Author Topic: HSA's--Are They Worth It?  (Read 22191 times)

VioletVixen

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HSA's--Are They Worth It?
« on: February 12, 2015, 08:15:36 PM »
I think this has been asked before, but I'm wondering how much I should be contributing to my HSA through payroll deduction. I'm not sure how "worth it" these accounts are when you add in the fees. I have HealthEquity through my employer and in order to invest in the VIGIX/VANGUARD GROWTH INDEX I and VBMPX/VANGUARD TOTAL BOND MARKET IDX INSTLPLS funds, I have to pay "The monthly administration fee for Investor Choice funds of .033% (ex. 33 cents per $1,000) times the average daily balance of your investment in an Investor Choice fund for the billing cycle."

I don't make enough to max out all of my accounts every year. I have a 403b through work, a Traditional IRA that I just opened and this HSA. Where would it be best to invest my money, in order of importance? I keep reading that HSA's are the best retirement account, but the fees make me wonder.


Static Void

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Re: HSA's--Are They Worth It?
« Reply #1 on: February 12, 2015, 09:13:18 PM »
Yes, HSA is very tax-advantaged.

You can withdraw from it any time for medical uses, or let it ride. And you can withdraw a like amount from it any time *after* you pay for a medical use, as long as you keep the record of the expense.

0.033% fees is pretty low; sounds like it might be in addition to the VIGIX & VBMPX expense ratio? Still pretty low.

If any of your other choices have employer matching (possibly 403b...) then reaching the matching max on that is better.
And paying down higher-interest debts is better.
And then HSA.

mozar

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Re: HSA's--Are They Worth It?
« Reply #2 on: February 12, 2015, 09:18:14 PM »
Since you can't max out your retirement accounts yet I would wait on the HSA. My company gives 500 to me if I open one. That would make it worth it to open one if you get that.
Order of funding priority should be: 403b, ira, then hsa.

The fees sound reasonable to me. I didn't know I could do that. Thanks for the tip, I might try it.

MDM

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Re: HSA's--Are They Worth It?
« Reply #3 on: February 12, 2015, 09:46:34 PM »
0.033% fees is pretty low; sounds like it might be in addition to the VIGIX & VBMPX expense ratio? Still pretty low.
Per the OP the 0.033% is monthly, so ~0.4% annual.  Not great but by no means terrible.

You could question whether to have a High Deductible Health Plan at all, and bring the analysis of HSA vs. 403b vs. IRA (and traditional vs. Roth for the last two) into the mix.  But if the HDHP is a given, then the extra tax advantages of the HSA seem compelling.

ninjaneer

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Re: HSA's--Are They Worth It?
« Reply #4 on: February 12, 2015, 10:31:56 PM »
The HSA is possibly a better place to invest than an IRA if you account for the fact that it's a payroll deduction.  You save the 7.65% (IIRC) SS and Medicare tax right if the bat.  Not only that, but apparently you don't have to use your company's HSA provider.  I've heard good things about HSA Bank and their lower fees.

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #5 on: February 12, 2015, 11:09:53 PM »
Thanks, everyone. My company does not "match" my contributions, they just put 5% of my salary into a 401a regardless of what I put into the 403b.

So, the IRA/403b fees are per year and not per month like the HSA? Yes, the .033% per month is in addition to the fund fees. My employer puts $1000 in my HSA per year, so I don't want to pass up the free money, and I was just wondering if I should also be contributing more than I am now at the expense of my other accounts. Do you think the roughly .4% ER is worth the tax advantages? Also, how did you get that number?

I thought I had to use my company's HSA provider? Am I allowed to choose my own and still get their yearly contributions?

My highest interest loan is 6.5%. Is it worth paying that off first before adding money to the HSA?


MrsPotts

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Re: HSA's--Are They Worth It?
« Reply #6 on: February 12, 2015, 11:18:05 PM »
I have an involuntary HSA through work.  It kind of annoyed me that I didn't have a choice.

Anyway, I managed to contract Guillain-Barre Syndrome this winter, which has turned out to be rather expensive to treat.  I logged onto my HSA account and discovered the balance to be 3.5 times the out of pocket maximum for my health insurance.

I am significantly less annoyed.

ninjaneer

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Re: HSA's--Are They Worth It?
« Reply #7 on: February 13, 2015, 05:48:18 AM »
0.4% is just the 0.033% per month fee you listed multiplied by 12 to give you a yearly fee.  That's how ERs are listed, by year, so it lets you compare apples to apples.

