Let's assume a hypothetical individual is a contractor working in the US and paid with 1099. He does not have any other employees and his business is not registered anywhere.

He is in his mid thirties with a solid emergency fund and no debt of any kind.

The only retirement plan he has is Roth IRA which has been maxed out for the previous three years. He has no health issues right now and he opened a Health Savings Account in 2013.

He considers two possible actions.

  1. Max out his HSA for year 2014
  2. Open one of SEP or SIMPLE IRAs and diverge all or some of the cash saved for HSA to this new retirement account.

What would one recommend to this hypothetical individual based on the information provided?

1 Answer 1


Unless the hypothetical fellow is immune to disease, and indestructible, with no risk of injury, the HSA is an ideal place for this money. It offers a pretax deposit, and if used for medical expenses, a tax free withdrawal. This combination can't be beat for those who have the medical insurance that qualifies them for the HSA.

  • thank you, so it means that you prefer maxing out HSA over trying to expand retirement investments beyond $5.5K /year allowed by Roth ?
    – AstroSharp
    Dec 31, 2014 at 17:41
  • 1
    I think, given the choice, after a matched 401(k), and of course, paying off 18% debt, the HSA takes priority. Of the $6500 a family can deposit, if you are young and healthy, it's a great way to fund later years. Either way, tax free in, tax free out can't be beat. Dec 31, 2014 at 18:20

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