Author Topic: Is this HSA worth it?  (Read 3936 times)

pk_aeryn

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Is this HSA worth it?
« on: February 26, 2016, 04:06:40 PM »
I know that ultimately, only I will know the extent of my health, financial and tax situation, but hoping you guys might be able to offer some advice.

I currently have a regular PPO and want to switch my health insurance to a HSA.  The bank account in conjunction with the plan offered by my employer has a bank maintenance fee of 4.50/mo unless there is 5000 in cash in the account.  I can invest in mutual funds, but I'll have to pay that fee unless there's 5000 un-invested in cash. I asked if regular direct deposits would waive the fee and they said no.

Given the IRS contribution limits, it would be two years before I could contribute enough where I'd hit 5000 in cash.   Plus, it seems like it would be smartest to never to keep 5k in cash and go all in on mutual funds?  Am I thinking correctly on this?  My lizard brain hates the idea of paying a monthly fee for a bank service but maybe this fee is not a big deal all things considered?

Another thing that might be relevant is that I'm not currently able to max out my 401k, so this HSA isn't the only option left for me to decrease my taxable income.


abhe8

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Re: Is this HSA worth it?
« Reply #1 on: February 26, 2016, 04:19:37 PM »
Hmm... My hsa doesn't have those fees. Remember HSA contributions save more on taxes, FICA and Medicare too, so maybe compare those savings to the fees? Or look for another hsa bank?

GrowingTheGreen

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Re: Is this HSA worth it?
« Reply #2 on: February 26, 2016, 04:38:38 PM »
What is the cost difference b/w your PPO and HDHP?  Are you a "young invincible" in good health with no chronic conditions or do you have something that requires regular treatment?  Paying $4/month maintenance fee may be worth it if you're saving $80/month on premiums.

Regarding allocation: I prefer to keep at least one years' worth of out-of-pocket maximum in cash.  The rest goes into mutual funds.

With This Herring

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Re: Is this HSA worth it?
« Reply #3 on: February 26, 2016, 06:16:37 PM »
Though your company may be recommending this bank for your HSA, you are not required to use it.  An HSA is an account controlled by YOU.  When you leave your employer, the HSA is still yours.  It is not similar to an FSA at all.

When my most recent employer switched company health over to a high-deductible plan (that fit the qualifications for us employees to fund HSAs), employer brought in Bank X to tell us about HSAs.  Employer specifically said "We are having Bank X present this information, but you can set up your HSA anywhere you choose.  Do your research.  If you want your HSA contributions to be processed through payroll, you will need to fill out an updated direct deposit form for the allocation, the same as you would with any other new direct deposit account."

Right now, my HSA is with a bank called "HSA Bank" (not kidding; it is a division of Webster Bank).  They, too, have a monthly fee until you hit $5,000 in the bank account, but their fee is $2.50.  My employer went onto the high-deductible plan in the last two months of 2013, so I (as a single person with lower HSA limit), contributed the full 2013 amount over the last few paychecks of the year, then front-loaded 2014 so that I was only paying the fee for a few months. 

You can do the same.  Wait until the last couple paychecks of 2016 to contribute the 2016 max, then front-load 2017 until you hit the $5,000.  The payroll person won't be thrilled with changing your allocations so frequently, so make sure to bake him/her some cookies.

I still need to look around and see if I can find an HSA that will include the invested balance for any fee limit, though...  Abhe8, does your no-fee HSA bank permit investing?  Would you share where it is?

GrOW

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Re: Is this HSA worth it?
« Reply #4 on: February 26, 2016, 06:17:24 PM »
Ask your HR company to consider paying the monthly fee or changing HSA administrators. The current setup is a disincentive for employees to manage and improve their health. They need to hear it.

You are not forced to use the HSA offered through your employer. You can instead contribute to an HSA on your own. One downside is that you will lose the fica tax savings when doing this method but compare it to the fees of your current option.

With This Herring

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Re: Is this HSA worth it?
« Reply #5 on: February 26, 2016, 06:19:50 PM »
Ask your HR company to consider paying the monthly fee or changing HSA administrators. The current setup is a disincentive for employees to manage and improve their health. They need to hear it.

You are not forced to use the HSA offered through your employer. You can instead contribute to an HSA on your own. One downside is that you will lose the fica tax savings when doing this method but compare it to the fees of your current option.

