Author Topic: New job, insurance plan, 401(K), FSAs: what to do?  (Read 4768 times)

jenstill

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New job, insurance plan, 401(K), FSAs: what to do?
« on: October 04, 2013, 08:11:26 AM »
Hi. I've just accepted a new job and my first day will be November 4th. I'm very excited about the new opportunity because I get to work from home 48 weeks a year (no commute, lots of saved time & money, much freer access for my kids), what I'll be doing is interesting and rewarding to me, and the base salary is a $15k/year increase, with the additional likelihood of $15k/year bonuses. It's all good!

But, there are some things that are completely new to me that I'm hoping you all can help me with. First: where I've been working for years is a non-profit and they've paid my medical insurance premiums in full for me. All I've had to pay is co-payments and part of a deductible (but they also put $1500/year into an account to pay for those things with). The new place offers 3 medical insurance plans, but given I'm a remote employee in a different state, everyone says the "C" plan will be the best choice for me. So for this plan, my premium for me & my kids will be $63.13 per pay period (twice a month). The annual deductible for us is $6,000, with an annual out-of-pocket maximum of $6,000 also. Preventive care visits have no deductible or copay, but everything else is completely paid for by me, until I hit the deductible, then everything is 100% covered by insurance. Along with this plan, I can set up a Health Saving Account which says this:
"Health Savings Account
A Health Savings Account (HSA) is available when you enroll in Plan C. An HSA is a personal health
care bank account that you can use to pay for deductibles, coinsurance and over-the-counter
medications with a doctor’s prescription. The annual contribution maximum for individual coverage is $3,250 for individuals – and $6,450 for family coverage per IRS regulations. The company will provide an HSA employer contribution of $600 for individuals or $1,200 for families,
which is deposited on a per-pay-period basis."

I can also set up one of these:
"Limited Purpose Flexible Spending Account
If you are enrolled in Medical Plan C, you may participate in a Limited Purpose Flexible Spending
Account. This account is designed to compliment a Health Savings Account and allows for
reimbursement of eligible dental and vision expenses that you may have. You must decide how
much to set aside for this account. You may contribute up to $2,500 in a Limited Purpose Flexible
Spending Account." This one is a "use it or lose it" option, meaning that if I don't spend everything in the account by the end of the year, it gets lost. Apparently this money is taken out before taxes are calculated and that's why you must use it or lose it.

I am not sure how much I should choose to put into the Health Savings Account or the Limited Purpose Flexible Spending Account, or if I should even get one of each. The HSA seems like a no-brainer because my employer will contribute to it as well, but some folks tell me the tax benefits of the LPFSA are too good to ignore also. So, should I do both accounts and, if so, how much should I put in each account, each year?

The other question is that, right now, I have a 403(b) account with only about $5000 in it. I've been contributing just the amount the company will match, as I am still in a debt emergency (ie; I have some that isn't a mortgage). The new place, being a for-profit company, has a 401(k) instead of a 403(b). Can I still roll over my current 403(b) into it? Are all the rules/considerations the same? My new place doesn't allow you to participate in the 401(k) until you've been there for 60 days, but I understand there's a time limit on rolling it over, so I'm worried I'll exceed that limit due to this 60 day rule. Any guidance on this process?

Thank you all for any help you can offer!

willn

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #1 on: October 04, 2013, 09:33:10 AM »
The HSA is a good deal and can almost be treated as a retirement account, Google HSA for details.  Funds not used roll over and accumulate, withdrawals for non qualified expenses are subject to tax and penalty--like an IRA or 401K.  After retirement age withdrawals are more flexible I believe.  So, since this accumulates year or year you could overbudget and not lose out--but you wouldn't be able to withdraw excess non qualified expenses without penalty and tax.

The FSA is ok but is "use it or lose it". Meaning any amount you don't use gets confiscated basically.  Therefore I only use if for medical expenses I know I am going to incur that year--it can be used for a lot of items--check your rules for qualified expenses but things like eyeglasses and copays can be paid using it.  Or if you know you need regular medications subject to copay or uncovered by insurance, then you can use the FSA Funds and budget it appropriately.  I think in most plans you can use the full amount you decide for the year immediately but it is taken out of your payroll on a per rata basis--ie, 10$ month if you enrolled for 120$ for the year.

Both plans allow you to pay for qualified expenses with pre tax dollars--this can add up--if your marginal income tax rate is 25% and you spend 2000 on copay and deductible, you'd save 500$ compared to not using these accounts.

This is a quick and cursory review--your HR department should and probably will walk you through these factors and are usually more than willing to answer your questions with more authority than can I! 

