The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: soccerluvof4 on March 29, 2014, 08:32:23 AM
-
I am really struggling to get this whole HSA question answered to where I understand it (maybe its just me). My wife set up a HSA couple years back and while i am working through all the MMM stuff getting things more efficient I have seen people say to max out your HSA as it reduces your Gross Tax. So I asked my accountant and he said that we can deduct 6550$ a year off the top (GW). Figure a combined income of 250+ not including investment income, and family of 6.( Myself, Wife and 4 kids). My wife doesn't really know the answers of this either though setting up the plan (arghh).
I guess what I am wondering is if the 6550$ is right. Does it make sense to add more to it even if we only can reduce the Gross Wage by the 6550 since our deductible is 10k. How does it work in laymans terms. Does it make sense if money left over to build it up yoy.
Other than 401k based on our Salarys are there any other Tax deferred or ? That people feel are musts.
Thanks in advance and if you have anymore questions I will answer them.
State of WI.
Also I am in 50th year and in ER but receiving payroll check since its my company and my wife is working 20-25 hrs a week receiving paycheck so were maxing out the 401k plus my accelerated since my 50th year. 3.5 years and my wife will be done too! at least thats the plan.
[MOD EDIT: All caps title changed to not scream at me. /END EDIT.]
-
Yes, the $6550 is correct for 2014. It was less in 2013. Think of it as an IRA for medical expenses. The contribution limits change each year (tied to cost of living). It can only be used when you have a high deductible health plan. It grows tax deferred. You can use it to pay medical expenses currently or let it grow, save your receipts, and take withdrawals in ER.
Here is the IRS Publication addressing it:
http://www.irs.gov/pub/irs-pdf/p969.pdf
Hope that helps.
-
Yes, the $6550 is correct for 2014. It was less in 2013. Think of it as an IRA for medical expenses. The contribution limits change each year (tied to cost of living). It can only be used when you have a high deductible health plan. It grows tax deferred. You can use it to pay medical expenses currently or let it grow, save your receipts, and take withdrawals in ER.
Here is the IRS Publication addressing it:
http://www.irs.gov/pub/irs-pdf/p969.pdf
Hope that helps.
thank you VERY much!!!
-
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
-
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
I haven't worked all the way through this myself, but it's been discussed on the boards here. If you can afford to pay your current medical expenses (keep the receipts) and fund the HSA, the HSA is another tool in your ER toolbox. It lets you fund ER before hitting 59.5 in a tax efficient way. We fund our HSA and pay our medical bills (which are HUGE) out of pocket. If you can let the HSA ride, do that.
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
Gotcha , that makes sense ! thanks!
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
I haven't worked all the way through this myself, but it's been discussed on the boards here. If you can afford to pay your current medical expenses (keep the receipts) and fund the HSA, the HSA is another tool in your ER toolbox. It lets you fund ER before hitting 59.5 in a tax efficient way. We fund our HSA and pay our medical bills (which are HUGE) out of pocket. If you can let the HSA ride, do that.
Sounds like a plan! yea i am paying almost 2k now a month and I am the provider (employer). I will stash the nuts for another day!
Thanks to both!
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
Gotcha , that makes sense ! thanks!
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
I haven't worked all the way through this myself, but it's been discussed on the boards here. If you can afford to pay your current medical expenses (keep the receipts) and fund the HSA, the HSA is another tool in your ER toolbox. It lets you fund ER before hitting 59.5 in a tax efficient way. We fund our HSA and pay our medical bills (which are HUGE) out of pocket. If you can let the HSA ride, do that.
Sounds like a plan! yea i am paying almost 2k now a month and I am the provider (employer). I will stash the nuts for another day!
Thanks to both!
Us, too. Annual out of pocket for us is $25k+. For a family of 4, me with a chronic condition and multiple surgeries/procedures per year.
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
Gotcha , that makes sense ! thank
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
I haven't worked all the way through this myself, but it's been discussed on the boards here. If you can afford to pay your current medical expenses (keep the receipts) and fund the HSA, the HSA is another tool in your ER toolbox. It lets you fund ER before hitting 59.5 in a tax efficient way. We fund our HSA and pay our medical bills (which are HUGE) out of pocket. If you can let the HSA ride, do that.
Sounds like a plan! yea i am paying almost 2k now a month and I am the provider (employer). I will stash the nuts for another day!
Thanks to both!
Us, too. Annual out of pocket for us is $25k+. For a family of 4, me with a chronic condition and multiple surgeries/procedures per year.
Yea...that sucks! Im right there with you and I dont see them going down. I check on ACA in it was worse
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
Gotcha , that makes sense ! thank
Does it make more sense for me to pay the bills out of pocket for now Maximize the HSA and just let the HSA build for ER?
I haven't worked all the way through this myself, but it's been discussed on the boards here. If you can afford to pay your current medical expenses (keep the receipts) and fund the HSA, the HSA is another tool in your ER toolbox. It lets you fund ER before hitting 59.5 in a tax efficient way. We fund our HSA and pay our medical bills (which are HUGE) out of pocket. If you can let the HSA ride, do that.
Sounds like a plan! yea i am paying almost 2k now a month and I am the provider (employer). I will stash the nuts for another day!
Thanks to both!
Us, too. Annual out of pocket for us is $25k+. For a family of 4, me with a chronic condition and multiple surgeries/procedures per year.
Yea...that sucks! Im right there with you and I dont see them going down. I check on ACA in it was worse
Ditto.
-
Other than 401k based on our Salarys are there any other Tax deferred or ? That people feel are musts.
Might want to look into setting up a company FSA if you're the company owner.
This lets you set aside money tax free this year for this year's medical expenses.
There's also a Dependent Care FSA you can set up if you still have kids in day care.
-
Other than 401k based on our Salarys are there any other Tax deferred or ? That people feel are musts.
Might want to look into setting up a company FSA if you're the company owner.
This lets you set aside money tax free this year for this year's medical expenses.
There's also a Dependent Care FSA you can set up if you still have kids in day care.
I may be wrong, but I thought you couldn't do an HSA and a FSA. Do you mean pretax premiums, but not a 125 plan for the medical expenses?
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
That's not accurate - HSA contributions don't change SS and Medicare wages; just taxable income.
If you haven't maxed out your deduction for 2013 you have 17 days to do it. You can make a contribution until April 15th.
-
It does reduce your wages subject to FICA and Medicare taxes if it's a payroll deduction. It does not if it's not a payroll deduction.
-
HSA is brilliant. It is a tax deductible Roth IRA when used for medical expenses.
Absolutely let it grow if you can afford to pay your current bills with other money. You can save the receipts and take the money out of the HSA to repay your self for those bills in future years. Meanwhile the HSA has been earning 8% in the market every year.
-
Also if it is deducted from your payroll, you save FICA and Medicare taxes as well. It's always preferred to setup these contributions from your payroll as opposed to after your paycheck.
That's not accurate - HSA contributions don't change SS and Medicare wages; just taxable income.
If you haven't maxed out your deduction for 2013 you have 17 days to do it. You can make a contribution until April 15th.
I could easily be reading this wrong, but it seems the IRS (http://www.irs.gov/pub/irs-pdf/p15b.pdf) says that HSA deductions are exempt from income tax, Social Security and Medicare: "Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits." (see page 6)
-
Health insurance when deducted from a paycheck reduces your FICA taxable income. Ditto for HSA and FSA, unless I've totally misunderstood them all along.
-
All good stuff. For now I am going to stockpile the HSA i believe while i still have income coming in for later years.