WWYD: 401K and Roth IRA

Is your health insurance plan HSA compliant? If so, max out an HSA.

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Anything else I should look at doing?

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Im 48. I am starting to look at brokerage accounts.

Follow your plan. Max HSA.
And at some point in the near future, start adding to a brokerage account too.

I am feeling that it is a key component to early retirement and income (tax) management.

Max HSA and if you can afford to pay medical expenses out of pocket do so and keep receipts for future tax free HSA withdrawals but let it stay on HSA as long as you can for tax free growth.

If you don’t need the money and your marginal rate is 22% or higher, consider doing traditional IRA and then invest the tax savings from that and your 401k into a brokerage account. $32,000 pre-tax at 22% marginal rates should let you invest an additional $7,040 in a regular tax account.

Do the HSA like they recommended too. Also see if your 401k allows after tax contributions that you could convert to a Roth in plan. That would be better for the aforementioned $7,040 if allowed.

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If you truly have nothing invested for retirement at age 40, then in my opinion you should maximize your traditional tax deferred savings before doing any Roth. The reason is that when you retire, at least some of your income will be taxed in the lowest brackets, whereas if you contribute to Roth now it will be taxed at your highest marginal rate.

There are other ways of looking at it, and we never know what future tax rates will be, but you'd be paying 22-24% Fed on your Roth savings now, but maybe only have an effective tax rate of 12% in retirement. Doesn't mean not to save in the Roth, just that your bang for the buck right now is maximum tax deferred before you do any Roth.

The Roth has many advantages which go beyond just the tax issues, so it's not always about the math, but at 40 years old and no savings and a good income.....defer.

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Which again makes the HSA the best of both

Max the 401k

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I have a really solid health insurance plan. Lowest deductible I’ve ever had. What is the advantage of having an HSA as well?

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HSA's are only available with deductibles over 1,700 single 3,400 family and out of pocket can't exceed 8,500 single and 17,000 family.

HSA is triple tax advantaged. Contributions are deducted from your income and reduce your taxable income, you can invest the contributions and they will grow tax free, and you can withdraw the funds tax and penalty free at any time for qualified medical expenses, which is a really wide range of things that count. Hell, I think a peleton bike is a qualified HSA expense

Once you hit 65 though, you can withdraw the funds as retirement income as well, though you will pay normal tax as if it was a 401k. However, any use for medical expenses in retirement, the funds will still be completely tax free, wich is really nice as you get older and medical expenses go up.

So, if only looking at retirement uses, it acts as an additional tax advantaged retirement vehicle similar to a traditional 401k (some employers even will match contributions similar to a 401k) to incentivize the employees to go with the lower cost health insurance plans.

Order of operations here for you should be to contribute to the 401k to whatever level gets the maximum match from your employer, then max out an IRA and HSA, and then the remainder of your 401k if you can.

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HSA's are only available with deductibles over 1,700 single 3,400 family and out of pocket can't exceed 8,500 single and 17,000 family. HSA is triple tax advantaged. Contributions are deducted from your income and reduce your taxable income, you can invest the contributions and they will grow tax free, and you can withdraw the funds tax and penalty free at any time for qualified medical expenses, which is a really wide range of things that count. Hell, I think a peleton bike is a qualified HSA expense Once you hit 65 though, you can withdraw the funds as retirement income as well, though you will pay normal tax as if it was a 401k. However, any use for medical expenses in retirement, the funds will still be completely tax free, wich is really nice as you get older and medical expenses go up. So, if only looking at retirement uses, it acts as an additional tax advantaged retirement vehicle similar to a traditional 401k (some employers even will match contributions similar to a 401k) to incentivize the employees to go with the lower cost health insurance plans. Order of operations here for you should be to contribute to the 401k to whatever level gets the maximum match from your employer, then max out an IRA and HSA, and then the remainder of your 401k if you can.

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I appreciate the information. And my company does offer an HSA. But then I would spend more with a HDHP. My current deductible is $600. And it’s open access so I can basically see anyone I want. Coverage on Rx is amazing as well. Seems like I could just invest on my own with my current plan.

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But then I would spend more with a HDHP. My current deductible is $600.

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How much annually do the premiums cost on your current plan? How much are the annual premiums on the HDHP?

What is the max-out-of-pocket for each plan? This is where HDHP can be highly beneficial for folks. I have had a few jobs where the cheaper premiums and a lesser MOOP made the HDHP the more affordable choice and that didn't even get into the tax savings with the HSA.

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Order of operations here for you should be to contribute to the 401k to whatever level gets the maximum match from your employer, then max out an IRA and HSA, and then the remainder of your 401k if you can.

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Good post, but OP should focus on Roth vs traditional 401k in his situation. He is still below Roth income limits and has many years of tax free earnings. Not sure that he will use backdoor Roth when income requires it, which makes Roth higher priority vs traditional presently. The callout on the triple advantage of HSA is spot on!

A simple strategy of HSA, Roth, then traditional 401 will serve him well. Any company matches are also in the mix. Always take the matches in whatever form they are offered. I once worked at a company that offered a match on traditional, but not Roth. Not sure if that is environment is still around.