16 thoughts on “What it Feels Like Maximizing 401(k) and Health Savings Account (HSA) 4 Months Later

  1. Congrats on maximizing 401K. If you’re retiring making less than what you’re right now, the actual saving in taxes even better. Not to mention able to practice living for less. What I usually suggested my co-worker to do is to everytime they get a raise, they’d put that raise toward their 401K, so they don’t feel the pain with the initial chop on their take home, but you’re able to do this swiftly, that’s great!

    You’re totally right about the compounding effect and company matching, man, considering what I put in is just a fraction of what the account has grown into, and I’m only on the workforce for 12 years. It’s sweet everytime I look at my retirement account. LOL 🙂

    • Viv –

      Thank you very much. Yes, I don’t plan on bringing in this type of income when I’m retired and if I do – it’s because it’s taxed way different ; ). I like the adding your raise to the contribution – I wish all did that or at least into investments that produce something for them. Most of my friends/relatives get raises, but just spend more instead, ah… they will learn I hope, as long as they are healthy, happy and not stressed…

      12 years is fairly incredible, wow. I’ve only been working for the firm for just a few months over 5 and it feels like I’ve been doing this for 30 years… can’t imagine what more than 2x that amount of time would feel and/or look like from an investment account perspective. Heck.. I may never get there ; ) We shall see, need to stay aggressive! Thanks for sharing.

      -Lanny

  2. Lanny – Congrats on the Max effort! Celebrate that accomplishment. I’ll fall about $1,000 short of my 401k max this year (but not next year). You’re 110% right on the HSA. I started with a company back in 2005 that had a HSHP but I had no clue what an HSA was. Luckily that company kicked in some money each pay check. Then around 2009-10 I figured it out and started maxing my contributions. Shortly after that, investments were allowed in that account. I won’t even consider switching to an employer that doesn’t have a HDHP now – that’s how strong my feelings are in favor of HSAs. At this point my HSA balance sits at $24,364! The best part is that it’s money I’ve never missed.

    • Polly –

      Still… only $1K short is still doing a ton! Nice job. As with the HSA – HOLY SH**! Are you serious, over $24k?! WOW. That’s amazing, congratulations. Such a great success story here, I love it. Huge news and huge success. Have you been accumulating any health expenses to be able to dive into it earlier by any chance? Which investments are allowable for yours? Thanks for sharing this!

      -Lanny

      • Lanny – I keep great records on expenses, as I’m sure most of this community does. So over the years that adds up (mainly from the wife) and I can pull about a third of the available funds if needed with no tax consequences. But I will do all I can to not draw the account down. When I was in the dark about HSAs, the HR lady at my former employer advised me to use the HSA to reimburse myself for medical expenses “just swipe the debit card, easy”, so that’s what I did those first couple of years. That was BAD advice. Once I saw the light, I began to cover those expenses out of pocket and consider the HSA like a separate IRA. I don’t have the stomach to go back and see what the balance would be had I maxed it out every year and left the money alone.

        My new employer uses Aetna with a variety of great Vanguard funds. Only $4,800 in that account – but its growing fast. The old one I moved to Wells Fargo (they had no monthly fee for balances >$10,000 and I got them to waive the $2,000 cash balance requirement with a phone call since I had two HSA accounts and wouldn’t have activity with them) but it only had WellsFargo funds with about 0.6 to 1%+ fees. They recently sold it to Optum Bank. I was considering moving those funds to the current one with Aetna to avoid those high expense fees so I called Optum to ask some questions. They’re going to honor the no monthly fee and no cash requirement. And the best part? Starting in 2017 they will have Vanguard funds available for the former Wells Fargo customers! Would’ve had no idea had I not called and asked.

