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Comparing HSAs to 401(k)s and IRAs

Here’s how HSAs stack up with two other popular retirement investment vehicles, 401(k)s and IRAs:
 

 HSA401(k)IRA
Do you have to pay federal tax on contributions?NoNoNo
Do you have to pay state tax on contributions?No, unless you live in CA or NJNoNo
Do you have to pay FICA on contributions?No, if you contribute through pre-tax payroll withholdingYesYes
Do contributions grow tax-free?Yes, unless you live in CA, NH*, NJ, or TN*YesYes
Are you taxed on withdrawal for non-medical costs?YesYesYes
Are you taxed on withdrawal for medical costs?NoYesYes
Is there a required minimum distribution?NoYesYes

 

Ready to open up an HSA? Get started here.
 

*New Hampshire and Tennessee only tax dividend and interest earnings after a certain dollar amount, depending on whether you’re filing individually or married filing jointly. That dollar amount is the limit for all of that year’s dividend and interest earnings, not just what came from your HSA.

In New Hampshire, residents must only file dividend and earnings income tax returns if they collect dividend and interest income for that year totaling more than $2,400 (if filing individually) or $4,800 (if married filing jointly).

In Tennessee, residents must only file dividend and earnings income tax returns if they collect dividend and interest income for that year totaling more than $1,250 (if filing individually) or $2,500 (if married filing jointly).

Author: James Denison