Adjusting Our Retirement and HSA Contribution Amounts

by Michael on Dec 19, 2012 · 1 comment

Photo of a Golden Nest Egg

While open enrollment has come and gone, I’m free to adjust my retirement (and HSA) plan contributions whenever I want.

I therefore just spent a few minutes getting things in order for 2013. This included increasing my 403(b) and 457(b) contributions as well as my HSA contributions.

Yes, I have access to both a 403(b) and a 457(b) — plus another employer-provided account with mandatory contributions and an associated match. Nice, huh?

As a reminder, the retirement plan limits will be increasing to $17,500/year and the HSA contribution limit will be increasing to $6,450/year.

Note that, while I’m using a standalone HSA provider for investing, I’m still doing payroll deduction directly into my employer’s (crappy) provider of choice.

There are a couple of reasons for this.

For one, my employer matches a portion of our HSA contributions, but only if we do payroll deduction (so they can verify that we’re actually contributing). Also, while HSA contributions are tax deductible no matter what, the only way you can dodge FICA taxes is by doing payroll deduction.

This latter point isn’t a huge deal in our case, as I currently earn more than the amount subject to Social Security taxes. Thus, I wouldn’t have to pay the FICA-OASDI portion of the payroll tax (6.2%) on those marginal dollars. But I am saving the 1.45% Medicare (FICA-HI) portion of the tax.

While 1.45% isn’t a huge deal, it’s more than enough to offset the monthly fees associated with the account and, again, payroll deduction enables my employer’s matching contributions.

Of course, if you’re earning less than the Social Security contribution and benefit base, you’ll save a full 7.65% by doing payroll deduction vs. contributing directly. If you want to use another provider for investing, you can then periodically transfer the money out.

1 Adrienne December 21, 2012 at 11:29 am

Do you work in higher education? I do, and have the same choices (457b/403b/401a with mandatory & employer). Just curious!

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