Author Topic: HSA vs. post tax account  (Read 1708 times)

jimmy0000

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HSA vs. post tax account
« on: October 13, 2017, 10:54:09 PM »
I have an HSA at my employer and I think I am close to FIRE.  I need a big picture view about should I invest more in my HSA or should I save in my post tax accounts.   I think I am looking for big picture summary of how to get there.   I understand the concepts of the Roth ladder and then need to have money in taxable accounts to get you to the low income level to tranfer money out of the 401k/hsa during the 5 year period, but I need more help be it from the big picture explanation or a pay by the hr accountant who can review my situation and give me direction.

Thanks for the advice.

MDM

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Re: HSA vs. post tax account
« Reply #1 on: October 14, 2017, 12:28:30 AM »
The generic advice can be found in Investment Order.

If your situation is sufficiently non-generic for that to be not applicable, see How To: Write a "Case Study" Topic.

And welcome to the forum!

terran

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Re: HSA vs. post tax account
« Reply #2 on: October 14, 2017, 12:53:56 PM »
Presumably your tax bracket will be higher this year that it will in future years? That would be a vote in favor of contributing to the HSA.

Does your employer contribute to the HSA through payroll deductions? If so, chances are you won't pay FICA on those contributions, so that's another vote in favor of the HSA.

The only reason I can think of to contribute to taxable instead of the HSA is if you're concerned that you won't have enough in taxable and roth contributions (not earnings) to cover spending and taxes over the next 5 years while you get your roth conversion ladder going. Even then, if you expect some of that spending to be on medical expenses, it might still make sense to favor the HSA unless it's already overfunded for that purpose.

jimmy0000

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Re: HSA vs. post tax account
« Reply #3 on: October 15, 2017, 03:33:55 PM »
mdm, thanks will read and get back.

Terran, I do actually contribute a little, just enough to get the employer match.  I think the fica savings is like 5% and that probably is reason enough to contribute.  Will read and get back to you, thanks for the direction.


terran

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Re: HSA vs. post tax account
« Reply #4 on: October 15, 2017, 07:14:22 PM »
If the contributions are exempt from FICA (they usually are, but not always since the employer needs to set it up right) then the FICA savings would be 7.65%.

seattlecyclone

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Re: HSA vs. post tax account
« Reply #5 on: October 17, 2017, 07:30:05 PM »
The HSA is such a great deal tax-wise. You get out of tax (even FICA!) when you contribute, and you don't pay tax on withdrawal as long as you have enough medical bills to substantiate the withdrawal. Save your medical receipts without withdrawing from the HSA while you're working, and you'll have a decent amount you can withdraw at any time tax-free once you retire.

Heroes821

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Re: HSA vs. post tax account
« Reply #6 on: October 18, 2017, 09:04:30 AM »
More importantly than just the FICA part.  When in the future will your medical bills be zero?  The answer there is no magic 8 ball to tell, so the HSA will always win unless you are trying to live in some other country where you can't use the HSA.

Since Medical bills are 100% likely to happen in a lifetime, having money that never has to see the light of tax day will always be worth it.

rahaparta

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Re: HSA vs. post tax account
« Reply #7 on: October 20, 2017, 03:57:14 PM »
One item to consider (and plan) carefully is the velocity of depletion of HSA funds, especially for larger balances (say north of 50k or 75k).

Why ?

Because if the HSA is left to non-spouse heir(s), it becomes immediately a tax event for them, with RMD enforcement.

Why is that potentially a big deal ?

If you are over 59.5 and do not have a foreseeable medical way to spend the money and you die, it may be a better strategy to start spending the money and treat it like an IRA, perhaps converting some to Roth IRA. The alternative, with a possible tax bomb to your children may upset their financial plan. At least have a clear discussion and explain to them what may occur.

chasesfish

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Re: HSA vs. post tax account
« Reply #8 on: October 20, 2017, 06:10:34 PM »
I agree with rahaparta, there is a point in balances where it doesn't make sense to keep inflating the account.  For me that was $65,000 plus having some hefty investment fees in my employer backed plan.

terran

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Re: HSA vs. post tax account
« Reply #9 on: October 20, 2017, 07:13:11 PM »
If you are over 59.5 and do not have a foreseeable medical way to spend the money and you die, it may be a better strategy to start spending the money and treat it like an IRA, perhaps converting some to Roth IRA. The alternative, with a possible tax bomb to your children may upset their financial plan. At least have a clear discussion and explain to them what may occur.

One thing to note, unlike "real" retirement accounts, you have to wait until 65 to take money out of the HSA for non-medical purposes without penalties. You will pay taxes in this case, so it becomes more like a traditional IRA.