I have not done this, so take it with a grain of salt.  It is my understanding that you can open an HSA account with any custodian you want.  You can then transfer money from your employer's custodian to your new one.  Some charge transfer fees, etc., so there are some things to research before you make the jump.  But you can find other HSA custodians with better investing options.

Edit: Oh, and I would pay off the 6.5% loan after getting all matching employer funds.  Sounds like you don't need to do anything to get that.  6.5% guaranteed return is hard to pass up :-)
« Last Edit: February 13, 2015, 05:52:21 AM by ninjaneer »

boarder42

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Re: HSA's--Are They Worth It?
« Reply #8 on: February 13, 2015, 06:24:31 AM »
only triple tax free account out there.

Mississippi Mudstache

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Re: HSA's--Are They Worth It?
« Reply #9 on: February 13, 2015, 06:51:27 AM »
The HSA is possibly a better place to invest than an IRA if you account for the fact that it's a payroll deduction.  You save the 7.65% (IIRC) SS and Medicare tax right if the bat.  Not only that, but apparently you don't have to use your company's HSA provider.  I've heard good things about HSA Bank and their lower fees.

Yes. The HSA is a retirement account on steroids. You don't pay FICA. That saves you 7.65%. You don't pay income tax when it goes in, and as long as you use the money for medical reasons, you don't pay income tax when it comes out. That saves you another 10 or 15%, depending on your marginal tax rate (I'm guessing here, since you said you don't make enough to max out your retirement accounts). You can even keep track of and reimburse yourself for miles driven for medical care. Even with the stupid fees, the HSA is the first account I would max out if you don't get an employer match on 403b/401k.

TN_Steve

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Re: HSA's--Are They Worth It?
« Reply #10 on: February 13, 2015, 08:02:38 AM »
...

I thought I had to use my company's HSA provider? Am I allowed to choose my own and still get their yearly contributions?

....

We love the HSA and have a sh*t-ton of money amassed in it for long term accumulation. (We pay med costs out of pocket and save receipts for use later).  With respect to this question, once the money hits the HSA, it is yours. 

Quote
You are able to move money between HSA custodians through direct rollovers and trustee to trustee transfers - see IRS Pub. 969 page 6. The rules are exactly the same as IRA Rollovers and Transfers. You may want to do this annually if you contribute to a plan through your employer's payroll deduction to gain the social security and medicare payroll tax exemption, but you don't want to leave the funds there long-term if the investment options are not good. The HSA custodian(s) may charge a fee for a trustee-to-trustee transfer; direct rollovers can usually be done without a fee.

http://www.bogleheads.org/wiki/Health_savings_account#Rollovers.2FTransfers

We immediately moved DW's to HSA Bank after each year's contribution hit (there are other low cost options as well).  We kept $100 in the employer chosen account so that we didn't have to reopen/authorize it every year, but that was because of laziness.


terran

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Re: HSA's--Are They Worth It?
« Reply #11 on: February 13, 2015, 09:23:38 AM »
It's not necessarily true that you don't have to pay the 7.65% fica tax on HSA contributions. This is only true if your contribution is made through a "cafeteria" section 125 plan, which basically lets the employer offer you certain benefits instead of salary. It doesn't really change things on your end, but the employer does have to be running it through this kind of plan. Otherwise, the contribution is still not included in your income tax calculation, but you will pay FICA taxes.

Whether you could select a completely different HSA account provider and still get the $1000 would depend on your employer's policy, but if the deductions are through a cafeteria plan you'd miss out on that FICA deduction. I have, however, heard of some people doing an annual transfer to another HSA account provider so they only have one year of contributions in the "bad" provider.

spud1987

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Re: HSA's--Are They Worth It?
« Reply #12 on: February 13, 2015, 10:02:28 AM »
It's not necessarily true that you don't have to pay the 7.65% fica tax on HSA contributions. This is only true if your contribution is made through a "cafeteria" section 125 plan, which basically lets the employer offer you certain benefits instead of salary. It doesn't really change things on your end, but the employer does have to be running it through this kind of plan. Otherwise, the contribution is still not included in your income tax calculation, but you will pay FICA taxes.

Whether you could select a completely different HSA account provider and still get the $1000 would depend on your employer's policy, but if the deductions are through a cafeteria plan you'd miss out on that FICA deduction. I have, however, heard of some people doing an annual transfer to another HSA account provider so they only have one year of contributions in the "bad" provider.

