Author Topic: Am I thinking of the HSA calcs correctly?  (Read 3427 times)

RosieTR

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Am I thinking of the HSA calcs correctly?
« on: November 02, 2016, 02:50:02 PM »
It's open enrollment, and I want to check in about the HSA to make sure I'm thinking of this correctly.

The deets:
1) I can do an HSA at work, while DH does not have that option through his.
2) For me single, it's $0 out of pocket for me, plus work provides $500 to the fund (one-time, not monthly).
3) With DH on my HSA, it's about $200/mo premium...$2400 annual.
4) If he insures himself through his work's plan, it is a bit over $100/mo. ($200/mo if he adds me which is the worst of all options so that's not on the table.)

Since we are in the 15% tax bracket after 401k deductions, at first glance it seems like it's a bit of an iffy benefit to put DH on mine:
Both of us on HSA: $2400 out of pocket costs, tax advantage of ~$930 ($6750 max contributions, minus $500 work puts in, so $6250 times 15%).
The earnings 6% or so, on $6750, are $405.
$405+$930=$1335 minus the additional premium over his health care option=$1335-1200=$135

Just me on the HSA:
Premiums are $0. Tax savings is $3350 minus $500, so $2850*.15= $427.50 total. 
Earnings of 6%on $3350=$201
Total=$427.50+$201=$627.50

The additional $500 is the same either way (ei not $1000 if I add him).
If the earnings are substantially less than 6%, the benefit is totally wiped. OTOH, compound interest. We are in early 40s, expecting to FIRE maybe 2020ish? It's a very tough call to make to say what the health care situation in the US will look like at that point, or the tax situation. So, kind of uncertain if the premium cost will be worth the potential savings. Anyway, I need to have a strong argument to present to him because he is inclined to look just at the shorter term picture and not the longer one. Thoughts or advice welcome!

seattlecyclone

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Re: Am I thinking of the HSA calcs correctly?
« Reply #1 on: November 02, 2016, 02:58:45 PM »
If the insurance premiums and HSA contributions are paid through payroll deductions, you also will likely get out of payroll tax on these items.

That means that instead of saving $930 on your taxes with both of you on the HSA plan, it's instead more like $1,959.23 ([$2,000 + $6,750 - $500] * [15% + 7.65%]).

RosieTR

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Re: Am I thinking of the HSA calcs correctly?
« Reply #2 on: November 02, 2016, 05:27:42 PM »
Ah, forgot about that! But I think they only take mine out, not DH's, so we would pay for his and then deduct from taxes later.

seattlecyclone

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Re: Am I thinking of the HSA calcs correctly?
« Reply #3 on: November 02, 2016, 06:05:19 PM »
They would make you send in a check for your husband's premium rather than taking it out of your paycheck? I've never heard of that, but I guess it could happen. Or they wouldn't let you deduct a family-sized HSA contribution from your paycheck, only a single-sized one? Also seems strange.

redcedar

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Re: Am I thinking of the HSA calcs correctly?
« Reply #4 on: November 02, 2016, 08:26:34 PM »
Can you clarify something for me? When you say HSA, do you mean high deductible health plan? I ask because an one is an account where funds can be saved to pay for copays, coinsurance, etc and one is a health plan with premiums.

RosieTR

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Re: Am I thinking of the HSA calcs correctly?
« Reply #5 on: November 03, 2016, 08:07:44 AM »
Can you clarify something for me? When you say HSA, do you mean high deductible health plan? I ask because an one is an account where funds can be saved to pay for copays, coinsurance, etc and one is a health plan with premiums.

I'm referring to a high deductible plan with an HSA. The employer pays 100% of my premium if I am just insuring myself; the premium is about $200 if I do myself + DH. Not totally sure about whether he would need to submit payments separately or not-maybe if he has to have his own fund? I'll look through the lit. Deductible is $1500/person; max out of pocket around $6500/person. In a normal year, I have one wellness exam, regular dental and regular eye. Of course there's always the chance for unexpected issues; probably I'd hit max if that happened (ER visit, basically).

Ebrat

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Re: Am I thinking of the HSA calcs correctly?
« Reply #6 on: November 03, 2016, 10:48:48 AM »
You can have the full family max ($6750) withdrawn from your paycheck. He doesn't need his own account (this is how I do it). In my HSA, I can't invest the whole balance, only the amount over $2000.

Well Respected Man

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Re: Am I thinking of the HSA calcs correctly?
« Reply #7 on: November 04, 2016, 06:16:12 AM »
Here you go: https://docs.google.com/spreadsheets/d/1S658YHMyOpX3uJ9F5KlhTWimNX1VbOhvDX0nWT4ODmc/edit?usp=sharing

Sticking with your SO's plan is the better option. I made some assumptions, such as:
 - $2000 is required to be stashed in a "savings" account in the HSA
 - 15% taxes on taxable investments
 - You would invest all of the tax savings, etc. in a taxable account if you didn't have the HSA option
 - Oops, I forgot about the $500 employer contribution, but I don't think that changes the overall number

Essentially, you are paying $1200/year for the privilege of investing $3400 in the tax-free account, so not a bargain. Also, you'll find that the expense ratios in the HSA accounts are .5% higher than in equivalent taxable accounts.

RosieTR

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Re: Am I thinking of the HSA calcs correctly?
« Reply #8 on: November 07, 2016, 10:52:19 AM »
Thanks, Well Respected Man! That was very awesome to provide a whole spreadsheet like that!

I will adjust a couple of the numbers to reflect the employer's stuff. Not sure about fund fees, since the only info on their website is from the 401k. The rep said the fees are the same but that was in a conversation so I'm not assured of that until I can comb through the actual contract. Also, it's definitely a great deal for me-premiums are $0 so I basically get a minimum $500 for free for enrolling in the HSA, plus the tax break beyond that. Adding DH is a little more complex so I'll make friends with the spreadsheet and show him.

Thanks again!

RosieTR

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Re: Am I thinking of the HSA calcs correctly?
« Reply #9 on: November 11, 2016, 08:43:41 AM »
Update: since the math is so close and since we had to decide by today with a LOT of uncertainty into the >1yr future, I just figured it may be good to have health care $$ in an account we can transport if/when it's possible to FIRE. I had originally hoped to be in the next couple of years, but if health care is a huge uncertainty then I may put it off. Still, in almost any case except complete breakdown of society (which is impossible to prepare completely for), having a stash of tax-free $ will be better than not.

Thanks again everyone for the advice here!