Numbers Man

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #2 on: October 04, 2013, 10:18:52 AM »
An HSA is way superior versus and FSA.  You put money into an HSA account and get a tax deduction. For example, if your top bracket is 15%, then for every $1,000 you put into an HSA, you lower your federal tax bill by $150. Keep adding to your HSA account over the years and you will easily be paying for those medical hiccups that occur every now and then instead of paying out of pocket. They will give you a credit card that will link to your HSA account in which you can pay for eye glasses and any other dental or medical bills.

You can take as much time as you need to roll over you 403b to an individual IRA OR INTO YOUR NEW EMPLOYERS PLAN. The 60 day window is only relevant IF YOU HAVE ALREADY REQUESTED THAT A CHECK TO BE SENT TO YOU.

willn

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #3 on: October 04, 2013, 10:35:25 AM »
One more thing--I always advise rolling your previous company 403b/401k into a "rollover IRA" at Vanguard.  Call Vanguard and their reps will arrange a "direct rollover" into the new account. You will almost certainly have more options in the Vanguard than at your new employers 401k.  The "direct rollover" means the funds will be sent directly to the rollover IRA and you don't have to worry about inadvertently getting hit with taxes or penalties on the rollover by missing the window.

madage

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #4 on: October 04, 2013, 10:43:46 AM »
willn and Numbers Man don't understand how the limited-purpose FSA works. There are IRS regulations for contributing to both an HSA and limited-purpose FSA:

From IRS Publication 969
Quote
Other employee health plans.   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Health FSAs and HRAs are discussed later.

However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.

Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage, except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.

...

Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.

In the OP's case, the post-deductible FSA does not apply because the out of pocket max and deductible are the same. I suggest maxing out the HSA contribution and only putting a little money into the limited-purpose FSA if there will be out of pocket dental or vision expenses. I've had HDHP coverage with HSA for the last few years now and I absolutely love it!

Edit: Replaced term "limited-use" with "limited-purpose" to match IRS terminology.
« Last Edit: October 04, 2013, 12:28:36 PM by madage »

willn

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #5 on: October 04, 2013, 11:01:46 AM »
willn and Numbers Man don't understand how the limited-use FSA works. There are IRS regulations for contributing to both an HSA and limited-use FSA:

From IRS Publication 969
Quote
Other employee health plans.   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Health FSAs and HRAs are discussed later.

However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.

Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage, except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.

...

Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.

In the OP's case, the post-deductible FSA does not apply because the out of pocket max and deductible are the same. I suggest maxing out the HSA contribution and only putting a little money into the limited-use FSA if there will be out of pocket dental or vision expenses. I've had HDHP coverage with HSA for the last few years now and I absolutely love it!

I think I understand but perhaps my comment was ill formed!  Thank you for your reference.  Hers is a limited purpose FSA, so my question now is, can a limited purpose FSA be used for non-dental, non-vision medical expenses?

seattlecyclone

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #6 on: October 04, 2013, 11:04:19 AM »
Max out that HSA. It's even better than a 401(k) or IRA (Roth or traditional) because the money isn't taxed when you contribute or when you withdraw it. The money is yours to use on medical expenses until it's gone. Even if you switch health plans in the future and can't contribute to your HSA anymore, you can still use the funds you have already contributed.

You should only contribute to the FSA up to the extent that you know you will spend that much on health care during the year. If you're generally healthy and could conceivably go a whole year without spending any money on doctor visits, prescription drugs, dental work, etc., then don't contribute to the FSA.

Like others, I suggest rolling your 403(b) into an IRA instead of your new employer's 401(k) plan. Most IRAs will allow you to invest in whatever funds you want, while your employer's 401(k) plan will limit you to a handful of funds they selected. Roll over to an IRA so that you don't risk being limited to high-cost funds.

madage

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #7 on: October 04, 2013, 11:19:07 AM »

I think I understand but perhaps my comment was ill formed!  Thank you for your reference.  Hers is a limited purpose FSA, so my question now is, can a limited purpose FSA be used for non-dental, non-vision medical expenses?

In my experience, there is no difference between a "limited-purpose FSA" and what the IRS quote above refers to as a "Post-deductible health FSA". My company calls it a "limited-purpose FSA", but I can use it for non-dental, non-vision medical expense after meeting my deductible.

Example:

Say my HDHP has a $2,000 individual deductible with $4,000 out of pocket max. I'm contributing the maximum to my HSA and also $200 to my limited-purpose FSA. I visit the doctor for a sore back and pay $100 for the doctor visit. My remaining deductible is now $1,900. I cannot use any of the $200 in my limited-purpose FSA to pay the doctor bill because I have not met my deductible and am contributing to my HSA.

Let's say my back doesn't get better and I undergo several months of treatment, which causes me to fully meet my $2,000 deductible. Some time later that year, I get a cold and go to the doctor again, and am again charged $100 for the visit. Because I've met my deductible, my insurance picks up part of the tab, let's say 50%. I now have to pay $50 for the visit and can use any remaining limited-purpose FSA funds to pay that bill.