You can also avoid FICA is your income is over the FICA limit (well, 6650 over the FICA limit) even if you contribute to an HSA using "after tax" dollars. For example, if you earn 130k and use 6650 to contribute to an HSA outside of one offered through payroll deductions, you won't pay FICA on that 6650 since you aren't paying FICA on roughly 10k in income anyway. Note that you will still be out Medicare tax. But this is much less than FICA.

Hey It's Me

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Re: HSA's--Are They Worth It?
« Reply #13 on: February 13, 2015, 10:35:49 AM »
The HSA is possibly a better place to invest than an IRA if you account for the fact that it's a payroll deduction.  You save the 7.65% (IIRC) SS and Medicare tax right if the bat.  Not only that, but apparently you don't have to use your company's HSA provider.  I've heard good things about HSA Bank and their lower fees.

To my understanding, only specific classifications of HSAs qualify for the SS/Medicare exemption. Can someone confirm?

MDM

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Re: HSA's--Are They Worth It?
« Reply #14 on: February 13, 2015, 12:19:31 PM »
To my understanding, only specific classifications of HSAs qualify for the SS/Medicare exemption. Can someone confirm?
From the link posted by TN_Steve a few posts back: "[HSA] contributions, like pre-tax insurance premiums, are not subject to Social Security and Medicare taxes, so long as the plan is classified as a Section 125 or "cafeteria" plan."

See also http://www.bogleheads.org/wiki/Payroll_deduction#Health_Savings_Account

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #15 on: February 13, 2015, 01:14:52 PM »
Okay, just so I'm understanding this correctly...

If I want to take full advantage of the HSA, I should contribute the max amount each year (6500) into my employer's HSA (HealthEquity) through payroll deductions, in addition to taking my employer's yearly contribution (1000), and then roll most of it over into another HSA with lower fees at the end of the year? Are there any tax implications for doing this?

How is this account beneficial for people who want to retire early if you can only use it for medical expenses until age 65, and after that you can use the money for anything but it will be taxed as income if not used for medical purposes?

I'm confused about the idea of "living off interest" in early retirement. How does that work, exactly, and does focusing on HSA contributions actually hurt people who want to retire early since you can't really touch the money unless it's for a medical expense (or if you have enough saved receipts)?

ninjaneer

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Re: HSA's--Are They Worth It?
« Reply #16 on: February 13, 2015, 01:51:33 PM »
Hold up, the max that can be put in includes employer contributions.  You've got to reduce your contribution by what your employer is putting in. 

If you do a rollover or transfer, there's no tax liability, though there may be transfer fees that you pay the custodian.

For early retirees, the best way to get money out is to use receipts from medical expenses that you paid out of pocket while you were employed.  You're really just delaying your reimbursement until you're retired.  There isn't a limit on how long you can wait to collect that reimbursement, either.  If you can't do that, it acts like a traditional IRA.

See www.madfientist.com/ultimate-retirement-account/

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #17 on: February 13, 2015, 02:01:34 PM »
What do you mean by saying it acts like a Traditional IRA? How do early retirees live off the interest from a Traditional IRA, and would it be possible to live off the interest of an HSA in the same way? When people talk about "living off interest," does that pertain to early retirees, too? Or do early retirees get penalized for withdrawing early? I guess I need to backtrack a little. How do early retirees live off interest to begin with, and can HSA interest be used to live on just as IRA interest would be?

mozar

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Re: HSA's--Are They Worth It?
« Reply #18 on: February 13, 2015, 04:02:28 PM »
To answer one of your questions the tax penalty for taking money out of the HSA for non medical expenses is 20% so if you are in the 25% tax bracket that is a 5% savings and tax free growth for however many years you leave it in there.

I think the max is 3350? So if you want to contribute you would put in 2350 and your job 1000.

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #19 on: February 13, 2015, 05:14:52 PM »
Thanks, mozar. I am in the 15% bracket, so I would be penalized by 5% if I took money out for non-medical expenses? And I'm married, so my max for HSA is 6550 for 2014 and 6650 for 2015.

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #20 on: February 13, 2015, 09:28:07 PM »
Wait...am I taxed 20% on TOP of my regular income tax when I don't use it for medical expenses??

Also, does anyone know the HSA with the lowest fees?

