debt free, maxed 401k, maxed IRA

There is a concept called "tax diversification"- having accounts with different taxable charactoristics to take advantage of tax rules when you need a withdraw.

For example your Roth withdraws should be tax free during retirement For example a taxable account could be taxed at rates as low as 5% or

15% based on long term capital gains rates. Dividends are taxed at similar rates in taxable accounts. For example the 401k will be taxed at ordinary income tax rates (15%, 25%, 28%, 33%, 35%- depending on income level). The more you withdraw, the higher the tax rate.

This might suggest contributing the 2k to any/all of the following:

1) taxable account 2) long term care insurance 3) health care spending account 4) real estate

This strikes me as a forest vs. trees question. What is your goal? To die rich? To travel around the world? To quit working for pay? To donate to worthy causes? To run for public office? Sounds like you are in a good position to accomplish any of these. The best way to proceed is to keep on doing what you are doing until you decide.

-Mark Bole

Total Market Index Fund or ETF International Index Fund or ETF

-Equities because they have best return for time periods over ten years.

-Broad US/international funds for diversification.

-Index or ETF for low cost and tax efficiency. Most of the index funds pay small distributions until you sell them - on the order of a few percent or less. Those gains are due to changes in the index content and dividends. Plus when you sell them taxes is will be at the long term gains rate rather than the higher deferred- income tax rate of 401K/IRAs.

are there limits/rules on my establishing an HSA on my own or do I have to wait for employer plan?

in case it matters, my employer will have one for 2008, enrollment starts in oct-nov 2007

where can I read more about it?

the question was also framed to take into account the "pay the tax now" vs. "can't put anymore into tax deferred plans" and what to do about it

Congratulations!

I'm in a similar situation, having maxed out both 401(k)/IRA and paid off my mortgage. If you invest in a taxable account, IMO you *should* worry about taxes. Index funds, tax-managed funds, or other actively managed funds that pursue a buy-and-hold strategy are good choices. I've also arranged things so that the majority of my bond holdings are in a tax-free muni bond fund in my taxable account.

I've also been putting a good chunk of my money into doing Roth conversion on an old traditional IRA, and 401(k) money from a former employer. If your income is too high to do that now, you might start setting aside some cash to do it in 2010 when the income limit is supposed to be removed.

Other than that, you have choices, depending on what your interests and goals are. Do you want to retire early or work part-time so you can spend more time with your family, or start a hobby business? Personally, I've been starting to put some money into home improvement and big-ticket maintenance items that will increase the value of my property.

Finally, as others have noted, you might also consider donating to charity, taking that round-the-world trip, or otherwise using your money to accomplish other life goals.

-Sandra

If your employer offers subsidized, tax-favored, traditional group health coverage for you and/or your family, I'm pretty sure you are better off with that. You can't have both.

IRS Pub 969.

-Mark Bole

I'm pretty sure one can have both a health savings account and an employer subsidized health insurance plan as I am participating in both at the moment. the difference is that any deductibles and medical items not covered (ie. dental procedures) are paid from my HSA where I pay with before-tax money

You are only allowed to use an HSA if you hve a High Deductible health care plan.

HRA, HSA, FSA... we need a scorecard to keep up. I suspect Amy is talking about a flexible spending account (I call that "FSA") where participants contribute pre-tax and use money for qualified medical expenses during year.

-HW "Skip" Weldon Columbia, SC

HW "Skip" Weldon wrote on [Wed, 25 Apr 2007 04:24:06 -0500]:

Wouldn't surprise me, of course an FSA is a use it or lose it proposition, whereas an HSA keeps growing and you never lose the money.

am a bit perplexed myself as I currently have an HMO plan with employer but have to drop my flexible spending account (FSA) starting 2008, enrollment Nov 2007

the HMO deductibles go up and I must enroll in a health savings account which works like some sort of line-of-credit

does anyone have currently a HSA plan and how does it work? how does HSA compare to FSA other than the fact that you don't lose the money you don't use (with FSA one must use the money during the current year)

Pretty simple. Any money you don't use, you keep for future medical. If you don't have enough in your HSA for medical expenses, keep the receipts and reimburse against your HSA anytime in the future. (Crazy, this lack of time limit, I'd expect Congress to shut down sooner or later.) Money used for medical is tax free going in, tax free going out. Once you turn 65.5, you can treat it like an IRA for non-medical

-- pay tax on it and use for anything. (But obviously, use for medical first if you have expenses.) Qualified medical expenses include insurance premiums in some cases (between jobs, retired, long-term care premiums, etc).

In short, it's an IRA on steroids. Off the top of my head, no other account will give you tax free on both ends with or without with conditions (example, 529 requires taxed contributions and then is taxfree for college). Without employer contributions, you can consider the government giving you a contribution equal to your federal+state tax bracket. And if your employer does contribute money, it's the best thing since sliced bread.

HRA- Health care reimbursement account. Unused portion rolls over to next year. Typically operated by employer (and in my case the only one which can contribute to this is my employer). Does NOT pay interest (so money in account loses purchasing power).

HSA- Healthcare spending account. Unused portion rolls over to next year. Typically opened by individual similar to an IRA (and individual is contributing pre-tax dollars). Limited number of HSA providers, high fees, and transactions costs need review. Some HSA's operate like "cash accounts", some allow more sophisticated investment plans (stocks, bonds other).

FSA- Flexible spending account. Provided by employer to individual similar to a 401k. Money is contributed to plan pre-tax by individual, and withdraw tax free for health care expenses. Money is put in current year, and must be taken out by April tax deadline of subsequent year (for health care expenses incurred the prior year). Leftover money is LOST at end of year loses not only purchasing power, but the principal is gone too.

A taxable investment account is a good idea because you may want to convert your 401k to a Roth which will require some funds to pay extra taxes.

-- Ron

YES. To have an HSA you must have a high deducable health plan (HDHP). Definitions have changed slightly over the years, look at a site like this for reference, or check this group's posts for HSA's.

The other key part of the requirement is that the HDHP be your _only_ (medical) plan. You can't have a non-HDHP employer plan and HDHP individual plan and expect to qualify for an HSA. I think you could opt out of your employer plan and pay for your own HDHP, but I can't see that as being cost-effective.

Mark Freeland snipped-for-privacy@sbcglobal.net

what if you are denied coverage on your own personal HDHP and cant get one?

Seems like a good way to go is to just save some aftertax money and invest them sensibly. I am in a similar position, with some extra savings also. At this point my mind tells me that it is time to work less and enjoy life more, but the actual change is very difficult to make.

i