The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: ncornilsen on November 05, 2013, 04:57:29 PM
-
So yeah, I opened an HSA with my bank, and contributed $1000. I thought I was eligible, but it turns out that my health insurance plan isn't. (The Out of Pocket Max is 7500, which is too high.
Anyway, the money I put in was all post-tax. I have paid two bills with that money, so I have about $700 left. If I just write a check and empty the account, then close it, I should be OK if I don't claim any HSA deduction when I do my taxes right?
-
I am not a tax attorney, but I believe you are correct. The IRS doesn't care about your account until you try to claim the deductions.
What's going to happen to your plan next year? My understanding is all HDHP plans have to have a legally mandated cap on out-of-pocket maximums. Will you be eligible next year perhaps?
-
My current plan is going to be discontinued, so I must find a new one. My intent was to go to an HSA compatible plan, however a non HSA 6350 Max OOP plan is about $92 a month, whereas a HSA compatible plan is going to cost about $150. (5200 deductible, 5200 max OOP)
I don't have much for yearly medical expenses, and don't want to carry 6350 in cash to cover that without having it working for me, and ideally be tax advantaged. If I go with the HSA plan, and contribute the yearly max to it, my tax bill is reduced by $1K, giving me a $393 a year advantage (minus fees, plus any investment appreciation over time.) I rarely use healthcare, so an FSA does NOT seem like a good deal for me.
I'm not eligible for a traditional IRA, so I'm limited on tax deferred vehicles. It seems like the extra $58 a month would be well worth it If and only if I contribute the max to it each year.
Does anyone have a really good handle on what makes a plan HSA compatible? Do they absolutely have to specify that they are HSA plans? It seems like the plans that specify that they're an 'HSA policy' no longer offer the lowest monthly rates anymore!
-
There are a few different stipulations that make a 2014 health plan HSA-eligible. First, the deductible level must be at least $1250 for an individual, $2500 for a family. Some family health plans specify a lower individual deductible that can be met before the family deductible; these plans are not HSA-eligible if that lower deductible is below the $2500 limit for family plans. Second, the maximum out-of-pocket expense (deductible plus copays plus coinsurance) must be no larger than $6350 for an individual, $12500 for a family. These limits are adjusted yearly. Additionally no services may be covered before the deductible is met except some specific preventive health and wellness programs. Note that this limitation applies to prescription drug benefits as well as medical benefits like physician office visits that are not preventive annual well woman or well man visits. For more information on these exceptions see IRS publication 969. Plans need not specify in their name that they are HSA-eligible, but it would surprise me if the plans don't specify their HSA eligibility when you look at the plan details. If you still aren't sure after viewing a plan's summary of benefits whether it is HSA-eligible, contact the plan provider. They will be very willing to talk to a potential customer!
As for your original question, I, too, am no tax expert, but I think you should fill out Form 8889 and Form 5329 and file both with your 2013 taxes. Note that the 2013 version of Form 5329 is not yet available; excess HSA contributions are covered in Part VII of the 2012 version of Form 5329. Reading over the instructions, it seems like you may execute the plan you specified above using these two forms, but you should talk to your bank to make sure that the $700 is withdrawn and not distributed. Unqualified distributions are penalized with, I believe, a 20% tax. If the $700 is reported by your bank as a distribution instead of a withdrawal, you may be liable for the penalty. Report the $700 of contributions that you did not take as qualified distributions as regular income, and any earnings from the HSA as other income on Form 1040. Please note that according to the instructions for Form 8889, you may not take a deduction on Schedule A of Form 1040 for any of the $300 spent on qualified medical expenses. I think that was from the instructions for line 15 of Form 8889. The $300 would then be considered an excess contribution, and needs to be reported on Form 5329. Since your HSA will be depleted by December 31, 2013 you won't need to pay taxes on this money.
The price difference you observed between HSA-eligible and non-HSA-eligible plans may originate from one or many of a few different factors. Were the plans from the same insurance provider? The provider of the lower cost plan may price your age group or smoking status more competitively than the provider of the higher cost plan depending on their rating methods. Alternatively, the provider of the lower cost plan may price every plan at a more competitive rate than the provider of the higher cost plan depending on the providers’ strategies for your region. Did these two plans offer the same provider network? The higher priced plan may have a more robust list of in-network providers or its provider list may include more desirable providers. Did you thoroughly compare the copayments and coinsurance levels for all services provided by these two plans? HSA-eligible plans are allowed to provide certain wellness benefits at a cost lower than the plan deductible. If this particular HSA-eligible plan is particularly rich (that is, it provides many benefits at a low out-of-pocket cost), then it may have a higher actuarial value (and thus a higher premium) than a particularly lean bronze level plan that isn't HSA eligible. The difference would be even more pronounced if you are under 30 and looking at catastrophic plans. Honestly though, the difference in deductible levels could be enough to explain the difference in plan costs here. It all depends on the pricing methods used for these two particular plans, but in general there is no reason that an HSA-eligible plan should be more expensive than other low cost, high deductible plans.
-
Thank you for the long reply! I've been able to locate an affordable HSA plan off the exchange. An interesting fact is that there are many policies not shown on the healthcare exchange that may be great values! Insurance agents are still the best place to go, not the new guys with 2 hours of orientation.
Anyway, the plans I was comparing are from two different insurers. To try to even it up, I compared the catastrophic plan to the bronze HSA plan. The deductible is slightly lower for the HSA plan, and I have co-insurance up to the Out Of Pocket maximum. so, the HSA plan is slightly cushier than the non-HSA compatible catastrophic plan. The HSA tax benefits pay FAR more than the premium difference.
-
I suggest that you call the IRS and ask them what you need to do. It's free, and maybe you won't be on hold as long this time of the year (wait times are pretty ridiculous around tax time).