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HSA and 401k funding question

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  • HSA and 401k funding question

    I have mostly W-2 income from a primary job but also expect significant moonlighting 1099 income.

    I get that if I'm funding anything on my own (like backdoor Roth, or 529), it doesn't really matter where the money "comes from," since it's all fungible, and I can deduct or get the credit.

    But what about when I could have my employer automatically withhold (is that the right word) or I could do it myself and deduct?

    Assuming my work 403b and solo 401k are about equally good, or maybe the solo 401k is even better, and assuming I contribute to the 403b enough not to lose any matching funds ... isn't is better to fund my own solo 401k with my own money and deduct is, so that I am deducting income subject otherwise to both employer and employee payroll taxes?

    Same for funding an HSA. What my employer contributes I obviously can't/wouldn't change. But would I be right in thinking that if I have some money automatically taken from my employee paycheck and contribute that, I won't pay the usual taxes on it including 1/2 of the payroll taxes, but if I fund the HSA myself, I can deduct that income including 100% of the payroll taxes?

    Or does it not work that way?

  • #2
    anyone?

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    • #3




      I have mostly W-2 income from a primary job but also expect significant moonlighting 1099 income.

      I get that if I’m funding anything on my own (like backdoor Roth, or 529), it doesn’t really matter where the money “comes from,” since it’s all fungible, and I can deduct or get the credit.

      But what about when I could have my employer automatically withhold (is that the right word) or I could do it myself and deduct?

      Assuming my work 403b and solo 401k are about equally good, or maybe the solo 401k is even better, and assuming I contribute to the 403b enough not to lose any matching funds … isn’t is better to fund my own solo 401k with my own money and deduct is, so that I am deducting income subject otherwise to both employer and employee payroll taxes?

      Same for funding an HSA. What my employer contributes I obviously can’t/wouldn’t change. But would I be right in thinking that if I have some money automatically taken from my employee paycheck and contribute that, I won’t pay the usual taxes on it including 1/2 of the payroll taxes, but if I fund the HSA myself, I can deduct that income including 100% of the payroll taxes?

      Or does it not work that way?
      Click to expand...


      For some reason, I your question didn't show up on the home page of the forum (for me) until this morning even though you posted it yesterday morning - odd.

      It doesn't work that way. HSAs and retirement contributions are not deductible from FICA-taxable income, only for state and federal income tax purposes. Therefore, it doesn't matter whether you contribute at your "day" job or from your 1099 pay. Since that is not an issue, your decision should be based upon the best investment options. I find it hard to believe that your 403b has near the same quality of investments than the whole universe of choices that you have access to in your SOLO-k. If you earn enough moonlighting to max out your SOLO-k, then I recommend you get the match on the 403b and then max the difference in the SOLO-k. Where your HSA funds come from (beyond employer contribution) is up to you.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thank you Johanna! Very helpful.

        So for the HSA, I'll probably just fund my own account (not sure which HSA my employer uses). Then once a year when I get the employer contribution, I would just roll that over into my HSA account.

        I definitely won't make enough to max out the employer contributions to a solo-401k. So my plan will be to fund my employee contributions to my employee 403b up to the max (which is a non-guaranteed "dollar-for-dollar up to 3% of base salary" depending upon institutional performance, and which hasn't been the full 3% for the last few years, so I have to decide if I should fund a full 3% of my base salary), then the rest of that 18k employee contribution to my solo-401k, and then the additional 25% of 1099 income into the solo-401k.

        I have no idea how to decide what is worse: losing some matching funds because my employer decided to match up to 3% and I contributed less, or funding 3% in the 403b but never getting matched to 3% and having that money in an inferior account instead of my solo-401k

        thanks again

        Comment


        • #5

          1. That's the correct choice for your HSA.

          2. Go ahead with the 3% for 403b - don't risk losing some free matching money and 3% isn't much. Surely you can find one fund worth owning.

          3. Move back to SOLO-k and contribute as much as allowed based on profits.


          At least, that is what I would recommend to a client.

           
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Great, thanks again.

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