BlueMR2

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Re: HSA's--Are They Worth It?
« Reply #21 on: February 14, 2015, 08:04:23 AM »
Wait...am I taxed 20% on TOP of my regular income tax when I don't use it for medical expenses??

Also, does anyone know the HSA with the lowest fees?

Only pre-retirement age (which I *think* they define as 65 for HSAs?).  After that point you can pull it out and just pay the income taxes.

Lowest fees, well, the one I'm in is 0 fee...  However, the interest rate is pathetic on it.  I'll be shuffling it elsewhere as soon as it actually has enough in it to make it worthwhile (I just became eligible for an HSA this year).

mozar

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Re: HSA's--Are They Worth It?
« Reply #22 on: February 14, 2015, 04:34:11 PM »
Quote
Wait...am I taxed 20% on TOP of my regular income tax when I don't use it for medical expenses??

You go to the HSA. You say you want to withdraw money. You say that you are taking it out for non medical reasons. They write you a check subtracting 20% off the top. So if you had $100 but get a check for $80. I don't know if that is exactly what happens but you get the idea.

For people who are in the 25% tax bracket when they file that's better than not having money deducted to a HSA and paying 25% taxes on it in your paycheck.

For you the benefit would be deducting it on your paycheck and having the money go to an HSA before taxes. So not paying taxes on it now. Then the money will grow many years without having had to pay taxes on it. Then (theoretically) in retirement you will take it out. Either paying the 20% penalty or using it for medical expenses from the past. The important part is having money that is taxed later instead of now, because a dollar today is worth more than a dollar tomorrow. (Common expression if you don't know it you should google it).


VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #23 on: February 15, 2015, 02:33:30 PM »
Thanks, mozar. So even in my current tax bracket, being penalized 20% later (if I had to use it for non medical expenses) is still worth it?

mozar

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Re: HSA's--Are They Worth It?
« Reply #24 on: February 15, 2015, 04:44:30 PM »
Oh boy, this is a math question. I'm not so good at that. Theoretically it is a good idea for the reasons I previously laid out. To get really into it: To simplify I am going to pretend like you get a consistent return of 5% a year whether it be compounding interest, dividends whatever. If you want more detail than this I can't help you.

Scenario A Deduct into HSA don't pay 15%
Y1 $100*5%
Y2 $110.25*5%
Y3 $115.75*5%
Y4 $121.45*5%
Y5 $127.45*5%
Take Y5 ending balance and cash out your HSA $127.45*.2=101.96
Y6 $133.8*.2=107.1
Y7 $140.49*.2=112.49

Scenario B Pay 15% tax then invest somewhere
Y1 $85*5%
Y2 $89.2*5%
Y3 $93.7*5%
Y3 $98.3*5%
Y4 $103.2*5%
Y5 $108.3
Y6 $113.7
Y7 $119.3

You come out $7.5 ahead in y7 if you pay taxes up front (scenario b).  So do what's best for you. You would also have to decide using other factors such as: how many years you plan to keep it, are you planning on using it for medical expenses, whether or not you have to pay FICA taxes, and what are the hsa fees.

AllezAllezAllez

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Re: HSA's--Are They Worth It?
« Reply #25 on: February 16, 2015, 03:53:36 PM »
Follow-up question from a resident of the 25%-tax-bracket:

So far I'm happy with my HSA of 2 years. Employer contributes the annual deductible, and I am required to put in a couple hundred bucks, so that's what I've been doing. We have access to some great vanguard funds, and I'm pretty healthy, so the account is growing at a nice clip. I am starting to see the advantages of doing more though.

But are there any disadvantages? Say, if I max out the payroll-deduction HSA, contributing about $2000 (since employer already contributes a nice chunk), and that lowers my income and my FICA tax, does that also lower my average salary for purposes of eventual social security benefits (unlike my 457(b) deductions)? Any hints for figuring out what the trade-off is, if I am going to be lowering my solidly 5-figure income like this for, say, the next decade?

MDM

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Re: HSA's--Are They Worth It?
« Reply #26 on: February 16, 2015, 04:15:47 PM »
Say, if I max out the payroll-deduction HSA, contributing about $2000 (since employer already contributes a nice chunk), and that lowers my income and my FICA tax, does that also lower my average salary for purposes of eventual social security benefits (unlike my 457(b) deductions)?
Yes, although perhaps not as much as you might think.  It is not a straight percentage reduction.