No, you don't lose the FICA tax savings as long as you make those contributions through payroll, your employer knows that those contributions direct deposited to bank X are for your HSA, and your employer categorizes them correctly in payroll.

mozar

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Re: Is this HSA worth it?
« Reply #6 on: February 26, 2016, 06:55:12 PM »
Quote
We are having Bank X present this information, but you can set up your HSA anywhere you choose.

So when you do your taxes, you'll check a box that says you contributed to an hsa, but that it wasn't through payroll, so you can get your taxes back?

I'm trying to figure this one out too. My last company switched from Benefit Wallet to HealthEquity mid year. It took me six months to find the right forms to close the BW account. I just started at a new company, and their HSA is BW. Argh!

GrOW

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Re: Is this HSA worth it?
« Reply #7 on: February 26, 2016, 07:20:27 PM »
Ask your HR company to consider paying the monthly fee or changing HSA administrators. The current setup is a disincentive for employees to manage and improve their health. They need to hear it.

You are not forced to use the HSA offered through your employer. You can instead contribute to an HSA on your own. One downside is that you will lose the fica tax savings when doing this method but compare it to the fees of your current option.

No, you don't lose the FICA tax savings as long as you make those contributions through payroll, your employer knows that those contributions direct deposited to bank X are for your HSA, and your employer categorizes them correctly in payroll.

This is great if your HR or payroll will do this. It's it optional or something that you can quasi force them to do?

With This Herring

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Re: Is this HSA worth it?
« Reply #8 on: February 27, 2016, 07:47:47 AM »
Note: I am having major issues with quote tags that I want to link to source sites, so I apologize in advance if anything breaks.  Mods with who can fix anything, feel free!  Thank you!

Quote
We are having Bank X present this information, but you can set up your HSA anywhere you choose.

So when you do your taxes, you'll check a box that says you contributed to an hsa, but that it wasn't through payroll, so you can get your taxes back?

I'm trying to figure this one out too. My last company switched from Benefit Wallet to HealthEquity mid year. It took me six months to find the right forms to close the BW account. I just started at a new company, and their HSA is BW. Argh!

First, taking back taxes:
No, this needs to go through payroll, not direct contributions.  You can only get the income taxes back on your return, not the FICA taxes.

Quote from: IRS Publication 969, www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204101
Employment taxes.   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. You must report the contributions in box 12 of the Form W-2 you file for each employee. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code W in box 12.

And, not authoritative, but matches up with my general knowledge:

Quote from: TurboTaxPennyJ , Enrolled Agent, ttlc.intuit.com/questions/2297142-how-do-i-receive-a-social-security-and-medicare-tax-refund-for-my-after-tax-contributions-to-my-hsa
Unfortunately, the IRS will not refund Social Security and Medicare taxes paid on income that is used to make after-tax contributions to a Health Saving Account.  The law creating Health Savings Accounts only allows that qualified after-tax contributions can be exempt from income taxes. {With This Herring - So, any direct contributions you make that don't go through payroll only save you income tax.  They don't save you FICA.}

Pre-tax contributions made through your employer are part of your employers cafeteria plan (also known as Section 125 plan).  These employee benefit plans are governed under Section 125 of the Internal Revenue Code and allow employees to pay for a number of benefits with income that is exempt from federal and state income taxes, Social Security taxes, and Medicare taxes.  Among the benefits that can be included are health insurance, child care expenses, and contributions to Flexible Spending Accounts and Health Savings Accounts.






Ask your HR company to consider paying the monthly fee or changing HSA administrators. The current setup is a disincentive for employees to manage and improve their health. They need to hear it.

You are not forced to use the HSA offered through your employer. You can instead contribute to an HSA on your own. One downside is that you will lose the fica tax savings when doing this method but compare it to the fees of your current option.

No, you don't lose the FICA tax savings as long as you make those contributions through payroll, your employer knows that those contributions direct deposited to bank X are for your HSA, and your employer categorizes them correctly in payroll.

This is great if your HR or payroll will do this. It's it optional or something that you can quasi force them to do?

Second, choosing an HSA provider and can employers be forced to correctly code contributions to non-preferred/er-recommended providers:

I don't think the IRS even considers that an employer might refuse if you set up your HSA through a provider that the employer didn't suggest.  It is in the Company's interest to process these contributions and code them correctly, as the savings on FICA are for both you AND YOUR EMPLOYER.  It looks like your employer must, but I'm only a CPA, not a lawyer.

