Hi GAF, I recently got a job that offers a bunch of benefits and I'm not sure what to prioritize regarding finances. I meet with HR on Monday, so was wondering what sorts of questions I should ask.

I just turned 27, and right now I have a checking account with a few thousand dollars, and an "Individual Taxable Account" through Betterment that I deposit into every week that has the rest of my savings (about $12k). It's all index funds with a target of 90/10 stocks/bonds.

I think I'll need to wait a few months until I'm offered the 401k, but I wanted to get my head straight about what to plan for. Should I plan on withdrawing enough from my Betterment account to max out my employer match on the 401k? Should I set up an IRA? Would it be better to concentrate all my funds into Betterment because their returns may be higher + compound interest? What's the advantage of splitting my investments between 401k/IRA/regular taxable investment account?

I'm not totally sure about the health insurance the company offers or if it has an HRA, but if they do have an HRA should I split my investments into that as well?

Thanks!

I think typically the flowchart goes:

Contribute to the 401(k) up to the employer match -> Max your annual IRA contributions -> Fund an HSA if your plan has it (HRAs are a different beast) -> If you're still putting less than 15-20% (or whatever your target is) into retirement, continue funding your 401(k)

If you have any high-interest debt, it's worth prioritizing it before funding an IRA. And employer plans can offer a range of investment options in your 401(k)... not many of them useful or good, sometimes. It sounds like you have a good idea of what you should invest in, but if the 401(k) has shit offerings you may need to adjust things.

Don't neglect your tax-advantaged accounts in favor of the taxable $12k Betterment account. You have decades for things to compound, and the accumulated tax savings over those decades is immense. Also, the How To Invest For Retirement thread will probably net you more (and better) bites.

Make sure you're careful with the amount that you put in the HSA. Don't want to throw away money in the end

Ashhong said:

Make sure you're careful with the amount that you put in the HSA. Don't want to throw away money in the end

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HSA money is always yours even if you go off the high deductible plan. You might be thinking of FSA. If anything you should put more into the HSA account until you hit 4000$ (or whatever the level is) so you can start investing it. Otherwise it will just sit there.

JoeyJungle said:

Hi GAF, I recently got a job that offers a bunch of benefits and I'm not sure what to prioritize regarding finances. I meet with HR on Monday, so was wondering what sorts of questions I should ask.

I just turned 27, and right now I have a checking account with a few thousand dollars, and an "Individual Taxable Account" through Betterment that I deposit into every week that has the rest of my savings (about $12k). It's all index funds with a target of 90/10 stocks/bonds.

I think I'll need to wait a few months until I'm offered the 401k, but I wanted to get my head straight about what to plan for. Should I plan on withdrawing enough from my Betterment account to max out my employer match on the 401k? Should I set up an IRA?

...

I'm not totally sure about the health insurance the company offers or if it has an HRA, but if they do have an HRA should I split my investments into that as well?

Click to expand...

Can you afford to do all of these things? If so, the answer is yes to all.

If not, then the priority of doing them depends a bit on what fund options are available in your 401K and HSA. There is a wide range of quality in the 401ks offered by different companies, with the main determining factors being availability of low cost index funds and fund selection.

Would it be better to concentrate all my funds into Betterment because their returns may be higher + compound interest?

Click to expand...

No. If you make sensible investments with your retirement accounts they will give you better returns than a taxable account will, due to their tax advantages.

What's the advantage of splitting my investments between 401k/IRA/regular taxable investment account?

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The advantage of regular taxable accounts is that you can pull your money out whenever you want. With traditional IRAs you pay a penalty for withdrawals before retirement age. With a 401k, you may not even have the option to withdraw before then.

The advantage of using retirement accounts is that you pay substantially less in taxes than you do with a regular investment account, so you will end up with a lot more money.

And one specific word of warning about Betterment - be careful about using their tax loss harvesting if you have separate retirement accounts. If you have any accounts they are not managing, they could end up making illegal deductions due to wash sale rules.

fuzzyset said:

HSA money is always yours even if you go off the high deductible plan. You might be thinking of FSA. If anything you should put more into the HSA account until you hit 4000$ (or whatever the level is) so you can start investing it. Otherwise it will just sit there.

Click to expand...

There is no universal minimum amount of money you need to invest in an HSA. If you have a minimum, that is a feature of your specific HSA provider.

fuzzyset said:

HSA money is always yours even if you go off the high deductible plan. You might be thinking of FSA. If anything you should put more into the HSA account until you hit 4000$ (or whatever the level is) so you can start investing it. Otherwise it will just sit there.