Quote
Any hints for figuring out what the trade-off is, if I am going to be lowering my solidly 5-figure income like this for, say, the next decade?
Sign up at ssa.gov to access your historical earnings online.  Then use one of the estimation tools at http://ssa.gov/planners/benefitcalculators.htm.

If you can figure it out, great.  If, after taking a look, you have more questions come back and ask specifics.


Tapp

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Re: HSA's--Are They Worth It?
« Reply #27 on: February 16, 2015, 04:16:41 PM »
I listen to a podcast that said you can over time convert your HSA into a Roth IRA (9k/year) that will eventual lead to complete tax free investment.

VioletVixen

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Re: HSA's--Are They Worth It?
« Reply #28 on: February 16, 2015, 08:38:17 PM »
I listen to a podcast that said you can over time convert your HSA into a Roth IRA (9k/year) that will eventual lead to complete tax free investment.

Is this true?

ninjaneer

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Re: HSA's--Are They Worth It?
« Reply #29 on: February 17, 2015, 05:05:16 AM »
I think there is some bad info popping up on here.  I don't know a whole bunch about this subject, so please correct me if I'm wrong.

HSA's are not intended to be retirement accounts, but they do act like Traditional IRAs in a lot of senses.  The biggest issue, though, is that the only way to get money out of them penalty free and tax free before you are 65 is to get reimbursed for prior medical expenses.  You cannot roll them over to a Roth without paying a 10% penalty AND income tax on the conversion.  You cannot take a non-qualified (i.e. not medical) distribution prior to 65 without paying a 20% penalty AND income tax on the distribution.  It's not just a 20% penalty, it's 20% + marginal tax rate.

http://www.irs.gov/publications/p969/ar02.html#en_US_2013_publink1000204081

I think that the best progression for saving for (early) retirement is 401k match, Traditional IRA, max 401k, HSA, then standard taxable account.  I've been reading that there are a lot of benefits to HSA's, but I'm not comfortable with their limitations to say that's where my first retirement savings dollars should go.

Mad Fientist loves the HSA, but he starts by assuming you can max all tax-advantaged accounts anyway.  If you are in full-MMM saving mode that is a good assumption, too.  But when you are trying to decide which type of accounts you should save in while you are ramping up savings, I think the progression above is the way to go.

There are ways to get access to Traditional IRA money in early retirement without paying any penalties.  It's called a Roth IRA conversion ladder.  This does not work for an HSA, though.

And to address another point that you asked earlier: "living off the interest" is just a phrase that means you have enough savings that the returns generated by those savings are enough to cover your expenses.  Typically this is simplified into a 4% safe withdrawal rate (SWR), which is determined by a 7% growth assumption minus a 3% inflation assumption.  So most folks' goals around here are to accumulate at least 25x expenses in their savings accounts so that when you take 4% of that number you end up with enough to cover your expenses.

These questions are all necessary for a proper understanding of what you're up against, but they end up wide ranging and don't necessary match the topic of the post.  You won't get all of the experts in here answering SWR questions if they think the post is just about HSAs, so it's probably best to do some more research and post those questions separately so you can get better feedback.

Anybody else have any thoughts or ways around the HSA penalties for early retirement usage?  In his "Ultimate Retirement Account" post, MF doesn't have any other way of getting money out of the account than to use un-reimbursed expenses or turning 65.  The IRS link above seems to say all penalties are in addition to income tax.  I've answered to the best of my ability, but I don't know if I've made any bad assumptions above.

nanu

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Re: HSA's--Are They Worth It?
« Reply #30 on: February 17, 2015, 06:40:32 AM »
^^^
As far as I know, you're right. If taking money out before age 65 for non-qualified expenses (anything not medical),
then you would need to pay the penalty (which might be 10%, might be 20%, I don't know) AND income tax.

I do think that an HSA is a good way to save given that it's pre-FICA as well as pre-income tax, and if you're organized enough
to keep all your receipts, then getting reimbursed in the future is pretty awesome. And worst case, just think about your HSA
as your savings for age 65+, so if you retire early your other savings only need to get you until 65 (+whatever it is that your HSA
won't cover, as it probably won't have very large amounts of money in it).

terran

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Re: HSA's--Are They Worth It?
« Reply #31 on: February 17, 2015, 06:57:30 AM »
ninjaneer, I think you're right on all counts. Thanks for clearing up the 20% penalty. The idea that it was instead of, rather than in addition to regular income tax didn't sound right to me, but I wasn't sure.

