For the super savers, as you have managed to get your 4% employer match, max out your 18k annual contribution limit to 401k/403b, AND max out your 5.5k ROTH IRA. Here are some more steps you can take to build your net worth.
STEP 5: HSA (Health Savings Account) “TRIPLE TAX FREE, BETTER THAN ROTH when it comes to medical expenses.”
How to get a HSA?
Both UA and Banner have HSA. Contact the HR and you can sign up during open enrollment period. UA has open enrollment now until 11/13/15 for year 2016.
What are the benefits?
You can put money into an HSA tax-free. In other words, you can deduct the amount you put into HSA on your tax return.
You can withdraw money from an HSA for medical expenses at any time without paying taxes. If you withdraw from an HSA for non-medical expenses prior to age 65, you will be subjected to a 20% penalty AND the taxes on the amount you withdraw.
After age 65, withdrawal for non-medical expenses only costs you the taxes on the amount you withdraw. HSA withdrawals after age 65 for non-medical expenses are basically withdrawals from 401k, IRA (tax-deferred retirement accounts). But again, if you withdraw from HSA for medical expenses, you do not pay any taxes (when you first contribute to the HSA, when the money grow in stocks or other investment, when you withdraw: hence triple tax free.)
Limits:
Currently the contribution limit to an HSA plan is $3,350/individual or $6,750/family per year. If you are over age 55, you can contribute an additional $1,000 a year as catchup contribution.
Even sweeter:
Your employer may contribute to your HSA on your behalf too. This is effectively analogous to employer match for 401k contribution. For instance, UA currently will put $120/month into HSA for employee with family. This means UA is giving you $1440 additional pay per year, to be saved for your medical care expenses, now or in the future. Our programs’ residents and fellows are transitioning to Banner employees 7/1/2016, I’m in contact with Banner HR to find out how much banner will contribute to Banner HSA.
STEP 6: 529 Educational savings for kids, yourself and beneficiaries of your choice. “ROTH’s COUSIN, for Education.”
Benefits:
- Investment grow tax free and withdrawals for educational expenses are tax exempt. So pay taxes when you put the money away, and don’t have pay another penny of taxes if the money is spent on education. (Just like ROTH, only earmarked for education).
- Even less tax than ROTH because many states will allow income-tax deduction of your contributions. So you pay the federal taxes, but only part or none of the state taxes when you contribute.
- You own the funds, and you kids among many others will be your designated beneficiaries. You can transfer the benefit easily.
- No income or age limitation.
- This next consideration will likely be useful AFTER training years when you make the big bucks as attending physicians. High ceiling for contributions – you can contribute over $300,000 per beneficiary in most plans. Although your contributions are considered gifts so will be subjected to federal gift tax rules.
Any other ideas? Comment below!