Company 401(k)?

[caracarn]

So my company limits the company match to $3,000 per year, or $750 per quarter.  I hit the $750 limit on my last paycheck (I'm contributing 6% of pay, which maximizes my match to 3%). 

Would I be better off sending fund to an IRA the exceed the match rather than placing into my 401(k) or are they about equal from a tax savings standpoint?  I was just beginning to wonder if I should figure out exactly how much hits the company match max and then then send any overage somewhere else.  I have all funds going into Fidelity 500 (FXAIX) in the 401(k) which is my only index fund option.  My YTD returns are 0.74% but only in since 4/12/19.  My IRA is in VTSAX, and not able to see 2nd qtr returns yet, but thinking they are better that than the choice in my 401(k) so thinking I should only place what I get a match for in the 401(k) and divert the rest to IRA.

Thoughts?

[Telecaster]

So my company limits the company match to $3,000 per year, or $750 per quarter.  I hit the $750 limit on my last paycheck (I'm contributing 6% of pay, which maximizes my match to 3%). 

Would I be better off sending fund to an IRA the exceed the match rather than placing into my 401(k) or are they about equal from a tax savings standpoint?  I was just beginning to wonder if I should figure out exactly how much hits the company match max and then then send any overage somewhere else.  I have all funds going into Fidelity 500 (FXAIX) in the 401(k) which is my only index fund option.  My YTD returns are 0.74% but only in since 4/12/19.  My IRA is in VTSAX, and not able to see 2nd qtr returns yet, but thinking they are better that than the choice in my 401(k) so thinking I should only place what I get a match for in the 401(k) and divert the rest to IRA.

Thoughts?

The tax implications are essentially the same, so it is pretty much a wash there.  FXAIX is S&P 500 and VTSAX is total market, but those two funds track pretty closely, so that's close to a wash too.  Might be easier to simply do the 401(k).   

Can you max out your 401(k) and IRA both?

[caracarn]

So my company limits the company match to $3,000 per year, or $750 per quarter.  I hit the $750 limit on my last paycheck (I'm contributing 6% of pay, which maximizes my match to 3%). 

Would I be better off sending fund to an IRA the exceed the match rather than placing into my 401(k) or are they about equal from a tax savings standpoint?  I was just beginning to wonder if I should figure out exactly how much hits the company match max and then then send any overage somewhere else.  I have all funds going into Fidelity 500 (FXAIX) in the 401(k) which is my only index fund option.  My YTD returns are 0.74% but only in since 4/12/19.  My IRA is in VTSAX, and not able to see 2nd qtr returns yet, but thinking they are better that than the choice in my 401(k) so thinking I should only place what I get a match for in the 401(k) and divert the rest to IRA.

Thoughts?

The tax implications are essentially the same, so it is pretty much a wash there.  FXAIX is S&P 500 and VTSAX is total market, but those two funds track pretty closely, so that's close to a wash too.  Might be easier to simply do the 401(k).   

Can you max out your 401(k) and IRA both?

We are doing substantial college savings (over $1,000/month) for our kids right now, which would be the main source, so no, not now.  Never have been able to do that, I have always just done the match amount.  When I made more that amounted to about $14K/year into the 401(k), now that will be a bit short of $10K.  Basically the kids savings would stop about two years before we plan to RE.  I've never had a limit before so I had made 40% more in salary and had no cap on the match the match helped and I did the same 6% as no one matched more.  I did not want to leave free money on the table.

[erutio]

From the Investment order sticky:

0. Establish an emergency fund to your satisfaction       
1. Contribute to your 401k up to any company match    .  In your case, up to the $750 limit each quarter.
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.           
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level.     IRA have a little bit more flexibility in terms of funds and portability, so try to max this next, until the next quarter.
5. Max 401k (if
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - your earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.           

[caracarn]

Not sure I've seen this before.

Why is the HSA before the IRA?  I have that again at this employer, so I'd like to understand that.  0 is done and 2 does not apply.

[erutio]

Because HSA has triple tax savings.

Typically, a 401k or tIRA has double tax savings, ie, contributions are tax-deferred, and then growth is tax-free.  You will be taxed at your current tax rate upon distribution/withdrawal.

For an HSA, contributions are tax-free, growth is tax-free, and distributions are tax-free as well, as long as used for qualified expenses.  But after age 65, you can take a withdrawal penalty free (not tax free), thus the HSA functionally acts like a tIRA.   After age 65, you can also use your accumulated HSA funds to pay for medicare premiums, tax- and penalty-free.

[PlainsWalker]

When you fund a HSA through payroll deductions the contributions are not subject to FICA. On the pre-tax contributions to the tIRA and 401k the FICA still gets pulled out.

[Telecaster]

When you fund a HSA through payroll deductions the contributions are not subject to FICA. On the pre-tax contributions to the tIRA and 401k the FICA still gets pulled out.

Which makes it a great tax deduction.  Even better, you can withdraw the gains tax free for qualified medical expenses.   Even years after the expenses were incurred.   

[MDM]

Not sure I've seen this before.

Why is the HSA before the IRA?  I have that again at this employer, so I'd like to understand that.  0 is done and 2 does not apply.

See the full Investment Order post for more details.