HSA vs. 401k plans

[Guest buie]

Since the HSA allows tax-deferred investing, much like a 401k, but has the added benefit of being used to cover retiree medical costs, if an employee could only fund one vehicle, wouldn't it make sense for them to fund the HSA?

[GBurns]

What happens if the 401(k) has an employer match and the HSA has no employer contribution? Then would it not be better to use the 401(k)?

[WDIK]

buie,

I think your statement is too general. There are many factors that could tip the balance either way. GBurns listed one. Others may be the individuals health status, goals, family situation, etc.

[Don Levit]

The 401(k) can be used to fund retiree medical costs, at least those costs that exceed 7.5% of AGI. These distributions can be deducted, thus making the withdrawals a wash for tax purposes, like those of an HSA.

Don Levit

[four01kman]

HSAs and 401ks are designed to satisfy two different life events. The ability to accumulate money in an HSA for future health care costs is a wonderful benefit. The annual amount that can be contributed is no where close to what is needed to provide for retiree health care, but it is better than what we had before HSAs.

Distributions from 401k plans prior to retirement (generally age 59 1/2) are taxed as ordinary income, so the ability to make a withdrawal is nice, but doesn't compare with the HSA's ability to provide tax-free medical benefits.