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Investing $82,000 in an HSA vs 401(k) vs Roth IRA

HSAs are triple tax advantaged, which means the money you contribute to them is put in before taxes, grows tax free, and can be withdrawn tax free if used for qualified medical expenses. For these reasons, they're considered the best retirement account available. However, most people don't invest the funds within their HSA.

Let's take a look at how investing $82,000 in an HSA compares to investing the same amount in a 401(k) or a Roth IRA.

HSA 401(k) or IRA Roth IRA
Starting balance: $82,000 $82,000 $82,000
Annual contribution: $2,500 $2,500 $2,500
Total contributions: $157,000 $157,000 $157,000
Years: 30 30 30
Rate of return: 6% 6% 6%
Withdrawal rate: 4% 4% 4%
Current salary: $75,000 $75,000 $75,000
Filing status: Single Single Single
Annual income in retirement $26,744 $26,744 $26,744
Annual taxes on contributions: $0 $0 $824
Annual taxes on withdrawals: $0 $2,989 $0
Total lifetime taxes: $0 $74,733 $24,717
Total account value: $668,612 $593,878 $643,895

As you can see, over the course of 30 years, investing in an HSA beats a 401(k) by $74,733 and a Roth IRA by $24,717.

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Assumptions used for this calculator

While most people will hopefully have multiple sources of income in retirement, such as a retirement account or two plus social security, the purpose of this calculator is simply to show the tax benefits of an HSA vs popular retirement accounts at their most basic levels. Essentially, this calculator compares these accounts as if they're the only accounts someone has.

Tax information for contributions and withdrawals is calculated by filing status and marginal tax rates for 2023. While tax brackets are used for calculating taxes on all accounts, Roth IRA taxes are a bit more complicated to illustrate because contributions are taxed as part of someone's overall income. To get around this, we determine the dollar amount in taxes based on annual income, filing status, and marginal tax rate. We then calculate the average tax rate percentage and use that to estimate the taxes paid on contributions only. It's a little messy but is probably the best way to estimate things.

The calculator does not currently account for inflation, how salary and tax rates may change over time, or employer contributions. However, for the latter, employer contributions can be combined with personal contributions and entered as a lump sum in the annual contribution field.

Finally, annual contribution limits vary by account, with the HSA typically having the lowest contribution limit if you're single and the Roth IRA having the lowest contribution limit if you're married.

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