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Need help with HSA question (1 Viewer)

prosopis

prosopis

Arizona Chupacabra
I am currently looking at the government health insurance plans. The affordable one for my family is a high deductible HSA plan. I don't really understand the HSA account part. My insurance broker tells me I don't have to open an HSA account but suggests I do and that I at least put the minimum in. 

I sent an email to my credit union asking if they offer an HSA account and I am waiting their reply. Looking at their website I am guessing the answer is no.

I did a brief google search and I see many HSA banks. It looks like I can deposit money into these accounts and that money is tax deductible. I am also getting the impression that I can invest that money. It looks to me like the money has to be used for health related stuff until the age of 65 (I think it was 65) and then I can use it for anything.

Am I correct? Is this a good thing to do? 

Any guidance would be appreciated.

* If anyone has an HSA bank they are fond of I would like some recommendations and why you would recommend them. 

 
An HSA is possibly the best retirement vehicle around. You can put money in before tax and withdraw after tax (under certain circumstances). If I could get into a HDHP at work, I would.

 
Gawain said:
An HSA is possibly the best retirement vehicle around. You can put money in before tax and withdraw after tax (under certain circumstances). If I could get into a HDHP at work, I would.
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This is not offered through work so my deposits would be after tax but it is my understanding that it would be tax deductible. I dont really know though, that is why I ask. :confused:

 
I moved to a HDHP with HSA about 4 years ago and it's been a win for our family.   It depends on what your current plan copays and premiums and caps are. 

I previously had an HMO + a FSA.  

The math for me was this (I'm just going to make up numbers for easy math for the sake of example)

HMO premiums were $300 ppp, I could contribute $2600 per year ($100 ppp)   If I didn't spend all the FSA by ears end, I lost it.  So essentially I was paying $400 every two weeks for the coverage I was getting, this gave me my annual caps + a potential of 2600 in Flexible spending.  

the HDHP premiums were a lot lower (less than $100 ppp, and I don't remember the exact limit on HSA (it changes a little bit, frequently -- it's roughly 7500 or 8K now).   But, with the HSA -- you keep it if you don't use it.    So, I'm paying less for premiums and more into the HSA -- the net per pay check was nearly equal.   But now if we don't have any big medical costs we're building a fund for later.  

The "downside" is that you have to meet an annual deductible before ANY benefit kicks in -- this varies depending on your plan and coverage level, but I think for me and the family it's ballpark $4k.  So this means that for doctor/hospital/specialist/dentist/prescriptions that the first $4000 I spend every year I pay 100% of with no benefit, then after that deductible is met then copay benefits kick in.   Remember though, when you max out the HSA, you should be paying for these pre-deductable expenses with your HSA.    You have an annual out of pocket max with these plans , where after $X per year the rest of everything is covered.  I want to say ours is about $9 or $10k. 

the TL;DR for us was this:

given the same premiums per month (old plan was high premium + lower FSA contrib, new plan is low premium + high HSA contrib) == In a given year where we're healthy with expected expenses -- routine doctor and dental visists and the routine prescriptions -- we are saving money in the HSA for future health needs.

In a "bad" year where we have multiple emergency room visits or ( god forbid )some major illness, injury, or disease -- the HDHP+HSA may mean we pay a lttile bit more out of pocket.   It will all vary for you based on your current premiums, coverage levels, and details on the new plan.   If I can help you with the math, shoot me a PM. 

 

 
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prosopis said:
This is not offered through work so my deposits would be after tax but it is my understanding that it would be tax deductible. I dont really know though, that is why I ask. :confused:
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Yeah, Form 8889, which ends up on line 25 of your 1040.
https://www.irs.gov/forms-pubs/about-form-8889

It sucks a little because you give the gov't a bit of a loan unless you lower your withholding to account for your HSA deductions.
If you contribute to a Roth IRA, look at the HSA to take the place of the IRA (assuming you can't fully fund both).