  3. HSAs are going to be very important in the potential future of a more expensive Medicare. Most of us will get sick before we get to retire. One misconception with HDHPs is that your expenses will be higher – no, you still get your plan’s negotiated payment rate for services – you just get to pay as you go rather than fork over higher premiums for services you may not use. I do not like the mutual fund options in my employer’s plan, but unlike 401ks, my understanding is you can port an HSA while you still work for the same employer. That might increase the fees, but if the investments were more to one’s liking, it could pay off – just move the money from one HSA to the other at the end of the year. Also, if you find you have unexpected extra dollars at the end of the year, you can make an additional contribution outside of your paycheck, up to the legal limit, until Tax Day – just be sure the payment is marked for the current tax year and that you include it when you file. Best kept secret in finance, and in terms of free money, some advisors recommend allocating savings to your 401K to the amount of the match, then HSA to its max, then rest in a Roth or in the 401K. I also did not know you can use HSA to pay insurance premiums while on unemployment… but because of the possibility of claiming past reimbursements, I could claim those dollars back from the HSA in the future. Very flexible and a great idea to participate. Unfortunately, the very-high deductibles on the open insurance market make it less attractive than when participating in an employer sponsored HDHP, but still doable, for some. Still rather have that money in my account than in the insurance company’s pocket.

    • CityKir –

      Thanks for the post! Can you explain the “additional contribution” outside of your paycheck once more? VERY curious : )

      Also – yes, you can keep track record of your medical expenses, my service even allows storage of receipts, etc.. And then you can always go back and use those claims if you ended up paying them out of normal checking/savings.

      Thanks again for the comment – definitely shed some more light if you can on the one item! Talk soon.

      -Lanny

  4. Glad to hear the new strategy is going so well! I have thought about utilizing this strategy quite often, at least for the 401k. I don’t really care for HSAs. It really can be an amazing way to maximize your tax strategy. I’ve generally held off on this due to my retirement goals. I’d personally rather invest as much as a can in a brokerage account. For my goals, I need my brokerage account to be huge in 15 years (when I want to retire). I suspect that my 401k, will just be a supplement by the time, 67 or 70 years old comes around. The hope is obviously that my tax rate on my brokerage would just be 15%, the dividend tax rate.

    It is going to be so fun to see where this whole dividend investing community is in 10 to 15 years! I fully expect the numbers to be astonishing and strategies extremely varied.

    • DStacks –

      Thanks for the comment! I agree, most of these will be supplemental and or transitional accounts. Why the 401K > HSA? I can see that from an investment option standpoint. Should consider though the added tax benefits of Pre-Fica if through an employer and the ability to use if you have un-reimbursed health expenses. Just a tip!

      And of course, keep dividend investing. How many years have you been cranking in?

      -Lanny

      • My health expenses are minimal and the fee charges by the HSA admin fees knocks out any potential savings I’d get.

        My 401k is a Non-Prototype Fidelity account, so I can invest in whatever I want, not limited to mutual fund picks like most are. 🙂 Which is huge. My HSA would be limited.

        • Whoa –

          Non-prototype fidelity, never even heard of this, sounds awesome – aka you can invest into stocks then. Damn you! I can see the benefits there, for sure. Obviously – whichever works and fits your style. I’ll have to do some reading on a non-prototype account.

          -Lanny

  5. I love HSAs – one of the most overlooked accounts for tax advantaged savings since it’s the best one especially if you’re getting it through your employer and saving on FICA as well. The fact that you can take out the money tax-free for medical expenses(or to cover prior medical expenses) is huge since you get tax-savings up front, tax-free growth and tax-free distributions. It’s not like any of us will be lucky enough to have no medical expenses in the future!

  6. You also have the ability to manage your HSA assets at which every brokerage account you want, not simply the one your employer has a relationship with.

    • TJar –

      Thanks for your post. Exactly – you can manage the HSA assets fairly easily, as it relates to accounts, moving them and even tracking/access to use the funds from keeping track of your medical expenses that you pay for out of pocket. Love the HSA, hands down.

      -Lanny

  7. Great that you are able to max out your 401k like that. I can’t do that, but I have been increasing my contributions lately in order to ease my tax burden. I’ve gone from 10% at the start of the year to 25% just last week. I was getting annoyed with how much I’ve been paying in taxes, so I’m trying to experiment with how much I can increase my contributions to without putting a crimp in my non-retirement financial goals.

    Sincerely,
    ARB–Angry Retail Banker

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