Edit: Replaced term "limited-use" with "limited-purpose" to match IRS terminology.
« Last Edit: October 04, 2013, 12:27:41 PM by madage »

willn

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #8 on: October 04, 2013, 11:38:22 AM »

I think I understand but perhaps my comment was ill formed!  Thank you for your reference.  Hers is a limited purpose FSA, so my question now is, can a limited purpose FSA be used for non-dental, non-vision medical expenses?

In my experience, there is no difference between a "limited-use FSA" and what the IRS quote above refers to as a "Post-deductible health FSA". My company calls it a "limited-use FSA", but I can use it for non-dental, non-vision medical expense after meeting my deductible.

Example:


Understood. The quote you used from the IRS reference specifically referred to limited use, and that it could be used without having met the deductible. We are in the weeds here a bit--the takeaway for the OP is that the HSA is going to be the first choice, beyond that to clarify the use of the FSA for use before the deductible is met (my plan allows the FSA to be used before deductible is met).

madage

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #9 on: October 04, 2013, 12:23:02 PM »

I think I understand but perhaps my comment was ill formed!  Thank you for your reference.  Hers is a limited purpose FSA, so my question now is, can a limited purpose FSA be used for non-dental, non-vision medical expenses?

In my experience, there is no difference between a "limited-use FSA" and what the IRS quote above refers to as a "Post-deductible health FSA". My company calls it a "limited-use FSA", but I can use it for non-dental, non-vision medical expense after meeting my deductible.

Example:


Understood. The quote you used from the IRS reference specifically referred to limited use, and that it could be used without having met the deductible. We are in the weeds here a bit--the takeaway for the OP is that the HSA is going to be the first choice, beyond that to clarify the use of the FSA for use before the deductible is met (my plan allows the FSA to be used before deductible is met).


willn, do you actually have access to and contribute to an HSA? If you don't have an HDHP and contribute to an HSA, you don't have a limited-purpose FSA and are subject to less restrictive rules.

What everyone needs to understand is it's an either/or choice between the FSA and HSA for those with a qualifying high deductible health plan (HDHP). It is possible to contribute to both, but if you do then your FSA is limited-purpose. The quote does say limited-purpose FSA can be used for out-of-pocket preventive care expenses prior to meeting deductible. Going to visit a doctor because you have a sinus infection, for example, is not preventive care. Starting in 2014 I don't think this particular exception to the use of limited-purpose funds will matter to most because the Affordable Care Act requires plans to provide free preventive care, unless the plan is grandfathered. The limited-purpose FSA will still be handy for those who will have dental, vision and after-deductible medical expenses.

I apologize for getting away from just answering the OP's question, but I feel this is important to understand for anyone interested in high deductible health plans (HDHP) and health savings accounts (HSA). Open Enrollment season is upon us, after all.

madage

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #10 on: October 04, 2013, 12:24:18 PM »

You should only contribute to the FSA up to the extent that you know you will spend that much on health care during the year. If you're generally healthy and could conceivably go a whole year without spending any money on doctor visits, prescription drugs, dental work, etc., then don't contribute to the FSA.


As covered above, the OP's limited-purpose FSA is only useful for dental and vision and any out-of-pocket preventive care expenses.

Edit: The OP states there is no co-pay or deductible for preventive care expenses.
« Last Edit: October 04, 2013, 12:25:52 PM by madage »

madage

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #11 on: October 04, 2013, 12:41:37 PM »

I am not sure how much I should choose to put into the Health Savings Account or the Limited Purpose Flexible Spending Account, or if I should even get one of each. The HSA seems like a no-brainer because my employer will contribute to it as well, but some folks tell me the tax benefits of the LPFSA are too good to ignore also. So, should I do both accounts and, if so, how much should I put in each account, each year?


The folks you're talking to are confused and/or do not have access to the HSA. The tax benefits of the HSA are better than the LPFSA. Because your employer is contributing to your HSA, I assume that means they will set up an account for you. If they're doing that, I'm also going to assume any contribution you make will be coming straight out of your paycheck pre-tax. Your HSA dollars thus go in tax-free, grow tax-free and can be withdrawn tax-free for qualified medical spending. An HSA is a "Super Roth". Definitely max out the HSA contribution for the tax benefits. Only contribute what you expect to spend on dental and vision expenses to the limited-use FSA. It's obviously best to have a little less money in the FSA than you actually spend due to use-it-or-lose-it rule.

Also note that you do not have to stick with the HSA custodian your employer chooses if they charge fees or don't have good investment options. Your HSA is completely portable and you can have multiple custodians, which is good if you need to change because your employer will probably only contribute to the account they set up.

jenstill

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Re: New job, insurance plan, 401(K), FSAs: what to do?
« Reply #12 on: October 04, 2013, 08:07:40 PM »
This is excellent information and in exactly the language I needed to understand it (not legalese!). Thank you all very much for your help!