Monthly Review: Why your next dollar shouldn’t go into your 401k

In our monthly review, we round up relevant events that occurred in the news and go over what happened, what those events mean for you, and what you can do about it.

Today, we’ll be reviewing CNN’s article on HSA’s. You can read the full article here.

What happened:

  • CNN Money declared that your next dollar might be better off going to an HSA (health spending account) than to your 401k

What it means for you:

  • The rationale behind this is that HSA’s are completely tax-free—both when you put the money in AND when you take the money out (unlike a 401k, that gets taxed when you take money out). Plus, you can withdraw money from your HSA at anytime without being penalized with extra fees.
  • However, in order to avoid penalties, this money can only be used for medical-related expenses (otherwise you get a 20% penality + have to pay regular income taxes—ouch!)

What you can do about it:

  • See if an HSA is right for you—it only applies if you have a high deductible health plan—which may or not be worth it depending on how much medical care you’ll need (and if/how much your employer contributes to your HAS)
  • If it looks like an HSA is right for you, max out your employer’s 401k match first, and then start contributing to your HSA

 

Questions? Email ashley@greenshield.io or tweet at @getgreenshield here.

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