This refers to employer contributions to HSAs:
Quote from: IRS Publication 969, www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204101

Comparable contributions.   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs.


This, again, shows how employers have no control over account:
Quote from: IRS Internal Revenue Bulletin 2008-29, www.irs.gov/irb/2008-29_IRB/ar11.html#d0e1127
Q-25.   If an employer contributes to the HSA of an employee who ceases to be an eligible individual during a year, can the employer recoup amounts that the employer contributed after the employee ceased to be an eligible individual?

A-25.   No. Employers generally cannot recoup amounts from an HSA other than as discussed above in Q&A-23 and Q&A-24. See Notice 2004-50, Q&A-82.

Example. Employee N was an eligible individual on January 1, 2008. On April 1, 2008, Employee N is no longer an eligible individual because Employee Ns spouse enrolled in a general purpose health FSA that covers all family members. Employee N first realizes that he is no longer eligible on July 17, 2008, at which time Employee N informs Employer O to cease HSA contributions.

Employer Os contributions into Employee Ns HSA between April 1, 2008 and July 17, 2008 cannot be recouped by Employer O because Employee N has a nonforfeitable interest in his HSA. Employee N is responsible for determining if the contributions exceed the maximum annual contribution limit in 223(b), and for withdrawing the excess contribution and the income attributable to the excess contribution and including both in gross income.





Here's how the HSA discussion should go:

Step 1 - Company says "Good news!  HD health plans for everyone instead of the gold plans we had!  Here's an HSA provider we recommend/who agreed to come do a presentation!" (Optional - Employer says "To make this increased deductible less painful, we are going to put an additional $XX into each of your HSA accounts per pay period.  This money won't count as part of your wages and will not be subject to any tax you must pay, but it will count toward your max HSA contribution for the year.")
Step 2 - Each employee sets up his/her OWN HSA account with that provider or with one of their choice.  THE COMPANY CAN'T SET THESE UP, AND THE COMPANY CAN'T SEE THE DETAILS OF WHAT IS IN THE ACCOUNT.  IT IS YOURS, THE WAY A CHECKING ACCOUNT IS YOURS. 
Step 3 - Each employee tells Company how much to contribute per paycheck, what the account routing info is for direct deposit, and tells company it is a legit HSA account.  HSA bank may need to write a letter to Company saying "This is a legit HSA account" (I think I might have had mine do this, but I'm not sure).
Step 4 - Company pays next payroll.  Company uses special payroll codes to say "This is an employee HSA contribution."
Instead of 100% of salary (less taxes) going to Employee A's checking account, now 2% of salary goes to account that Employee A set up that is an HSA account (And, as optional in step 1, $XX from Company).  When processing payroll, Company codes all employee contributions to HSAs the same way.  It should make no difference to Company whether you use the suggested bank or not, just as Company doesn't care which bank has your checking account.

Here is how your W-2 will come out (assuming $3K HSA contribution, $18K 401k contribution:

Gross wages (will show on final paystub for year, but NOWHERE on W-2)$50,000
EE HSA contributions-$3,000
_______
SS/Medi wages on W-2 (boxes 3 and 5, up to limit)$47,000
401(k) EE-$18,000
_______
Fed/state wages for income tax purposes$29,000


Your employee HSA contributions, plus any additional contributions the employer may have given, will all appear under code W on your W-2.
« Last Edit: February 27, 2016, 07:49:37 AM by With This Herring »

Nickels Dimes Quarters

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Re: Is this HSA worth it?
« Reply #9 on: February 27, 2016, 10:16:51 AM »
I started my HSA last year and fully funded the first year and I'm on my way to a fully funded second year. It's an amazing type of account and I'm thrilled I took the plunge.

Because most HSA banks require a minimum amount to invest in the accounts want, I am keeping it parked in the bank my employer offers because of the annual fee being extremely low. Once I have the minimum to invest, I will move it and then pay more for that service.

NDQ

mozar

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Re: Is this HSA worth it?
« Reply #10 on: February 27, 2016, 08:15:18 PM »
Quote
You can only get the income taxes back on your return, not the FICA taxes.

