Author Topic: 401K AND health savings account?  (Read 3321 times)

NewJourney

  • Guest
401K AND health savings account?
« on: January 09, 2016, 09:56:16 PM »
My employer offers a 401K as well as a HSA. I'm still paying off debt, should I invest in both? Or wait till debt is gone?

Thank you all in advance for your help :-)

bacchi

  • Walrus Stache
  • *******
  • Posts: 7100
Re: 401K AND health savings account?
« Reply #1 on: January 09, 2016, 10:07:44 PM »
What's the rate on the debt?

Is there a company match on the 401k or HSA?


NewJourney

  • Guest
Re: 401K AND health savings account?
« Reply #2 on: January 10, 2016, 08:11:07 AM »
What's the rate on the debt?

Is there a company match on the 401k or HSA?

Rate on debt is less than 3%. Company does match 401K. With the HSA, you have to have insurance with the company and be the second or third level of coverage, then the company contributes "health dollars" but it doesn't tell me the rate anywhere until I sign up. Sounds a bit weird they don't tell me, but I'm also new to this.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11493
Re: 401K AND health savings account?
« Reply #3 on: January 10, 2016, 02:31:14 PM »
My employer offers a 401K as well as a HSA. I'm still paying off debt, should I invest in both? Or wait till debt is gone?

In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct.
Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/
   if you want even more details on that topic).  See also
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845
   and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   

The emergency fund is your "no risk" money.  You might consider one of these online banks: http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001   
      
If your 401k options are poor (i.e., high fund fees) you can check http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/ for some thoughts on "how high is too high?"