HSA Yay or Nay?

[Gatzbie]

Hi everybody!

I just started my first full-time job and have started up my 401k and traditional IRA. I've heard many things about the HSA and how it is often referred to as the "Ultimate Retirement Account.":

https://www.madfientist.com/ultimate-retirement-account/

Right now, I am on my dad's healthcare plan at no charge until I am 26 (2.5 years from now) and have waived my healthcare plans because of this. Despite being covered my dad's plan, should I get started on investing in an HSA to get an early start?

Thank you very much!

[AccidentalMiser]

Check this out:

https://www.hsaedge.com/2016/08/13/your-adult-children-on-your-family-insurance-can-have-their-own-hsa/

The HSA is a great way to save as the mad fientist described.  Make sure your dad has a HDHP.

[COEE]

How can your dad claim you on his insurance?  I wasn't aware that was a thing.  Of course when I graduated HS I was no longer eligible for my dad's insurance... times have changed in 19 years.  I digress.  Does your dad also claim you as a dependent?  I'd talk to a tax professional on the details of your situation before contributing to a HSA.  If your dad already has a HDHP and contributes to a HSA you may not be eligible.  I do know you need a HDHP to be able to contribute to an HSA.

The HSA's are tax free when you put money in (including FICA when contributing through your employer!), tax free when you pull it out for many medical expenses, and tax free growth.  Many people save their receipts for their medical bills for years and cash flow their expenses.  I think this is an incredible time and organization suck and god forbid the laws change someday and you can't retroactively submit claims like that.

HSA's are mixed for me at least.  This is the first year I've tried it.  I have the minimum deductibles available by law, but I get so many bills it's crazy.  I have lost money this year and had tons of time spent on the phone understanding my bills and arguing with providers to boot.  I think I'm going to ditch the plan next year for a PPO.  Even with all of the advantages the time and lower initial expense is more valuable to me.  It seems to me with a HSA I'm nickle and dimed to death.

[MDM]

How can your dad claim you on his insurance?  I wasn't aware that was a thing.  Of course when I graduated HS I was no longer eligible for my dad's insurance... times have changed in 19 years.

Yes, they have - in particular, the Affordable Care Act mandated children be allowed to stay on parents' policies until the child reaches the age of 26.

Does your dad also claim you as a dependent?  I'd talk to a tax professional on the details of your situation before contributing to a HSA.  If your dad already has a HDHP and contributes to a HSA you may not be eligible.

Actually, if OP
- is not a dependent
- is covered by a family HDHP
- has no other health coverage
then OP may establish his/her own HSA, regardless of whether the parents have one or not, and contribute the family maximum.

Call it a loophole, or an unintended consequence, or whatever one wants, but it's the law.  See IRS pub. 969 for more.

[terran]

You need to be covered only by a High Deductible Health Plan to be eligible for an HSA (if your dad's plan is a HDHP, pay attention to MDM's post), but I certainly wouldn't choose to pay for insurance to get access to an HSA instead of getting free insurance (assuming your dad isn't paying any extra to cover you).

[Gatzbie]

You need to be covered only by a High Deductible Health Plan to be eligible for an HSA (if your dad's plan is a HDHP, pay attention to MDM's post), but I certainly wouldn't choose to pay for insurance to get access to an HSA instead of getting free insurance (assuming your dad isn't paying any extra to cover you).

Apologies all, should of been more descriptive (I am learning this all now)

- I will not be a dependent anymore this year
- My dad's plan apparently is not HDHP according to him
- I have no other coverage other than my dad's plan (I currently have waived current employer coverage)

I do have the option of enrolling in my employer's HDHP plan and opening a HSA account. But as terran mentioned, probably wouldn't be worth it. Overall, if I needed to buy my own insurance right now or if dad had HDHP plan - the HSA would be a good idea. I believe in my specific case here, I'm not going to worry about it -for now-.

Thank you all very much for your thoughtful replies!

[COEE]

How can your dad claim you on his insurance?  I wasn't aware that was a thing.  Of course when I graduated HS I was no longer eligible for my dad's insurance... times have changed in 19 years.

Yes, they have - in particular, the Affordable Care Act mandated children be allowed to stay on parents' policies until the child reaches the age of 26.

Does your dad also claim you as a dependent?  I'd talk to a tax professional on the details of your situation before contributing to a HSA.  If your dad already has a HDHP and contributes to a HSA you may not be eligible.

Actually, if OP
- is not a dependent
- is covered by a family HDHP
- has no other health coverage
then OP may establish his/her own HSA, regardless of whether the parents have one or not, and contribute the family maximum.

Call it a loophole, or an unintended consequence, or whatever one wants, but it's the law.  See IRS pub. 969 for more.

Huh.  I didn't know that thanks for the information!  :D  Can the parent choose to drop their child on their own accord?  Is it wiser for the parent to drop the child so their are no legal connections to the parent?  I guess I've got to start thinking what this means for me in my children's future.  I get it if the kid is going to school or something... but once the kid is in a profitable job... hrm.  Not sure I'll want the (assumed) liability.  Do kids still get insurance through tuition if they are going to college?  This is how it was at the state schools I attended 15-19 years ago.

Gatzbie, I'd still suggest speaking with your tax professional before making any decisions, or reading the referenced IRS pub. for yourself, or both.  MDM is a well respected member here and I have not reason to believe that they are trying to lead anyone astray with their information - so no disrespect intended - just suggesting to cover your bases for yourself.

[COEE]

- My dad's plan apparently is not HDHP according to him

Then you can't contribute to an HSA regardless this year, but it might be a good plan for the future for you if you can convince your dad to do it next year according to MDM.

