Author Topic: Need to cut back on pre-tax savings; where to cut?  (Read 1075 times)

tygertygertyger

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Need to cut back on pre-tax savings; where to cut?
« on: October 23, 2019, 12:10:28 PM »
Hi all!

I've been working to max all my "retirement" accounts - 401k, HSA, and Roth IRA. (Yes I like the Roth better than the Traditional, even after reading the MadFientist article!) I have a healthy emergency fund, but don't have enough salary to save beyond the accounts mentioned already. But now I'm looking to save more toward a down-payment on either a house or some land, so I need to pull back on the drive toward retirement.

I get that this is kind of a silly problem, but I've been turning it over in my mind for a week or so now. I want to keep maxing the Roth IRA, so it'll either be the 401k or the HSA. I've got enough in the HSA to cover a deductible plus some if I need to. I've read the investment order that suggests maxing the HSA before the 401k... but does it make much of a difference?

I'm in my late 30s, I live with a partner and our dog, no kids, if that makes a difference. Thank you in advance!




nereo

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #1 on: October 23, 2019, 12:26:30 PM »
I'd recommend following the Investment Order - which means:

What
1) Definitely keep funding the HSA
2) Fund the 401(k) up to a company match
3) Fund your IRA

Why
1) the HSA is the only tax-advantaged account which is pre-FICA and tax-free distributions
2) unless your options are truly horrible, not funding your 401(k) is losing out on 'free money'
3) your IRA, while useful, is not as great as the company match or avoiding taxes all together (as with an HSA)

Telecaster

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #2 on: October 23, 2019, 12:28:01 PM »
I get that this is kind of a silly problem, but I've been turning it over in my mind for a week or so now. I want to keep maxing the Roth IRA, so it'll either be the 401k or the HSA. I've got enough in the HSA to cover a deductible plus some if I need to. I've read the investment order that suggests maxing the HSA before the 401k... but does it make much of a difference?

If you get the HSA through your employer, you avoid payroll taxes on the contribution.   So that's the advantage over the 401(K).   Worst case scenario is that the HSA essentially becomes a traditional IRA at age 65.   Which very likely is what your 401(k) will be anyway, especially if you retire early.   

tygertygertyger

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #3 on: October 23, 2019, 12:39:14 PM »
That makes sense. My partner is on my health insurance plan, so I realized this year I could contribute up to the "family" HSA amount - it made me laugh with being ridiculous, since we're not married, so he can't use any of those funds without paying the penalty! I wasn't sure about continuing to pump money into that account - it seems like plenty - but your comments are a good reminder to check the math.

terran

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #4 on: October 23, 2019, 01:03:58 PM »
Continue to follow the recommended investment order: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153. The money you need to save for a down payment is no longer available for investment, so that doesn't effect the recommended order except in as much as it reduces how much you have available for investment.

https://www.bogleheads.org/wiki/Roth_IRA_as_an_emergency_fund might be a worthwhile strategy to consider.

Boofinator

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #5 on: October 23, 2019, 02:18:07 PM »
Would a 401k loan make much sense in this situation?

tygertygertyger

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #6 on: October 23, 2019, 06:38:54 PM »
No plans to do a 401k loan. We've got plenty of time to save up and find the right place, so I'm happy to wait and save up more slowly.

Boofinator

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Re: Need to cut back on pre-tax savings; where to cut?
« Reply #7 on: October 24, 2019, 07:52:14 AM »
So I have to ask, what's the downside of the 401k loan? This way you get to keep investing in tax-deferred assets until you're ready to buy the house. No need to worry about cutting back on your savings in these assets so that you can afford a down payment in the future.