Ok, I was hoping someone could tell me how to do that, since I might not go through payroll.

terran

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Re: Is this HSA worth it?
« Reply #11 on: February 27, 2016, 08:39:05 PM »
Quote
You can only get the income taxes back on your return, not the FICA taxes.

Ok, I was hoping someone could tell me how to do that, since I might not go through payroll.

You (or your tax software) will enter the amount you contribute outside payroll in box 2 of form 8889. This will then flow to box 25 of your 1040.

chemistk

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Re: Is this HSA worth it?
« Reply #12 on: February 29, 2016, 06:16:49 AM »
OP - I would contribute to the HSA regardless of the fee. Even if you're losing a small amount each month, you still will have that health safety net forever should something come up down the road (unemployment, retirement, new company doesn't have a HSA option).

To the above comments - a counterpoint from a different perspective (perhaps the OP's situation is more like this). The company for whom I work offers 3 health plans - one of which is high deductible and offers a HSA. The savings account does not carry fees, but the investments have a high expense ratio. When we enroll in health plans every year, we do not have the option to choose where the HSA is created. It is through BofA and if you don't like it, you have to choose a different health plan. We have no ability to switch, either. When the plan is elected (if you're a new plan member), the insurance company creates the HSA account for you and issues the debit card (the card does not have BofA on it anywhere). For us, the company deposits up to $2,000 into your HSA per year but other than that, the only control you have is the remaining contributions and how you choose to invest your money. Even when we leave the company (and the insurance company), the money must remain with BofA.

TL;DR There are situations where you have far less control than you would expect with HSA's

With This Herring

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Re: Is this HSA worth it?
« Reply #13 on: February 29, 2016, 07:11:50 AM »
OP - I would contribute to the HSA regardless of the fee. Even if you're losing a small amount each month, you still will have that health safety net forever should something come up down the road (unemployment, retirement, new company doesn't have a HSA option).

To the above comments - a counterpoint from a different perspective (perhaps the OP's situation is more like this). The company for whom I work offers 3 health plans - one of which is high deductible and offers a HSA. The savings account does not carry fees, but the investments have a high expense ratio. When we enroll in health plans every year, we do not have the option to choose where the HSA is created. It is through BofA and if you don't like it, you have to choose a different health plan. We have no ability to switch, either. When the plan is elected (if you're a new plan member), the insurance company creates the HSA account for you and issues the debit card (the card does not have BofA on it anywhere). For us, the company deposits up to $2,000 into your HSA per year but other than that, the only control you have is the remaining contributions and how you choose to invest your money. Even when we leave the company (and the insurance company), the money must remain with BofA.

TL;DR There are situations where you have far less control than you would expect with HSA's

That sounds terrible.  Also, the part I bolded sounds illegal, which makes me question the truth/legality of the rest of it.  Is it possible HR person/whomever is in charge of this for your company either does not understand how it works or did a terrible job of explaining it?

You should be able to get the HSA money into an HSA with a different provider by rolling it.  Obviously you can't just withdraw the money with no consequences without it covering medical expenses.

[Again, to clarify, I am a CPA, not a tax attorney.  My professional dealings with HSAs were solely how the inflows and outflows were treated for tax purposes, not the rules for opening and rolling them.  Anything I say about the latter is based on my personal experience and hunting around the IRS website; it should be taken with a grain of salt.]

chemistk

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Re: Is this HSA worth it?
« Reply #14 on: February 29, 2016, 01:31:13 PM »

That sounds terrible.  Also, the part I bolded sounds illegal, which makes me question the truth/legality of the rest of it.  Is it possible HR person/whomever is in charge of this for your company either does not understand how it works or did a terrible job of explaining it?

You should be able to get the HSA money into an HSA with a different provider by rolling it.  Obviously you can't just withdraw the money with no consequences without it covering medical expenses.


Thanks for pointing that out - looks like I'm wrong. There isn't any sort of information guide to our HSA's, just a general overview of how they work and the basic principles (what website you need, how you can use your HSA, contribution limits, etc.). What I thought was a "you can never transfer your funds" situation was actually one where you can't choose another institution if you want to continue to receive $2,000 a year from the company. If I were to roll over my account, I would lose that benefit and be funding it solo.

I'm sure if I really wanted to, I could go up to our corporate offices and work out something with HR, but I work for a huge company so I imagine it wouldn't be an easy process.

Thanks!