Personal Investments • HSA question

Yes, you can contribute from your bank account to the Fidelity HSA. The only "downside" of doing it this way is that you will not get the FICA tax break that you do when contributing through the payroll.

Then again, if your income is more than $160k (only the earner income, not the household), you are anyway contributing the maximum to the Social Security and Medicare (FICA taxes), so the contribution or non-contribution of the HSA through payroll isn't going to make any difference.

Medicare doesn't max out; contributing to an HSA through payroll deduction saves you the 1.45% Medicare tax regardless of your salary.

If you are not maxing out on SS, then you avoid the 6.2% SS tax as well, but this is a mixed blessing because it will reduce your future SS benefits. If you have a low average career salary (below the second bend point), it is better not to use payroll deduction and pay more into SS, as each $100 reduction in your SS contributions will cost you $1 per month, adjusted for inflation, in future SS benefits.

$100 invested for 40 years at 5 % real return would be about $800.

30 year of SS withdrawal would be 12*30 = $360

Does it mean that return on SS is not as good when compared to total stock market?

This is not a fair comparison, because the real return on SS is risk-free. A more fair comparison would be to TIPS, which yield about 2%, so $100 invested for 35 years would become $200. TIPS are not offered for 35 years, but you could buy a 30-year TIPS now and reinvest it at whatever the rate is in 2054. $1 per month starting at SS full retirement age is a bit more than $200 in real value, since your life expectancy is more than 200 months at that age. Thus, if you are very young, avoiding the SS contribution might be a small benefit; if you are mid-career, you come out ahead contributing more to SS.

(The $100 above is combined SS and Medicare, not just SS, since you avoid both at the same time.)

Statistics: Posted by babystep — Wed Mar 27, 2024 8:54 pm — Replies 7 — Views 476