 
AhrnCityPahnder said:
The "downside" is that you have to meet an annual deductbale before ANY befefit kicks in -- this varies depending on your plan and coverage level, but I think for me and the family it's ballpark $4k.  So this means that for doctor/hospital/specialist/dentist/prescriptions that the first $4000 I spend every year I pay 100% of with no benefit, then after that deductable is met then copay benefits kick in.   Rememberm though, when you max out the HSA, you should be paying for these pre-deductable expenses with your HSA.    You have an annual out of pocket max with these plans , where after $X per year the rest of everything is covered.  I want to say ours is about $9 or $10k. 
 
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If you have the cash on hand, it's often better to not withdraw from the HSA to pay.
https://www.investopedia.com/articles/personal-finance/101915/why-not-use-your-hsa-current-medical-bills.asp

https://www.cnbc.com/2016/08/19/dont-use-your-health-savings-account-funds-right-away.html

In a nutshell, keeping funds in your HSA allows you much greater flexibility in the future and provides a greater return.
You would have more when you retired if you kept funds in HSA and paid out of pocket, rather than paying via the HSA and investing in a brokerage account.

 
Gawain said:
If you have the cash on hand, it's often better to not withdraw from the HSA to pay.

...

In a nutshell, keeping funds in your HSA allows you much greater flexibility in the future and provides a greater return.
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I mean, I have some cash available but I'm usually doing something with it.    I don't have cash enough to max out 401k+roth + HSA + other investing + pay for all my medical expenses outright.     If I had a pile of money not doing anything with, I don't doubt that you're right. 

If it worth dialing back on retirement savings to have money for med expenses, as to not use my HSA?    Questions like this make my head hurt and I usually just say F it and stay the course.  

 
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AhrnCityPahnder said:
I mean, I have some cash available but I'm usually doing something with it.    I don't have cash enough to max out 401k+roth + HSA + other investing + pay for all my medical expenses outright.     If I had a pile of money not doing anything with, I don't doubt that you're right. 

If it worth dialing back on retirement savings to have money for med expenses, as to not use my HSA?    Questions like this make my head hurt and I usually just say F it and stay the course.  
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It probably doesn't make enough of a difference to lose any sleep over. If you pay out of pocket to keep cash in your HSA, you're basically using the HSA as a Roth. You are paying for your heath care with post-tax dollars, so the pre-tax benefit is lost. If your workplace doesn't offer a Roth 401k plan and you're at a tax level where you think Roth is a better option, then you could dial back pre-tax contributions to pay health bills, but for most of us FBG, I'd think that pre-tax is a better place to be putting our cash (we're likely paying more tax now, than when we retire).

 
Gawain said:
If you have the cash on hand, it's often better to not withdraw from the HSA to pay.
https://www.investopedia.com/articles/personal-finance/101915/why-not-use-your-hsa-current-medical-bills.asp

https://www.cnbc.com/2016/08/19/dont-use-your-health-savings-account-funds-right-away.html

In a nutshell, keeping funds in your HSA allows you much greater flexibility in the future and provides a greater return.
You would have more when you retired if you kept funds in HSA and paid out of pocket, rather than paying via the HSA and investing in a brokerage account.
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Interesting articles...thx.

We have had a HSA plan for about 5 years now and max out every year what we can contribute. I've been hoping they would raise the cap. It's definitely a good plan if you're relatively healthy. Our deductible is $6k.

 
my deductible would be 6,550.00 individual and 13,100.00 family.

This option is really the only one I can afford without rearranging my budget. I am just wondering about the account set up. I really hope my bank can help me with this but if not I guess its just a case of shopping around for an HSA bank? I imagine once I find a bank they will be able to answer my questions.

My other concern is that what if this option is not available next year. Will I lose any money I put into that account. I have had to change my insurance plan every year since Obama Care went into effect.

 
Gawain said:
It probably doesn't make enough of a difference to lose any sleep over. If you pay out of pocket to keep cash in your HSA, you're basically using the HSA as a Roth. You are paying for your heath care with post-tax dollars, so the pre-tax benefit is lost. If your workplace doesn't offer a Roth 401k plan and you're at a tax level where you think Roth is a better option, then you could dial back pre-tax contributions to pay health bills, but for most of us FBG, I'd think that pre-tax is a better place to be putting our cash (we're likely paying more tax now, than when we retire).
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I'm still a little confused as to the benefit of waiting to withdraw. The money isn't being taxed if used for medical expenses, even under 65 years old, so outside of being able to build up a nest egg, why not use the money when you need it?

 
prosopis said:
my deductible would be 6,550.00 individual and 13,100.00 family.

