HSA or 401K

[bill123]

I need to lower my AGI for 2011 by $2400 (so I don't hit the phaseout for my IRA). So I plan to put $2400 into my HSA for 2011.

This year I really hope to max out my 401K. But I got to thinking. I could stop my 401K contributions for the next two months and instead put that money into my 2011 HSA (up to the max of $6,150). Then hopefully I will get a bigger tax return this year.

I will still get my company match and still have incentive to TRY and max my 401K for this year.

Can anyone see a downside to this plan? My HSA fees won't be too much different than my 401K and it offers similar funds.

thanks

[MonkeyMama]

That sounds fine.

I was thinking that there is probably little difference from a HSA or a 401k plan. IRAs tend to be more flexible and less costly. But HSAs and 401ks are pretty much in the same category. In that they will both probably have limited investment choices and administrative fees. Plus, an HSA is treated like a retirement fund if you don't use the money for medical expenses. Basically, just another way for tax-deferred retirement savings.

I would absolutely fund a HSA for that kind of a benefit.

If you are in a state that does not recognize HSAs, it can be a bit of a tax nightmare is all. Fair warning if you are in California. Most other states it shouldn't be an issue. (Er, Alabama, NJ, NH and Tennessee, too - just means in those states it can significantly complicate your taxes).