[Gatzbie]

- My dad's plan apparently is not HDHP according to him

Then you can't contribute to an HSA regardless this year, but it might be a good plan for the future for you if you can convince your dad to do it next year according to MDM.

It seems my dad's plan is what it is with no option for HDHP so can't really convince. I have been reading IRS pub MDM referenced as this is really good information to know (maybe others who read this can also better utilize it than I). I agree, think it would useful in the future when I can more seriously consider HSA to talk with tax professional just to be sure.

[MDM]

I do have the option of enrolling in my employer's HDHP plan and opening a HSA account. But as terran mentioned, probably wouldn't be worth it. Overall, if I needed to buy my own insurance right now or if dad had HDHP plan - the HSA would be a good idea. I believe in my specific case here, I'm not going to worry about it -for now-.

If I had to bet, I would bet with what you and terran surmise.

Depending on the specific terms of the two plans (employer's HDHP vs. dad's plan), however, it's possible the HDHP would be better.  Might be worth putting your numbers into a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the case study spreadsheet.

At worst you'll learn a bit about insurance plans and be that far ahead when you have to pay for your own.

[MDM]

Gatzbie, I'd still suggest speaking with your tax professional before making any decisions, or reading the referenced IRS pub. for yourself, or both.  MDM is a well respected member here and I have not reason to believe that they are trying to lead anyone astray with their information - so no disrespect intended - just suggesting to cover your bases for yourself.

No insult taken!  "Trust but verify" is reasonable advice in many situations.

In this particular case, we have had two children take advantage of the situation, once they had jobs of their own and were no longer dependents and still under 26.  Hoping for status quo on the law for one more child....

[Paul der Krake]

Right now, I am on my dad's healthcare plan at no charge until I am 26 (2.5 years from now) and have waived my healthcare plans because of this. Despite being covered my dad's plan, should I get started on investing in an HSA to get an early start?

When you say "at no charge", do you mean at no charge to you, no charge to your Dad, or both? Often, the employee's share of premiums is radically different depending on whether the employee elects to add dependents.

In this particular case, we have had two children take advantage of the situation, once they had jobs of their own and were no longer dependents and still under 26.  Hoping for status quo on the law for one more child....

For some reason I assumed you were much younger, I never pictured you with adult children. It's awesome you were able to milk that one juicy HSA sweet spot.

[MDM]

For some reason I assumed you were much younger, I never pictured you with adult children. It's awesome you were able to milk that one juicy HSA sweet spot.

Young at heart. ;)

[Gatzbie]

Right now, I am on my dad's healthcare plan at no charge until I am 26 (2.5 years from now) and have waived my healthcare plans because of this. Despite being covered my dad's plan, should I get started on investing in an HSA to get an early start?

When you say "at no charge", do you mean at no charge to you, no charge to your Dad, or both? Often, the employee's share of premiums is radically different depending on whether the employee elects to add dependents.

Dad's plan is no charge to either of us premium wise which is good. If I were to get my insurance with my company would have weekly premium.

[Gatzbie]

I do have the option of enrolling in my employer's HDHP plan and opening a HSA account. But as terran mentioned, probably wouldn't be worth it. Overall, if I needed to buy my own insurance right now or if dad had HDHP plan - the HSA would be a good idea. I believe in my specific case here, I'm not going to worry about it -for now-.

If I had to bet, I would bet with what you and terran surmise.

Depending on the specific terms of the two plans (employer's HDHP vs. dad's plan), however, it's possible the HDHP would be better.  Might be worth putting your numbers into a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the case study spreadsheet.

At worst you'll learn a bit about insurance plans and be that far ahead when you have to pay for your own.

Well if thats the worst thing that could happen then count me in ;).

[chasesfish]

The HSA is good, but its not "incredible" compared to just owning an index fund in a taxable account.  The total market index funds are incredibly tax efficient until you sell, then remember there are rules that make capital gains tax free for couples who earn less than a certain amount of money, which most early retirees fit into.

I actually bailed on saving HSA receipts due to high fees in my employer provided HSA.   They finally fixed that a few months ago and I'm back to saving them.   The cost/benefit was marginal to me before.

[AccidentalMiser]

The HSA is good, but its not "incredible" compared to just owning an index fund in a taxable account.  The total market index funds are incredibly tax efficient until you sell, then remember there are rules that make capital gains tax free for couples who earn less than a certain amount of money, which most early retirees fit into.

I actually bailed on saving HSA receipts due to high fees in my employer provided HSA.   They finally fixed that a few months ago and I'm back to saving them.   The cost/benefit was marginal to me before.

I guess it depends on your tax situation, your plan and your definition of "incredible".  I have a good plan and get ~$2600 from my employer every year for free, then I get to add another ~4k of my own money tax-free, then I get to pay my medical costs out of that pool tax-free.  Plus my HDHP  is about 25% of the out of pocket cost as compared to the PPO plan they offer at work.

Over the past several years, we've built our HSA up to about 50K.  Which is going to be really handy to cover medical expenses (did I mention tax free) between FIRE and Medicare dates.

I'm sticking with incredible for me and my tax/life/work situation.  The only thing that would make it better is if I could contribute more to it.   I recognize that YMMV if your situation is different.

[chasesfish]

@Accidental Miser I absolutely use an HSA - $63,000 in mine even after I distributed $16,000 over the past three years.   I'm starting to accumulate receipts again too.

Your $2,500 company contribution is incredible, I only get $500 and have some big out of pocket numbers on the plan.