whats the biggest benefit of maxing out your IRA? for some reason i still dont understand the hype behind roth ira as opposed to the triple tax saving reward of having a HSA or getting employer contributions in a 401k
HSA
Like a 401(k) or IRA, an HSA allows you to grow your funds through investment. So why do some experts encourage you to
max out your HSA contributions first before turning to a 401(k) or IRA? One reason is that you can make withdrawals from your account at any time without facing tax penalties, as long as you’re using your HSA funds on
qualified medical expenses. And once you’ve reached age 65, you can spend HSA funds on anything without facing a tax penalty.
401(k)
A 401(k) is a retirement plan sponsored by your employer. It carries the same investment potential as an HSA and IRA. However, a 401(k) stands out because of its 2020 contribution limit of $19,500 (or $25,500 if you’re 50 or older). Those limits are much higher than what you’re allowed to contribute to an HSA or an IRA.
Your employer may contribute or match funds to your HSA or 401(k). Find out if they do and make sure to take advantage if so!
IRA
An IRA is a tax-advantaged account through a financial institution that allows you to save and/or invest funds. There are a few different types of IRAs, but the
two most common are:
- Traditional IRA: Your contributions are tax-deductible if you qualify, but your withdrawals will be taxed.
- Roth IRA: Your contributions are taxed, but withdrawals are tax-deductible if they qualify.
Withdrawals made from a 401(k) or IRA prior to age 59½ are subject to a 10 percent early withdrawal penalty unless you qualify for
an exception.