Just to be clear for everyone, as ninjaneer has pointed out, if you're in the 25% bracket and take a non-qualified distribution from an HSA before the age of 65 you will pay 45% of that distribution in taxes and fees (probably also state income tax).

One thing I would add in favor of HSA's that might change the contribution order preference that ninjaneer posted is that HSA's are the only "triple tax advantaged" account when they're used for medical expenses. What this means is you get a tax deduction when the money goes in (like a traditional IRA, 401k, 403b), you don't pay taxes when it comes out (like a roth IRA), and there is no tax on growth (like all of the above). Basically, it's the only money you will never pay tax on. This is all assuming it is used for medical expenses -- if you've screwed up and over-contributed so you'll never be able to spend it all on medical expenses, then you wait until age 65 and start withdrawing it and paying taxes (but no penalty) which makes it act basically like a traditional IRA or 401k/403b.

Another "bonus" (if you can call it that) is that while an HSA can't be used to pay health insurance premiums, it can be used to pay for medicare premiums, which according to reading I've done over on the bogleheads forum can pretty reliably be $1000/month for a couple -- again this means waiting to traditional retirement age to use the money, but unless you plan to kick the bucket before then, it seems like a nice safety net to have.

boarder42

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Re: HSA's--Are They Worth It?
« Reply #32 on: February 17, 2015, 07:24:06 AM »
how is an HSA pre FICA?  do i have to do salary deduct to get this?  when i contribute my after tax dollars to an HSA then i claim it on my taxes i dont get FICA money back do I?

nobody123

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Re: HSA's--Are They Worth It?
« Reply #33 on: February 17, 2015, 07:27:19 AM »
The difference in max out of pocket between the 'standard' health plan and HD plan for a family from my employer was less than the employer matching dollars amount, so it seemed like a no-brainer to switch to it, especially since we are generally healthy and don't plan on having any more kids.  They are also covering that .33% that HeathEquity charges as long as I am employed there, so essentially I can invest in the Vanguard options without that extra overhead.  My thought right now is to contribute the max over the next couple of years to have 2X the maximum family annual outlay in reserve, then reevaluate.  I'm still contributing to my 401k, Roth, and prepaying on my mortgage, because I don't know how Washington is going to change the rules in the future.

The way I look at it, in X years I have a pile of cash that might have some restrictions on how I can use it, but that would also mean that my family didn't have any major medical issues that required me to use that pile of funds, and most of that money will have come from employer matching or savings from a lower premium on my insurance.  Worst case, if I actually need to use it for current medical expenses, I am at least saving the FICA plus income tax, plus I'm getting a company match. 

In a perfect world, we will never have a huge medical expense, and that money would grow indefinitely.  A good point about HSAs is that there are no RMDs, so it can continue to grow until the day I die, at which point someone is getting a pile of money they had to do nothing for, so I don't care if it's taxed like an inherited IRA or whatever the rules are at that time.

Cromacster

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Re: HSA's--Are They Worth It?
« Reply #34 on: February 17, 2015, 07:32:09 AM »
when i contribute my after tax dollars to an HSA then i claim it on my taxes i dont get FICA money back do I?

No you don't.  To get the FICA deduction you need to contribute via payroll withholding.

James

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Re: HSA's--Are They Worth It?
« Reply #35 on: February 17, 2015, 07:35:02 AM »
I use an HSA, but due to a lot of health costs we don't actually accumulate any savings in the account, it gets spent each year on the deductibles and other health expenses. My daughter has scoliosis and there are other health issues that add up quick. So while I think we save slightly over other plans, it unfortunately isn't building up like I had hoped. Still the right way to go for us though.

Rural

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Re: HSA's--Are They Worth It?
« Reply #36 on: February 17, 2015, 06:22:27 PM »
I use an HSA, but due to a lot of health costs we don't actually accumulate any savings in the account, it gets spent each year on the deductibles and other health expenses. My daughter has scoliosis and there are other health issues that add up quick. So while I think we save slightly over other plans, it unfortunately isn't building up like I had hoped. Still the right way to go for us though.


Take consolation in the fact that you're paying all your medical expenses with pretax (and pre-FICA) money. That's nothing to sneeze at.

