Author Topic: Tax Deferred Options after maxing 401k and IRA  (Read 1915 times)

flyersman

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Tax Deferred Options after maxing 401k and IRA
« on: July 27, 2016, 08:42:51 AM »
After maxing out ones 401k and Traditional IRA, I have seen a few other options available. Can anyone help me understand benefits of each and if they would be available to me or my wife?

File separately.
Me: W2 and company 401k with match, High Deductable Plan
Her: W2, no healthcare option, no 401k. I belive she has Roth
IRA

Options available on market.
Roth 401(k)
HSA
I-Bonds
529


seattlecyclone

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #1 on: July 27, 2016, 09:34:26 AM »
Roth 401(k) - this would be instead of traditional 401(k) contributions, and would have to be through your employer. Which one is better mostly depends on whether you plan to have a higher or lower tax bracket during retirement.

HSA - this is available for people who have a High Deductible Health Plan (must use those exact words). It allows you to save some money that is tax-free (both going in and coming out) if used for health care expenses. Sounds like you already have a qualifying health plan. Because the HSA is unique in that it's tax-free both ways, you should really be making contributions to one.

Series I savings bonds - These are government-backed savings bonds where the interest rate is indexed to inflation. The rate is pretty low, but better than a lot of savings accounts so it's a reasonable place to consider putting part of your emergency fund. No tax is due on the interest until the year when you redeem the bond.

529 plan: This is a place where you can put post-tax money that grows tax-free (similar to a Roth retirement account) as long as the proceeds are used for education. It can be a good idea if you plan to go back to school or have kids who will attend college. Skip it otherwise.

flyersman

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #2 on: July 27, 2016, 10:17:56 AM »
Roth 401(k) - this would be instead of traditional 401(k) contributions, and would have to be through your employer. Which one is better mostly depends on whether you plan to have a higher or lower tax bracket during retirement.

HSA - this is available for people who have a High Deductible Health Plan (must use those exact words). It allows you to save some money that is tax-free (both going in and coming out) if used for health care expenses. Sounds like you already have a qualifying health plan. Because the HSA is unique in that it's tax-free both ways, you should really be making contributions to one.

Series I savings bonds - These are government-backed savings bonds where the interest rate is indexed to inflation. The rate is pretty low, but better than a lot of savings accounts so it's a reasonable place to consider putting part of your emergency fund. No tax is due on the interest until the year when you redeem the bond.

529 plan: This is a place where you can put post-tax money that grows tax-free (similar to a Roth retirement account) as long as the proceeds are used for education. It can be a good idea if you plan to go back to school or have kids who will attend college. Skip it otherwise.

The HSA we have setup is not through work as it was not offered. It's setup and post tax dollars are contributed. Ho does this differ from company offered one and is it still worth contributing

MDM

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #3 on: July 27, 2016, 10:34:52 AM »
The HSA we have setup is not through work as it was not offered. It's setup and post tax dollars are contributed. Ho does this differ from company offered one and is it still worth contributing
While it appears the contributions are post tax now, you will deduct them when you file form 1040 so they are in effect pre-tax.

Difference from a company-offered one is that you do pay FICA taxes on your own, while you would get to skip those if done via your employer.  Still worth contributing to avoid the federal+state income taxes.

flyersman

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #4 on: July 27, 2016, 10:58:46 AM »
The HSA we have setup is not through work as it was not offered. It's setup and post tax dollars are contributed. Ho does this differ from company offered one and is it still worth contributing
While it appears the contributions are post tax now, you will deduct them when you file form 1040 so they are in effect pre-tax.

Difference from a company-offered one is that you do pay FICA taxes on your own, while you would get to skip those if done via your employer.  Still worth contributing to avoid the federal+state income taxes.

In the perfect world, lets say I put the funds in that HSA account towards a total market fund (VTSAX) (never need to use the account) and it grows 4% year until I am 59.5 and eligible for medicare.  How would distributions at 59.5 be taxed when i dont have to use them for med expenses any more?

seattlecyclone

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #5 on: July 27, 2016, 11:06:21 AM »
The HSA we have setup is not through work as it was not offered. It's setup and post tax dollars are contributed. Ho does this differ from company offered one and is it still worth contributing
While it appears the contributions are post tax now, you will deduct them when you file form 1040 so they are in effect pre-tax.

Difference from a company-offered one is that you do pay FICA taxes on your own, while you would get to skip those if done via your employer.  Still worth contributing to avoid the federal+state income taxes.

In the perfect world, lets say I put the funds in that HSA account towards a total market fund (VTSAX) (never need to use the account) and it grows 4% year until I am 59.5 and eligible for medicare.  How would distributions at 59.5 be taxed when i dont have to use them for med expenses any more?

Once you turn 65 (the age is different than for IRAs), HSA withdrawals for non-medical expenses are counted as ordinary income, similar to if you had put that money in a traditional IRA instead.

I see the HSA as a great way to hedge your bets. If you have a lot of medical expenses down the line, the HSA gives you a tax-free way to pay for them. If you don't, pat yourself on the back for living a healthy life and withdraw the money the same as if you had contributed it to a tax-deferred retirement account instead.

slugsworth

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #6 on: July 29, 2016, 07:33:12 PM »
Newly everything you would want to know about HSA.

http://www.madfientist.com/ultimate-retirement-account/

Rollin

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Re: Tax Deferred Options after maxing 401k and IRA
« Reply #7 on: August 03, 2016, 06:47:54 AM »
Not sure this has been mentioned, but the HSA has a contribution limit each year too. For me it is $6,750 for 2o16. It's not a ton, but it is something to consider. When I turn 55 (by December 31 of 2016) it'll be $7,550.