Hi David – I think that’s a good strategy. With healthcare costs rising, and the fact that you can no longer contribute to an HSA once you start Medicare, you’ll be able to use the HSA either for medical expenses or for retirement. In the meantime it’ll cover out-of-pocket medical costs, and with three kids that isn’t a bad option to have either. I’d say you’re thinking right.

I am 30 years old married with three kids. We keep 15k in emergency, have about 30 in Roth (backup emergency), and will be maxing out the $6,750 in my wife’s HSA from now on before maxing out Roth. The reason being is that after age 65, you can withdraw from your HSA for any reason without a 20% penalty- you just have to pay income tax on the earnings like a 401k or traditional IRA. Bottom line is that I believe maxing out your Roth IRA for a few years before switching your focus to the HSA next. HSA gives you a tax break on federal, state, and Medicare and Social Security tax where 401k is JUST tax break on federal and state.

Please let me know if I’m missing something here or you have other viewpoints from my situation where I have 30+ years til retirement and are looking at as much tax breaks now.

That’s an excellent strategy. I usually recommend maxing out the 401k up to the match first, which I did in the article. But in your case you’re doing that in addition to the Roth IRA. It isn’t critical to do it in order if you plan to do both. The priority is mostly for those who might be able to do one but not necessarily the other.