Should I Max Out My HSA or My SEP First? | HSA Awareness

When it comes to deciding whether to max out your Health Savings Account (HSA) or your Simplified Employee Pension (SEP) first, it's important to consider your financial goals, tax benefits, and retirement planning strategies.

Here are some key factors to help you make an informed decision:

• Tax Advantages: While both HSAs and SEPs offer tax benefits, the tax advantages of an HSA are unique, as contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free.
• Contribution Limits: Both HSAs and SEPs have contribution limits set by the IRS. For 2021, the HSA contribution limit for individuals is $3,600 and $7,200 for families. On the other hand, the SEP contribution limit is 25% of your net earnings up to $58,000.
• Employer Contributions: If you have an employer that contributes to your HSA or SEP, you may want to consider maximizing that account first to take advantage of employer matching contributions.
• Investment Options: HSAs typically offer a range of investment options, including mutual funds and stocks, which can help you grow your savings over time. SEPs, however, do not have as many investment choices.

Ultimately, the decision to max out your HSA or SEP first will depend on your individual financial situation and goals. Consider consulting with a financial advisor to help you make the best choice based on your specific needs.

When you’re faced with the choice of whether to max out your Health Savings Account (HSA) or your Simplified Employee Pension (SEP) first, it’s crucial to weigh your personal financial objectives alongside the inherent tax benefits and nuances of each option.