Author Topic: COBRA and HSA  (Read 2058 times)

FiguringItOut

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COBRA and HSA
« on: June 04, 2016, 08:13:06 AM »
Are COBRA premiums tax deductible?  Meaning, if I pay monthly premiums out of pocket with post tax money, can I use that amount to lower my taxable income?  I have an option to have premiums paid directly out of my HSA, which is before tax money, so I suppose premiums should count towards lowering taxable income but want to check.

Also, on Vangard's webside they say that they offer HSA account.  https://personal.vanguard.com/us/whatweoffer/overview/healthsavings  Has anyone used it?  I search various HSA threads and did not find info about Vanguard option.  Only talk about Vanguard funds available in other HSA accounts.

I have about $8K in my prior employer's HSA account and am looking to transfer it somewhere.  Right now they started charging me $5 per month fees (prior paid by employer), require $2K cash balance, and their best investment options are
Vanguard Dividend Appreciation Index Investor   VDAIX   0.19%
Vanguard LifeStrategy Moderate Growth Investor   VSMGX   0.14%
Vanguard LIfeStrategy Conservative Growth Investor    VSCGX   0.13%

Should I just leave my HSA where it is right now until I figure out what I am actually going to do with it in terms of investing.

I am not planning to invest my $6K balance right now as I need to figure out a more stable employment solution before I do that, just in case I actually need to use my HSA. 
I also plan to max it out for the year, but will be making only monthly contributions just in case I don't have HDHP by 12/31.

BTW, my current COBRA premium for myself+children is $660/month (medical only, dental is expensive, ~$200/month, and I won't enroll in it).  The job offer I just got and accepted ( but will be continuing to look for better options) is $1,000/month in premiums for employee+children and I still don't know the details about deductibles.  I'm not even sure if it's a standard plan or HDHP.  MY COBRA is my best solution right now for the rest of the year as my family deductible has been met already for the year. 

seattlecyclone

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Re: COBRA and HSA
« Reply #1 on: June 04, 2016, 08:49:36 AM »
You can deduct health insurance premiums and other medical expenses as a Schedule A itemized deduction, but only to the extent that they exceed 10% of your income. See the Schedule A instructions for more information.

That HSA you linked is not actually run by Vanguard. It's merely advertised by them. A company called "Health Savings Administrators" runs that one. They charge a $45 annual account fee, plus 0.25% of your balance on top of the underlying Vanguard Admiral fund fees. This actually isn't terrible as far as HSAs go, but you may be able to find a better deal. Search the forum for more threads about HSAs to get some ideas. We've had a few recently.

FiguringItOut

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Re: COBRA and HSA
« Reply #2 on: June 04, 2016, 09:04:25 AM »
You can deduct health insurance premiums and other medical expenses as a Schedule A itemized deduction, but only to the extent that they exceed 10% of your income. See the Schedule A instructions for more information.

That HSA you linked is not actually run by Vanguard. It's merely advertised by them. A company called "Health Savings Administrators" runs that one. They charge a $45 annual account fee, plus 0.25% of your balance on top of the underlying Vanguard Admiral fund fees. This actually isn't terrible as far as HSAs go, but you may be able to find a better deal. Search the forum for more threads about HSAs to get some ideas. We've had a few recently.


I don't itemize.  Does that mean COBRA  premiums will not reduce my taxable income?
Am I better off to pay these premiums directly from my HSA?

seattlecyclone

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Re: COBRA and HSA
« Reply #3 on: June 04, 2016, 09:45:36 AM »
I don't itemize.  Does that mean COBRA  premiums will not reduce my taxable income?

Yes, unless you qualify to deduct your insurance premiums "above the line" as a self-employed person.

Quote
Am I better off to pay these premiums directly from my HSA?

Maybe. As I see it, there are two basic ways to use an HSA.
  • If you max out all of your tax shelters (HSA, IRA, 401(k), etc.), leave the HSA invested. Save your receipts for qualifying medical expenses (including COBRA premiums). After you retire you can withdraw tax-free money from the HSA.
  • If you don't max out all of your tax shelters, withdraw from the HSA as medical expenses arise. Use the money you saved on taxes from funneling your medical expenses through the HSA to increase your savings in your other accounts.

Which group are you in?

FiguringItOut

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Re: COBRA and HSA
« Reply #4 on: June 04, 2016, 01:48:07 PM »
I don't itemize.  Does that mean COBRA  premiums will not reduce my taxable income?

Yes, unless you qualify to deduct your insurance premiums "above the line" as a self-employed person.

Quote
Am I better off to pay these premiums directly from my HSA?

Maybe. As I see it, there are two basic ways to use an HSA.
  • If you max out all of your tax shelters (HSA, IRA, 401(k), etc.), leave the HSA invested. Save your receipts for qualifying medical expenses (including COBRA premiums). After you retire you can withdraw tax-free money from the HSA.
  • If you don't max out all of your tax shelters, withdraw from the HSA as medical expenses arise. Use the money you saved on taxes from funneling your medical expenses through the HSA to increase your savings in your other accounts.

Which group are you in?

First group