This option is really the only one I can afford without rearranging my budget. I am just wondering about the account set up. I really hope my bank can help me with this but if not I guess its just a case of shopping around for an HSA bank? I imagine once I find a bank they will be able to answer my questions.

My other concern is that what if this option is not available next year. Will I lose any money I put into that account. I have had to change my insurance plan every year since Obama Care went into effect.
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The HSA account is yours to keep. It's not tied to your health insurance at all. The only relationship the two have is that you have to have a HSA eligible health insurance plan in order to open and contribute to an HSA. If you change to a non-HSA eligible plan later, your HSA account and the money in it is still yours, and the rules of spending it still apply, but you can no longer contribute to it tax free because you no longer have an HSA eligible health care plan. 

Premiums for HSA plans are much cheaper, but that's because the insurance company owes nothing until you've spent your deductible for the year. If you have a well funded HSA account, that's not a problem, as the funds to pay the deductible are there. But if you can't afford to seed the HSA with funds, and you have a lot of health expenses in your first year, it could make for a serious cash flow problem. That said, high premium health insurance plans that start paying out quicker can also cause a serious cash flow problem, so the risk of cash flow during the first year is six of one and half a dozen of the other. 

Ultimately if you are a healthy person who rarely uses health care services, an HSA should be at the top of the list to consider, as it's like being able to have a 2nd IRA account. 

But if you frequently spending $5k+ per year on health costs per person, then you'll probably never see the long term benefits of having an HSA, and the higher premium plans might be a better option financially (but probably not.... the sum of "max out of pocket + premiums" is pretty much similar for all types of plans). 

 
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jamny said:
I'm still a little confused as to the benefit of waiting to withdraw. The money isn't being taxed if used for medical expenses, even under 65 years old, so outside of being able to build up a nest egg, why not use the money when you need it?
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OK, think I get it now.

1 - If you invest the HSA savings, it would make sense to keep as much in as long as possible to get the maximum return on the investment. We only hold the money in a savings account since we have a big portion of our money in investments already.

2 - "And when you use the funds in your HSA account for medical expenses after you reach retirement age, your withdrawals are free from federal income tax. This is a key advantage over a conventional retirement fund such as a 401(k)"

So, you are taxed on the money you take out of a 401k after retirement but aren't with an HSA for medical purposes? That's a good benefit if accurate.

 
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jamny said:
So, you are taxed on the money you take out of a 401k after retirement but aren't with an HSA? That's a good benefit if accurate.
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Correct.   But keep in mind the same benefit is available from a Roth account (post tax dollars in, tax-free dollars out), which is why Gawain was saying your HSA can kind of act as a proxy for your Roth account. 

 
AhrnCityPahnder said:
Correct.   But keep in mind the same benefit is available from a Roth account (post tax dollars in, tax-free dollars out), which is why Gawain was saying your HSA can kind of act as a proxy for your Roth account. 
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Roth contributions aren't deductible? edit: I guess I should say "pre-tax"

My wife is an accountant and handles all this but I try to keep up and maybe tell her something she doesn't know...which is extremely rare. :D  

 
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jamny said:
Roth contributions aren't deductible?

My wife is an accountant and handles all this but I try to keep up and maybe tell her something she doesn't know...which is extremely rare. :D  
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401K/IRA (traditional)--$$ go in pre tax and are taxed coming out
Roth 401K/IRA--$$ go in post tax and are not taxed coming out
HSA--$$ go in pre tax and are not taxed coming out (for medical expenses)

Your roth contributions are not deductible. I'd bet money (pre tax or post tax) that she already knows this. However, if you're under a certain income (married--$36,500) you can take a credit for using a roth ira.

