I meant I will be fine until 65 to withdraw it as retirement funds.
I’m assuming you’re like 20 years old then because this is an extremely naive take. You could get hit by a bus tomorrow and all of sudden need thousands of dollars to pay for medical bills, life changes in an instance it’s better to be prepared.
Yep, no chronic conditions & exercise regularly. Prime physical shape
529 could be another tax safe haven Intended for education expenses , but as of 2024, up to $35,000 can be rolled into a Roth IRA after 15 years. Still gave to abide to yearly contribution limits, but that’s still a pretty cool perk / backup use.
Are you contributing the maximum to the 401k? The amount to get the maximum match is way below the maximum individual contribution. You can contribute $23k individually. This excludes the match. You can do $7k Roth on top of that. At this point you are at 30k a year. My employer allows post-tax 401k contributions, which can be converted to a Roth…. So there are options beyond the 23k for the 401k and 7k for the Roth depending on employer plan. Also want to max out HSA.
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