SpinGeek

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Re: HSA's--Are They Worth It?
« Reply #37 on: February 19, 2015, 08:31:27 AM »
+1 for being happy with the ~29% discount on medical expenses. I have a $2600 deductible, after which my insurance pays out 100%. My HSA with USBank charges $3 fees per month for balances under $3000, so I keep enough in the account to avoid the monthly charge, and plan to put in enough each month to cover my expenses for the year, which averages out to $120 per month. If I blow through my deductible with an ER visit (it's happened more than once unfortunately), I can change my contributions for the rest of the year to get the balance back up.

I was originally planning to max out contributions for 2015, until I came to my senses and realized that the additional money would be better invested in my Vanguard accounts than in the pitiful money market rate USBank offers.

seattlecyclone

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Re: HSA's--Are They Worth It?
« Reply #38 on: February 19, 2015, 08:45:34 AM »
I use an HSA, but due to a lot of health costs we don't actually accumulate any savings in the account, it gets spent each year on the deductibles and other health expenses. My daughter has scoliosis and there are other health issues that add up quick. So while I think we save slightly over other plans, it unfortunately isn't building up like I had hoped. Still the right way to go for us though.

As Rural said, tax-free money for health expenses is nothing to sneeze at.

I think there are two basic strategies here:

1) Contribute to an HSA but don't touch it until after you retire. Instead pay any pre-retirement medical costs out of taxable money and save the receipts to get some tax-free income later after the HSA has grown for several years.
2) Contribute to an HSA and withdraw from it for medical expenses as you go.

Which one is optimal depends on your situation.

If you earn enough to max out any tax-free retirement accounts available to you and are able to do some taxable investing as well, I think Strategy 1 is optimal. The idea is that you should make full use of your tax shelters while working so that you can minimize the amount you build up in taxable accounts where you lose some money to the government each year.

If you still have some room to contribute to your 401(k)/IRA/etc., Strategy 2 works out nicely. You pay medical expenses with tax-free income, accumulate as much as possible in your tax-advantaged retirement accounts, and keep saving.

boarder42

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Re: HSA's--Are They Worth It?
« Reply #39 on: February 19, 2015, 12:17:19 PM »
I use an HSA, but due to a lot of health costs we don't actually accumulate any savings in the account, it gets spent each year on the deductibles and other health expenses. My daughter has scoliosis and there are other health issues that add up quick. So while I think we save slightly over other plans, it unfortunately isn't building up like I had hoped. Still the right way to go for us though.

As Rural said, tax-free money for health expenses is nothing to sneeze at.

I think there are two basic strategies here:

1) Contribute to an HSA but don't touch it until after you retire. Instead pay any pre-retirement medical costs out of taxable money and save the receipts to get some tax-free income later after the HSA has grown for several years.
2) Contribute to an HSA and withdraw from it for medical expenses as you go.

Which one is optimal depends on your situation.

If you earn enough to max out any tax-free retirement accounts available to you and are able to do some taxable investing as well, I think Strategy 1 is optimal. The idea is that you should make full use of your tax shelters while working so that you can minimize the amount you build up in taxable accounts where you lose some money to the government each year.

If you still have some room to contribute to your 401(k)/IRA/etc., Strategy 2 works out nicely. You pay medical expenses with tax-free income, accumulate as much as possible in your tax-advantaged retirement accounts, and keep saving.

explain number 1 in more detail please.  As i max all tax advantaged accounts.  how do i get a tax deduction for medical expenses when using my taxable account

boarder42

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Re: HSA's--Are They Worth It?
« Reply #40 on: February 19, 2015, 12:19:17 PM »
what i see is i would have to spend 10% of my AGI or 11k in order to take advantage of any tax savings.   even on an HDHP i dont see how you would even approach this number annually..

andy85

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Re: HSA's--Are They Worth It?
« Reply #41 on: February 19, 2015, 12:36:27 PM »
I listen to a podcast that said you can over time convert your HSA into a Roth IRA (9k/year) that will eventual lead to complete tax free investment.
read these...great info on HSA tricks and benefits:
http://www.madfientist.com/ultimate-retirement-account/
http://www.madfientist.com/hsa/

Debtless in Texas

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Re: HSA's--Are They Worth It?
« Reply #42 on: February 19, 2015, 12:44:26 PM »
Quote
read these...great info on HSA tricks and benefits:
http://www.madfientist.com/ultimate-retirement-account/
http://www.madfientist.com/hsa/

Yeah, MF did a badass job going over the pros and cons. The only thing to watch out for is shady HSA custodians who hit you up with various fees and only offer funds that are high ER/front end load funds. Doing a bit of research can go a long way.