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Yes my bad. Always confuse the two

Generally I think it's a good idea to save enough into the HSA to cover the max deductibles you'll potentially spend if the worst happens throughout the year. Then future years you only have to top off whatever small part you ended up using.

The first year sucks, but it's nice to know you have enough money set aside to cover you no matter what happens.

Thanks everyone for all the help!

SecretMoblin said:

I think typically the flowchart goes:

Contribute to the 401(k) up to the employer match -> Max your annual IRA contributions -> Fund an HSA if your plan has it (HRAs are a different beast) -> If you're still putting less than 15-20% (or whatever your target is) into retirement, continue funding your 401(k)

If you have any high-interest debt, it's worth prioritizing it before funding an IRA. And employer plans can offer a range of investment options in your 401(k)... not many of them useful or good, sometimes. It sounds like you have a good idea of what you should invest in, but if the 401(k) has shit offerings you may need to adjust things.

Don't neglect your tax-advantaged accounts in favor of the taxable $12k Betterment account. You have decades for things to compound, and the accumulated tax savings over those decades is immense. Also, the How To Invest For Retirement thread will probably net you more (and better) bites.

Click to expand...

tokkun said:

Can you afford to do all of these things? If so, the answer is yes to all.

If not, then the priority of doing them depends a bit on what fund options are available in your 401K and HSA. There is a wide range of quality in the 401ks offered by different companies, with the main determining factors being availability of low cost index funds and fund selection.



No. If you make sensible investments with your retirement accounts they will give you better returns than a taxable account will, due to their tax advantages.



The advantage of regular taxable accounts is that you can pull your money out whenever you want. With traditional IRAs you pay a penalty for withdrawals before retirement age. With a 401k, you may not even have the option to withdraw before then.

The advantage of using retirement accounts is that you pay substantially less in taxes than you do with a regular investment account, so you will end up with a lot more money.

And one specific word of warning about Betterment - be careful about using their tax loss harvesting if you have separate retirement accounts. If you have any accounts they are not managing, they could end up making illegal deductions due to wash sale rules.



There is no universal minimum amount of money you need to invest in an HSA. If you have a minimum, that is a feature of your specific HSA provider.

Click to expand...

Javaman said:

Generally I think it's a good idea to save enough into the HSA to cover the max deductibles you'll potentially spend if the worst happens throughout the year. Then future years you only have to top off whatever small part you ended up using.

The first year sucks, but it's nice to know you have enough money set aside to cover you no matter what happens.

Click to expand...

Thanks! That helped me focus my priorities. I'm a bit uncomfortable about drawing huge amounts of money from Betterment, just because the account's been doing so well and I'm not convinced that my 401K/IRA will have the same types of returns. I'll probably pause my Betterment deposits until I at least hit my employer's match on the 401K, then start my IRA until I hit the max, and then I'll probably have a bit leftover to trickle into my Betterment account. I'll probably only withdraw from Betterment to fill an HSA with enough to cover my deductible, and let the rest of my nest egg keep growing.

Thanks everyone for all the help!

JoeyJungle said:

Thanks! That helped me focus my priorities. I'm a bit uncomfortable about drawing huge amounts of money from Betterment, just because the account's been doing so well and I'm not convinced that my 401K/IRA will have the same types of returns. I'll probably pause my Betterment deposits until I at least hit my employer's match on the 401K, then start my IRA until I hit the max, and then I'll probably have a bit leftover to trickle into my Betterment account. I'll probably only withdraw from Betterment to fill an HSA with enough to cover my deductible, and let the rest of my nest egg keep growing.

Click to expand...

You are giving Betterment too much credit. Their CEO has given talks at my company, and I have read their prospectus, so I am familiar with their investment strategy. Trust me when I say that it is nothing fancy. They use low cost, broadly diversified index funds - basically very similar to the advice we give DIY investors in the retirement investing thread. The only advanced technique Betterment uses is automated tax loss harvesting, and that is inapplicable to retirement accounts because they don't pay taxes on trades to begin with.

The reason Betterment has had high returns recently is because the entire stock market has had high returns. If you had been holding your money in index funds in a retirement account, you would have seen the same high returns without paying Betterment's 0.2% fee. Be aware that the current boom is not going to go on indefinitely though, as stock prices are already very high relative to profits, so you should set your expectations for lower returns in the next 10 years than in the last 7.

Max your 401k, IRA, and HSA before you even think about investing elsewhere.