Questioning the HSA

[PDXTabs]

I've never had an HSA, but I could if I chose the high deductible plan at work next fall. Since I have my 401(k) maxed out, this would let me stuff away more pre-tax money. However, I am reluctant to contribute to a plan that I can't access until I'm 65 - I hope FIRE well before 65. Am I looking at this wrong? Some people seem to love them.

[jalich]

Enjoy :) I can't say it any better than these 2 guys.

http://jlcollinsnh.com/2014/08/18/stocks-part-xxv-hsas-more-than-just-a-way-to-pay-your-medical-bills/

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

I assume we'll have some medical expenses. If so, it's nice to pay them with pre-tax money. If not, it's a relatively small percent of our assets locked up until 65. We choose to max ours.

[wageslave23]

First, make sure that the HSA plan makes sense dollars wise compared to the non HSA plan.  At my work the non HSA plan is much better because you have no out of pocket expenses compared to all out of pocket until you hit the $5,000 deductible with the HSA plan.  That's a high price to pay in my opinion in order to save about $1,000 in taxes.

Second, if the HSA still makes sense, then I would contribute to that before maxing out your 401k.  HSA is better than 401k or IRA because its tax free going in and coming out.

[simonsez]

At my work the non HSA plan is much better because you have no out of pocket expenses compared to all out of pocket until you hit the $5,000 deductible with the HSA plan.

Wow, that is brutal!  My annual check-ups, bloodwork/urine testing, and preventative screenings are covered and cost nothing out of pocket with my HDHP.  If everything was out-of-pocket that would change how I view the plan and associated HSA no doubt.

[wageslave23]

My HSA plan includes those things too, but not doctor/hospital visits for anything else.  I'm only 33 and healthy, so I don't go to the dr. or dentist unless something is wrong.

[robartsd]

HSA is better than 401k or IRA because its tax free going in and coming out.

Only tax free when used for medical expenses. After age 65 can be used as retirement account (withdraw counts as income if it's not for medical expense). Usually MMMers with HSA will pay medical out of pocket but wait to claim from HSA. In ER they claim old medical expenses to pull money out of HSA before 65 (and of course also claim medical expenses in ER as they come along). Money is left in HSA for medical expenses after 65 unless other accounts are exausted.

[BTDretire]

I'm pretty sure the ACA mandates a free physical exam each year, free mamograms and colonoscopy and I think a few other items. That is supposedly why I received 18.2%, 19.4%, and 24% increases the first 3 years of Obamacare regulations.
This includes non ACA policies.

[slappy]

HSA is better than 401k or IRA because its tax free going in and coming out.

Only tax free when used for medical expenses. After age 65 can be used as retirement account (withdraw counts as income if it's not for medical expense). Usually MMMers with HSA will pay medical out of pocket but wait to claim from HSA. In ER they claim old medical expenses to pull money out of HSA before 65 (and of course also claim medical expenses in ER as they come along). Money is left in HSA for medical expenses after 65 unless other accounts are exausted.

Yes but it doesn’t have to be current medical expenses. If i pay my medical expenses out of pocket, I can save my receipts and withdraw that amount from my HSA tax free at anytime in the future

[chasesfish]

I'm all for utilizing the HSA for health expenses, fully fund that an find a low cost provider.

I'm against saving receipts, in my situation I did the analysis and it just didn't make sense, fees inside the HSA product exceeded the tax benefits of saving receipts.

[MDM]

... fees inside the HSA product exceeded the tax benefits of saving receipts.

One can choose where to hold HSA money.  See http://thefinancebuff.com/how-to-rollover-an-hsa-on-your-own-and-avoid-trustee-transfer-fee.html.

[chasesfish]

Thanks MDM...

I'm still concerned that most of the "low cost" HSA providers are small and seem to keep churning.  My existing plan isn't bad, but VTI edges it out from a tax efficiency vs. fees.  Some people have much worse employer provided plans.  I posted this about it:

http://stopironingshirts.com/2017/10/17/why-i-stopped-saving-hsa-receipts/

[MDM]

Thanks MDM...

I'm still concerned that most of the "low cost" HSA providers are small and seem to keep churning.  My existing plan isn't bad, but VTI edges it out from a tax efficiency vs. fees.  Some people have much worse employer provided plans.  I posted this about it:

http://stopironingshirts.com/2017/10/17/why-i-stopped-saving-hsa-receipts/

I agree that it's probably mildly irritating at least that "at this time my company doesn’t allow (or understand the concept of) an in-service rollover of HSA funds."  As tfb's post notes, whether your company understands or not, they can't prevent you from a once per year rollover into whichever HSA you choose.  See 26 U.S. Code § 223 - Health savings accounts subsection (f)(5) for the legalese.

One may have a 0% tax on a capital gain itself in retirement, but that same capital gain may affect SS benefit taxation and thus incur 5%, 8%, 10.2%, etc. marginal rates.

And yes, if someone is paying 2% or so for the privilege of an HSA, that won't necessarily be a great deal.

[boarder42]

i'd echo MDM @chasesfish you should be rolling it over annually to a lower cost HSA provider - mine is optum i pay 36 bucks a year regardless of account size and the have a .04% vanguard admiral shares S&P 500 investment option - 36 bucks a year is pennies once you've built this account up

OP see this post
https://www.madfientist.com/how-to-access-retirement-funds-early/

also know you have medical costs and the HSA is still likely the cheaper plan you can cash in medical at any time my wife and i leave our money in and let it grow.  when we FIRE we will cash in reciepts for tax free money coming out to us as part of our 5 year bridge.

[chasesfish]

Thank you, the Optimum option is interesting.  I have about $65,000 still in my current plan, it’d be useful if I can roll over most of it and let it grow. I’d save $100/yr on 40k.

[terran]

lower cost HSA provider - mine is optum i pay 36 bucks a year regardless of account size and the have a .04% vanguard admiral shares S&P 500 investment option - 36 bucks a year is pennies once you've built this account up

Are you sure about that? My wife's employer has us with Optum this year. Looking at their fee schedule (found under Accounts > Account Details > Account fee schedule) it's saying $2.75/month (paid for by her employer) for the account and under Monthly Investment Fee it says "0.0300% of your average daily investment balance, not to exceed $10.00 in any given month." It also requires a $2000 Minimum balance that can't be invested. So at ~$33k and over invested it will be $120/year to invest.

We're thinking of rolling her old HSA Bank account over somewhere and then rolling over the funds from optum once a year. Lively seems like it might be the front runner, but I don't like how new they are.

[boarder42]

Differs by employer. We are 3 bucks unless you keep 5k liquid- have to keep 2k as you stated so worth the 36 a year to invest an extra 3k. Then we have no investment fee outside of what the fund charges.