Author Topic: Does an HSA make sense for us? Small business edition  (Read 575 times)

protostache

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Does an HSA make sense for us? Small business edition
« on: July 28, 2017, 11:59:55 AM »
I set up an HRA this year for my single-employee business to go along with my HDHP. This HRA lets me deduct 100% of qualified health care expenses above the minimum HSA deductible. By keeping that small deductible I've also been able to fully fund our HSA. The HRA is set up such that it doesn't have a maximum and also doesn't have a rollover account, I just get reimbursed for everything I submit. I'm saving receipts but only to reimburse myself current-year through the HRA and I get to write off 100% of our premiums.

My question is this: because I can deduct almost everything, does it make sense to continue funding the HSA? Furthermore, does it make sense to prioritize an HSA-compatible plan for next year?

terran

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Re: Does an HSA make sense for us? Small business edition
« Reply #1 on: July 28, 2017, 02:18:51 PM »
I'm not sure I follow the whole HRA thing, but the nice about keeping money in an HSA (even without the whole "save up receipts to reimburse later" tactic often promoted) is that it can be used for medical expenses later in life once you don't have all these options. Also, if you're convinced you have more than you need for medical purposes, once you reach 65 it can be taken out without penalty (you will pay income taxes) so it's basically like a traditional IRA with a slightly higher withdrawal age, no income limits on deductions, and (if you have it set up right) it also avoids payroll taxes. Pretty good deal all the way around.

protostache

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Re: Does an HSA make sense for us? Small business edition
« Reply #2 on: July 31, 2017, 10:27:54 AM »
I'm not sure I follow the whole HRA thing, but the nice about keeping money in an HSA (even without the whole "save up receipts to reimburse later" tactic often promoted) is that it can be used for medical expenses later in life once you don't have all these options. Also, if you're convinced you have more than you need for medical purposes, once you reach 65 it can be taken out without penalty (you will pay income taxes) so it's basically like a traditional IRA with a slightly higher withdrawal age, no income limits on deductions, and (if you have it set up right) it also avoids payroll taxes. Pretty good deal all the way around.

The HRA we adopted essentially lets us deduct all of our qualified health care expenses other than our medical premiums (same things you can pay for with an HSA). To keep it compatible with our HDHP and keep contributing to our HSA, the HRA has to have a $2,600 deductible.

It sounds like an HSA is a good deal for us but we shouldn't pay a premium for it if a non-HSA-compatible would end up costing less for the year.

terran

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Re: Does an HSA make sense for us? Small business edition
« Reply #3 on: July 31, 2017, 10:54:58 AM »
It sounds like an HSA is a good deal for us but we shouldn't pay a premium for it if a non-HSA-compatible would end up costing less for the year.

That sounds about right. I would probably weigh the increased cost against the potential tax saving of the $6750 family deduction by comparing your expected marginal rates now in and in retirement. If you're able to contribute from payroll, remember to include the FICA tax savings. If you expect to use the HSA for medical expenses in the future you would multiply the $6750 by your current marginal state, federal and possibly FICA tax rates. If you do not expect to use it for medical expenses you would multiply it by your current marginal state, federal and possibly FICA tax rates less your expected state and federal marginal rates in retirement. I think that would make sense as the maximum premium you should be willing to pay over a non-HSA eligible plan?

freedom8991

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Re: Does an HSA make sense for us? Small business edition
« Reply #4 on: August 04, 2017, 05:30:38 PM »
I set up an HRA this year for my single-employee business to go along with my HDHP. This HRA lets me deduct 100% of qualified health care expenses above the minimum HSA deductible. By keeping that small deductible I've also been able to fully fund our HSA. The HRA is set up such that it doesn't have a maximum and also doesn't have a rollover account, I just get reimbursed for everything I submit. I'm saving receipts but only to reimburse myself current-year through the HRA and I get to write off 100% of our premiums.

My question is this: because I can deduct almost everything, does it make sense to continue funding the HSA? Furthermore, does it make sense to prioritize an HSA-compatible plan for next year?

I am a small business owner-meaning I have an LLC-Can you point me in the right direction for setting up a HSA?  I do not know how to go about it for myself-I am the only individual in my LLC.  Or perhaps I cannot do it with an LLC?  What type of company do I need to open an HSA? Thank you!

protostache

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Re: Does an HSA make sense for us? Small business edition
« Reply #5 on: August 04, 2017, 06:30:05 PM »
I set up an HRA this year for my single-employee business to go along with my HDHP. This HRA lets me deduct 100% of qualified health care expenses above the minimum HSA deductible. By keeping that small deductible I've also been able to fully fund our HSA. The HRA is set up such that it doesn't have a maximum and also doesn't have a rollover account, I just get reimbursed for everything I submit. I'm saving receipts but only to reimburse myself current-year through the HRA and I get to write off 100% of our premiums.

My question is this: because I can deduct almost everything, does it make sense to continue funding the HSA? Furthermore, does it make sense to prioritize an HSA-compatible plan for next year?

I am a small business owner-meaning I have an LLC-Can you point me in the right direction for setting up a HSA?  I do not know how to go about it for myself-I am the only individual in my LLC.  Or perhaps I cannot do it with an LLC?  What type of company do I need to open an HSA? Thank you!

It more has to do with how your LLC chooses to be taxed. You have to have an employee to make it work, so with a sole prop LLC I think usually one hires their spouse. My business is taxed as an S corp so I'm already on payroll.

I got my HRA documents from Core Documents. I admin it myself, its very simple.

http://www.coredocuments.com/core105.php

freedom8991

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Re: Does an HSA make sense for us? Small business edition
« Reply #6 on: August 04, 2017, 11:29:18 PM »
Thank you for the great info! I have an accountant that seems to not by knowledgable on the world of self employment. Perhaps I need a different accountant. Thank you!!