Questions on Investment Order

[pompom12]

Hello everyone!

First post here in the forum. I've been a silent reader for years though!

I did my homework and read up on the investment options & stock series across multiple platforms including MMM. I found the community here to be extremely helpful and positive. Since I'm new at investing, I'd love some opinions from veteran investors on whether my plan sounds right. My goal is simply to build my asset so I can retire early if I want to.

Information about me
28 y.o. no debt. 60k annual income. extremely low spending rate. I have about 80k in savings.

I currently do not have any retirement accounts. I know I'm quite late in the game.

My plan is to
1. Open a HSA account (my current health insurance plan is not HSA-qualified, so I will wait until November 2018 to change my plan into a HSA-qualified one. Then I'll max out my 2018 contribution. Any suggestion on where I should open the HSA, and whether I can invest the balance with Vangard?)
2. Open a traditional IRA now (Max out my 2017 contribution + potentially 2018 contribution). I will open and invest through Vanguard
3. Max out 401k (my employer will start offering 401k in Q1 2018 with no match. No idea which company they will go with yet nor the available investing options. If the company they choose and expense ratio aren't too bad, I plan to max it out)
4. Invest extra in a taxable account with Vangard, specifically VTSAX

In my case, it makes sense to open and max my own traditional IRA before maxing out 401k since the expense ratio might be lower and I have the freedom to choose to invest with Vangard. Is that correct? How does my plan look? I appreciate any help I can get! If I miss or overlook anything, please let me know.

[MDM]

Pompom12, welcome to the forum.  That all looks consistent with the Investment Order sticky - good luck!

[JLee]

Looks good to me. If you are able to sign up for an HSA through your employer and have funds deposited via payroll deduction, those contributions will be exempt from FICA taxes (saving you ~7%).

[pompom12]

Thank you you guys for your help! I know the questions may be simple but as a new investor, I need as much assurance as possible! :)

JLee: I don't have the option to sign up for an HSA thorough my employer. You mentioned contributions will be exempt from FICA taxes. Doesn't it come out to be the same as I can deduct HSA contribution on the tax return? I can certainly have payroll direct deposit to the HSA account though -- not sure if that makes any difference.

[JLee]

Thank you you guys for your help! I know the questions may be simple but as a new investor, I need as much assurance as possible! :)

JLee: I don't have the option to sign up for an HSA thorough my employer. You mentioned contributions will be exempt from FICA taxes. Doesn't it come out to be the same as I can deduct HSA contribution on the tax return? I can certainly have payroll direct deposit to the HSA account though -- not sure if that makes any difference.

If they're HSA contributions made by your employer, they're not counted as income: https://www.bogleheads.org/forum/viewtopic.php?t=151121

If your employer doesn't offer an HSA, I don't think you have a way out of FICA/payroll taxes. You can still make tax-deductible contributions, though.

Edit: Apparently that's only if you have a cafeteria plan, which makes me wonder if what I have is a cafeteria plan or not. I have no idea how to tell.

[MustacheAndaHalf]

Your income is right on the boundary of allowing Traditional IRA contributions to be deductible.  But most likely, your $60k income is before this year's standard deduction of $12k.  Your 401(k) contributions also subtract from your income, giving you more room.
https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

[harvestbook]

If you start the HDHP insurance in November, you can't fund the HSA for the entire year, only the pro rata months in which you are enrolled in such a plan (November and December for 2018 but full year for 2019 and onward.)

If you do the 401k you are reducing your taxable income and so should be well within the tIRA tax deduction window, but I'd run the numbers using the new tax brackets first. You can deduct up to $18,500 in a 401K, so if you max that, your taxable income will already be down to $42,500, not counting your FICA and other payroll costs, or insurance if it's payroll-deducted. So it matters whether your $60K figure is net or gross income.

I like being a tax minimalist so I try to trim off everything I'd have to pay taxes on and get my taxable income as low as possible. Don't worry about a late start. The best time to start is today, and a low cost of living is probably more important than anything else in early retirement goals and why so many people can't do it even though they make big salaries. Good luck.

[MDM]

If you start the HDHP insurance in November, you can't fund the HSA for the entire year, only the pro rata months in which you are enrolled in such a plan (November and December for 2018 but full year for 2019 and onward.)

The OP is correct.  See 2016 Publication 969 - p969.pdf:

Under the last-month rule, you are considered to
be an eligible individual for the entire year if you
are an eligible individual on the first day of the last
month of your tax year (December 1 for most taxpayers).