Author Topic: Health Savings Accounts  (Read 4406 times)

Psychstache

  • Pencil Stache
  • ****
  • Posts: 842
Health Savings Accounts
« on: September 11, 2012, 01:35:05 PM »
Hey everyone,

I have been getting the run around on this situation so I thought I would throw it up on this board and see what all you fine mustachians think is the answer.

Situation:

Single, covered by a High-Deductible Health plan through employer.
Was covered under an FSA until 8-31 of this year.

This plan year, I opted out of our companies FSA so that I could go out on my own and open an HSA. From everything I read in the IRS publications, it seemed like this would be an option. I have spoken with multiple professionals and keep getting different answers, such as:

yes you can, but you have to wait until next year.
yes you can, but your contribution is limited because you were under an FSA for part of the tax year.
no you can't, because your employer doesn't offer it.
no you can't because the HSA is only available to people who have individual HDHP's not group or employer HDHP's.

I thought I was making a smart move here by dropping the FSA in favor of the HSA, but I am very confused and I don;t want to make a mistake and suffer a stiff tax penalty.

Anyone have any thoughts/experience with this?

Thanks!

tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2196
Re: Health Savings Accounts
« Reply #1 on: September 11, 2012, 02:07:59 PM »
I don't have all the answers:

It is correct that you can not have an FSA and HSA in same year - also FSAs go expire at end of year (although you can wrap them up through April - you would have to clarify where the August end date came from - is that when your money ran out).

If you work for a company then most employers will only let you set it up during your normal enrollment period unless you had a qualified event.

Your employer either offers it or they don't - the plan needs to specifically be a HDHP, check with your HR/benefits department and they should be able to guide you.  I have one so I know companies can offer them.


ShavinItForLater

  • Stubble
  • **
  • Posts: 149
Re: Health Savings Accounts
« Reply #2 on: September 11, 2012, 02:22:23 PM »
I can't give you a definitive answer, but I have a HDHP and an HSA through my employer, so your fourth statement is definitely not true.  I do know that to use an HSA, the HDHP needs to be "HSA Eligible"--you'd have to ask your employer if that's true for their plan.  If yes, then normally I would expect them to provide you with an HSA plan option (at least mine does).  If no, then you probably cannot use an HSA.

I *believe* you cannot participate in both an FSA and an HSA in the same calendar year, but I can't say that for sure.  I just know that when I signed up for my HSA and HDHP, they said I could not also choose an FSA.

Lars

  • Stubble
  • **
  • Posts: 105
Re: Health Savings Accounts
« Reply #3 on: September 11, 2012, 07:04:31 PM »
I can't give you a definitive answer, but I have a HDHP and an HSA through my employer, so your fourth statement is definitely not true.  I do know that to use an HSA, the HDHP needs to be "HSA Eligible"--you'd have to ask your employer if that's true for their plan.  If yes, then normally I would expect them to provide you with an HSA plan option (at least mine does).  If no, then you probably cannot use an HSA.

I *believe* you cannot participate in both an FSA and an HSA in the same calendar year, but I can't say that for sure.  I just know that when I signed up for my HSA and HDHP, they said I could not also choose an FSA.

You could use an HSA even if your employer doesn't offer it (assuming, as ShavinItForLater said, the HDHP is "HSA eligible"). My wife's employer only offers an HSA for one division of the company - all other employees need to use a outside bank for the HSA. Unfortunately, the tax break is not as good when not offered by the company as you'll have to pay FICA tax on contributions.

As I understand our plan documents, her employer allows you to have a FSA and HSA at the same time unlike ShavinItForLater's employer but its not very useful. Once you have the HSA, I believe the FSA could only be used for dental care and expenses after your deductable on HDHP was met. Clearly it differs between companies.

MooreBonds

  • Stubble
  • **
  • Posts: 193
  • Age: 42
  • Location: St. Louis, MO
Re: Health Savings Accounts
« Reply #4 on: September 11, 2012, 08:23:40 PM »
I can't offer comment about participating in both an FSA and HSA in the same year.

However, whether you have a HDHP through your own individual policy, or through your employer's insurance policy, you are free to use either your employer's HSA or open your own HSA (or even a combination of both, as long as your total combined contributions each year doesn't exceed the max allowed by law).

It is true that if your employer makes the contribution, you save the FICA tax on your contribution (and a few employers even offer their own HSA 'match' or contribution!). However, read the fine print of your employer's HSA account - some of these HSA accounts are worse than some bank checking fees, and monthly fees of up to $10/month are not uncommon! Also, some HSA accounts only pay paltry 0.10% APY, with limited investment choices. So even if you 'save' the FICA by using your employer's HSA account, the combination of monthly fees and poor investment choices can more than (negatively) offset better options elsewhere.

For instance, I've maintained my own individual HDHP for the past 11 years, and when HSAs first came out, I maxed out the annual contribution. Because my goal was to accumulate a stash, I looked for which HSA providers offered the best investment options. The bank I'm with (HSA Bank) lets you link to an HSA account with TD Ameritrade and buy a whole host of investments that you want (stocks, bonds, mutual funds, etc.). The only downfall is that if your monthly bank Savings Account balance is less than $3k, they nick you for $3/month. (I keep mine minimized so I can invest as much as possible) And, if you maintain a TD Ameritrade account, they ding you for another $2/month for having that privilege. But, after several years of saving, my HSA balance income from preferred and common stocks dwarfs the fees, and makes it worthwhile. (the funny thing is, my HSA investment account has had (relatively) tremendous gains over the past 7 years, while ALL of my other investment accounts have had mediocre performances! Figures that my least-accessible funds would have had the investment decisions resulting in the highest growth rates. lol )

If your goal w/ the HSA is to deposit money, get the tax deduction, and then use that money for your ongoing healthcare expenses, then look for the account w/ the lowest fees....but if you're looking to grow the stash, then don't focus only on the short-term fees and fail to see the long-term effect of the investment options.
« Last Edit: September 11, 2012, 08:28:38 PM by MooreBonds »

Psychstache

  • Pencil Stache
  • ****
  • Posts: 842
Re: Health Savings Accounts
« Reply #5 on: September 11, 2012, 08:31:51 PM »
Thanks for all of the replys, guys.

My plan has actually expired. Our benefits run from Sept 1-Aug 31st, so I dropped the FSA hoping to be able to start my own HSA (I work for a school, hence the weird plan year).

The plan is def HSA eligible. I have been told that by the Insurance office people, but the district does not offer an HSA (I would guess it is more time and expense than they would like to deal with). I did my own checking and the plan does meet the requirement noted my the IRS to be 'HSA eligible'.