 
Gawain said:
401K/IRA (traditional)--$$ go in pre tax and are taxed coming out
Roth 401K/IRA--$$ go in post tax and are not taxed coming out
HSA--$$ go in pre tax and are not taxed coming out (for medical expenses)

Your roth contributions are not deductible. I'd bet money (pre tax or post tax) that she already knows this. However, if you're under a certain income (married--$36,500) you can take a credit for using a roth ira.
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Thanks (to Ahrn as well)

That clarifies it. I'm sure she knows about it. As VP of Finance, she gets enough uninformed questions all day that I try to avoid asking too many more at home. lol But she might not have thought about the benefits of saving that money and using out of pocket while we can. I'm sure she'll have her reasons. :D

 
jamny said:
Thanks (to Ahrn as well)

That clarifies it. I'm sure she knows about it. As VP of Finance, she gets enough uninformed questions all day that I try to avoid asking too many more at home. lol But she might not have thought about the benefits of saving that money and using out of pocket while we can. I'm sure she'll have her reasons. :D
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My wife is in HR. She hates it when I ask her HR questions, but I hate it when she asks me Excel questions, so it all evens out.
It's all kind of silly. If you make (perhaps more accurately, save enough) that you can max a couple 401Ks, a couple Roth IRAs and hit the family limit on a HSA, you're saving more than 53K a year. If you saved 53K a year under your pillow, you're better off than 99% of Americans and worrying about how effectively you are sheltering or structuring investments is not as important as merely saving. (1% HH salary is roughly 350K. USA savings rate is roughly 5%. Doubling that for the 1%, still gives a savings of 35K a year.)

 
Gawain said:
401K/IRA (traditional)--$$ go in pre tax and are taxed coming out
Roth 401K/IRA--$$ go in post tax and are not taxed coming out
HSA--$$ go in pre tax and are not taxed coming out (for medical expenses)

Your roth contributions are not deductible. I'd bet money (pre tax or post tax) that she already knows this. However, if you're under a certain income (married--$36,500) you can take a credit for using a roth ira.
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My HSA money would be going in after I get paid so it is not pretax. Will I get to deduct the amount I fund from my taxes and if so is there a limit?

 
Thanks for the replies in here.

I found out my credit union does not offer HSA accounts. They directed me to HSA.com for info. I am going there now to try and learn more.

I see you guys talking about the money going into the HSA pretax. I believe that is only true if it is an HSA offered by my employer which this is not. I will be funding the HSA with money after I have been paid and taxes taken. At least I think that is what will happen. I'm really just guessing.

The HSA I am looking at is offered in the healthcare marketplace. It is Ambetter United Health Care.

 
HSA.com did not seem very helpful.

I have sent an inquiry to health equity bank. I am trying to set up a time to talk to someone there. Health Equity bank is the bank my insurance broker uses for his HSA plan. That is the only reason I have contacted them. If anyone here has a bank that offers HSA plans and they like them, I am open to suggestions.

 
prosopis said:
My HSA money would be going in after I get paid so it is not pretax. Will I get to deduct the amount I fund from my taxes and if so is there a limit?
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HSA contributions are deductible up to (I think) $6750 for a family. It increases every year.

Again, it's very similar to an IRA, where you fund it with post tax dollars, but you get the taxes that were collected back (although I think I've read that FICA withholdings never get refunded, so it's better to get the HSA funded by the employer if it's possible, in order to avoid FICA taxes on it). 

 
I have no experience with an HSA that isn't via your employer.   I'd guess you're correct, but I am only guessing....make sure before you commit.

 
Politician Spock said:
The HSA account is yours to keep. It's not tied to your health insurance at all. The only relationship the two have is that you have to have a HSA eligible health insurance plan in order to open and contribute to an HSA. If you change to a non-HSA eligible plan later, your HSA account and the money in it is still yours, and the rules of spending it still apply, but you can no longer contribute to it tax free because you no longer have an HSA eligible health care plan. 

Premiums for HSA plans are much cheaper, but that's because the insurance company owes nothing until you've spent your deductible for the year. If you have a well funded HSA account, that's not a problem, as the funds to pay the deductible are there. But if you can't afford to seed the HSA with funds, and you have a lot of health expenses in your first year, it could make for a serious cash flow problem. That said, high premium health insurance plans that start paying out quicker can also cause a serious cash flow problem, so the risk of cash flow during the first year is six of one and half a dozen of the other. 

Ultimately if you are a healthy person who rarely uses health care services, an HSA should be at the top of the list to consider, as it's like being able to have a 2nd IRA account. 