J'onn J'onzz

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Re: HSA's--Are They Worth It?
« Reply #43 on: February 19, 2015, 12:45:14 PM »
I use an HSA, but due to a lot of health costs we don't actually accumulate any savings in the account, it gets spent each year on the deductibles and other health expenses. My daughter has scoliosis and there are other health issues that add up quick. So while I think we save slightly over other plans, it unfortunately isn't building up like I had hoped. Still the right way to go for us though.

As Rural said, tax-free money for health expenses is nothing to sneeze at.

I think there are two basic strategies here:

1) Contribute to an HSA but don't touch it until after you retire. Instead pay any pre-retirement medical costs out of taxable money and save the receipts to get some tax-free income later after the HSA has grown for several years.
2) Contribute to an HSA and withdraw from it for medical expenses as you go.

Which one is optimal depends on your situation.

If you earn enough to max out any tax-free retirement accounts available to you and are able to do some taxable investing as well, I think Strategy 1 is optimal. The idea is that you should make full use of your tax shelters while working so that you can minimize the amount you build up in taxable accounts where you lose some money to the government each year.

If you still have some room to contribute to your 401(k)/IRA/etc., Strategy 2 works out nicely. You pay medical expenses with tax-free income, accumulate as much as possible in your tax-advantaged retirement accounts, and keep saving.

explain number 1 in more detail please.  As i max all tax advantaged accounts.  how do i get a tax deduction for medical expenses when using my taxable account

Basically it would work like this.

Add money to the HSA account.
Invest the HSA money, preferably in index funds.
When medical expenses come up pay for them out of pocket, do not reimburse yourself with money from the HSA.
Save all receipts for the above medical bills.
Years later, 10+??, depends on how soon you would need them I guess, you can reimburse yourself any money that you had previously spent on medical expenses.
That money had been allowed to grow tax free for all those years and you will pay no taxes when you take this money out as long as you are reimbursing yourself for medical expenses. It does not matter how long ago those expenses were incurred.


boarder42

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Re: HSA's--Are They Worth It?
« Reply #44 on: February 19, 2015, 12:53:02 PM »
ok i see what you're getting at there.  I didnt know you could reimburse for long ago expenses.  so i pay the 10 buck copay with cash now.  rather than put that 10k in a taxable investment account.  and withdraw that money tax free from HSA in future whenever i need it.  assuming i remember to do this ... keep good records and ever really need that money... this is interesting.  but also my taxable money account is tax free if i'm in the 15% bracket... which assumes brackets dont change... so this would be tax law change proof ... if they dont shut down that loop whole

MDM

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Re: HSA's--Are They Worth It?
« Reply #45 on: February 19, 2015, 01:05:32 PM »
See http://whitecoatinvestor.com/choosing-an-hsa-provider/ for a good review of HSA plans offered by the providers listed below.

The article generally recommends
     HSA Bank or Fidelity HSA

It also covers
     HSA Administrators
     Alliant Credit Union
     Stanford Federal Credit Union
     Wells Fargo
     Adirondack Trust
     Lake Michigan Credit Union
     Bank of the Sierra

Any of the above might be "best" for someone, depending on one's specific plans for an HSA.

Also, the article is a couple of years old so things may have changed.  If anyone knows of a material change, let us know.

epipenguin

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Re: HSA's--Are They Worth It?
« Reply #46 on: February 19, 2015, 01:18:59 PM »
After I used my HSA for some medical expenses, I was trying to build up the account from zero again. So I looked around, and found that the fees at places like HSA bank would eat me up during the period when I was waiting for the balance to grow big enough to be able to invest. Instead of looking at it as a retirement account at that point, I decided to reframe my HSA as part of my emergency fund, albeit one that will only come into play if I have a medical emergency. I read somewhere that local credit unions often offer pretty good savings rates for cash HSA accounts. So I decided to keep my HSA in cash until I've built up a big enough balance to start investing.

I found a local credit union offering 1.5% interest on cash savings, with no account fees. Score!

I'll probably move it if the account continues to grow, but for now I'm happy with it. I don't have the money withheld from payroll as I'm self employed, so I'm not getting the FICA reduction, but at least the money is still put aside pre-tax.