Quick comparison of tax benefits of US retirement programs
- Roth IRA/401k
- Maximum contribution: $23,500 for 401k, $7,000 for IRA
- Tax benefit on withdrawal, tax free interest
- Traditional IRA/401k
- Maximum contribution: $23,500 for 401k, $7,000 for IRA
- Tax benefit on contribution, taxable interest
- Health Savings Account
- Maximum contribution: $4,300
- Tax benefit on contribution and withdrawal, tax free interest
- Old Age and Survivor’s Insurance
- Maximum contribution: Maximum income $168,600, 12.4% tax, so $20,906.40 limit
- No tax benefit
- No balance
- No guarantee
So let’s do the math for three individuals who make $25,000, $50,000, and $100,000 per year.
| Income | $25,000.00 | $50,000.00 | $100,000.00 |
| 401k contribution | $1,000.00 | $7,000.00 | $23,500.00 |
| IRA contribution | $1,000.00 | $7,000.00 | $7,000.00 |
| Traditional tax benefit | $100.00 | $841.00 | $5,060.00 |
| 401k balance in 30 years | $10,062.66 | $70,438.60 | $236,472.44 |
| IRA balance in 30 years | $10,062.66 | $70,438.60 | $70,438.60 |
| Estimated Roth 401k tax savings | $2,515.66 | $17,609.65 | $59,118.11 |
| Estimated Roth IRA tax savings | $2,515.66 | $17,609.65 | $17,609.65 |
| HSA contribution | $4,300.00 | $4,300.00 | $4,300.00 |
| HSA balance in 30 years | $43,269.42 | $43,269.42 | $43,269.42 |
| HSA savings now | $430.00 | $516.00 | $946.00 |
| HSA savings in 30 years | $10,817.36 | $10,817.36 | $10,817.36 |
| Estimated HSA tax savings | $11,247.36 | $11,333.36 | $11,763.36 |
| Max HSA + Roth 401k tax savings | $13,763.02 | $28,943.01 | $70,881.47 |
| Max HSA + Roth 401k balance | $53,332.08 | $113,708.02 | $279,741.86 |
| OASI tax | $3,100.00 | $6,200.00 | $12,400.00 |
| OASI benefit | $11,664.00 | $16,200.00 | $25,248.00 |
| OASI benefit taxes | $2,916.00 | $4,050.00 | $6,312.00 |
| Real OASI benefit | $8,748.00 | $12,150.00 | $18,936.00 |
| benefit if OASI tax put in Roth 401k over 30 years | $31,194.24 | $62,388.47 | $124,776.95 |
| Max HSA + Roth 401k + OASI balance | $62,080.08 | $125,858.02 | $298,677.86 |
| Max HSA + Roth 401k + OASI in 401k balance | $84,526.32 | $176,096.50 | $404,518.81 |
| Potential savings if OASI tax credible | $775.00 | $1,550.00 | $3,100.00 |
The Roth 401k looks pretty good! But look at the HSA benefit for the average household! If you are able to combine the two you can save a lot of taxes, and have a lot of money in retirement for comfort.
Then there is OASI… yeah. Putting a tax credit on OASI benefits is a good idea, which is probably why Trump campaigned on it and then chose not to implement it through his Big Beautiful Bill.
The one good thing he campaigned on and he won’t even make it law.
I’m assuming benefits are taxed at 25% in all of these scenarios, and am calculating taxes using https://smartasset.com/taxes/income-taxes
OASI taxes are based on the full 12.4% tax because this idea that the employer and employee split the burden in half is hogwash because of tax wedges. OASI estimates are from https://www.ssa.gov/cgi-bin/benefit6.cgi
Long story short, contribute to an HSA and a Roth 401k.