But if you frequently spending $5k+ per year on health costs per person, then you'll probably never see the long term benefits of having an HSA, and the higher premium plans might be a better option financially (but probably not.... the sum of "max out of pocket + premiums" is pretty much similar for all types of plans). 
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For some reason, a few years back, my company changed so that the premiums for the HDHP and the PPO are now exactly the same, which pretty much kills any chance of me using the HDHP/HSA path.  Not sure of the reasoning - overall, the insurance is pretty good, and premiums overall have gone up pretty slowly.

My wife has a couple of prescriptions, one of which would run a few hundred a month until we hit the deductible.  Under the PPO (again, same premium!) it's $20, and our deductible is only half as much.

 
heckmanm said:
For some reason, a few years back, my company changed so that the premiums for the HDHP and the PPO are now exactly the same, which pretty much kills any chance of me using the HDHP/HSA path.  Not sure of the reasoning - overall, the insurance is pretty good, and premiums overall have gone up pretty slowly.

My wife has a couple of prescriptions, one of which would run a few hundred a month until we hit the deductible.  Under the PPO (again, same premium!) it's $20, and our deductible is only half as much.
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Not that I know the facts of your situation, but this can occur when the deductibles of a non-HSA plan are similar or the same as HSA plans. Basically, because the non-HSA plans have adopted higher deductibles in recent years, their premiums have essentially dropped into HSA levels. But because health insurance rates overall have increased, it appears that HSA premiums have risen to non-HSA levels. 

This is why it's important to look at all the details of each plan. While an HSA has an advantage over a non-HSA, in that it can act like a 2nd IRA, there are other details that can make the non-HSA's better for the consumer than an HSA. Every persons situation is different. 

 
I was told by healthequity bank that I can deduct whatever I donate to my HSA from my gross income on my taxes. The limit for 2018 deductions will be $6900.00.

I think I am going to go with the HSA plan.

 
Here's the skinny on what you need to know

The HSA is the only item in the IRS tax code with a triple tax advantage. The only one.

THE move you want to be playing in the long game with these is not to use it as your health insurance plan, it is to use it as a long term investment vehicle because of the ways you can use it. So, in general, people that can best use it in this way are folks who don't have ongoing, expensive, routine med expensive (monthly blood pressure meds, monthly asthma issues, etc).  Keep in mind, most HSA plans fully cover preventative, routine health care such as annual physicals so you are covered there.

So, what you do is fund the max or as much as you can. Then when you have a med issue, you pay that out of your own pocket and KEEP THE RECEIPT. This is extremely important because most people don't realize that you can keep that receipt forever and reimburse yourself later and reap the tax benefits (buy a med today, pay yourself back for it 15 years later).  

Once you have enough money in it (different plans have different minimums), you can invest and keep that growth too.  

You can use it for med related expenses without penalties and you have more flexibility in terms of age with mandatory withdrawals. 

Your employer or others can contribute to it. It's not all on you if you have someone who wants to put in on it. 

There's no use it or lose it.  That money can go from year to year,job to job, etc.

If you find yourself out of work, you can use the funds in the HSA to pay insurance premiums while you are unemployed (think cobra or privately purchased).

If you are Medicare age, you can draw off the HSA to reimburse yourself for the Medicare part b that comes out of your social security check each month (not the Gap coverage people buy, the actual part b).

There is so much that could be said about an HSA but it would be so much to write.  But think of the triple tax benefit. That's where it's at.  Imagine a scenario where you have money going in tax free, it is invested, it sits there for some years and then one day when you retire, you say"you know what, I'm going to let my HSA buy that two week timeshare in Florida I want now that I'm retired". 

It's all there for you if you know your health situation, have decently good health, and know how to use it.

 
prosopis said:
I was told by healthequity bank that I can deduct whatever I donate to my HSA from my gross income on my taxes. The limit for 2018 deductions will be $6900.00.

I think I am going to go with the HSA plan.
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That is correct for family.  $3450 for individual. Keep in mind that if you have adult children who are no longer being claimed as dependents, they can set up and contribute also so there is another $3450 for each child. 

And if they are taxable dependents then you can use the money in your HSA for their medical expenses also! 

 
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