Author Topic: Struggling to bite the max HSA bullet  (Read 1403 times)

eav

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Struggling to bite the max HSA bullet
« on: January 29, 2020, 07:25:32 AM »
Hi all!

I'm turning 26 and enrolling in health benefits...what joy. Investment order is telling me my next move is to Max HSA. I've spoken to a few coworkers around my age who wouldn't dream of maxing it. My Mom thinks I am crazy for doing this of course. This is all making me feel crazy for doing it even though I have the wiggle room and want to reduce my taxable income.

I guess I'm looking for reinforcement from the group. I have no preexisting conditions, medications, but want to get on a good schedule of going to the doc now that I'll be insuring myself.

So far:
64k base salary
10% to 401k
Max Roth IRA
12k in HYSA
*Coming up on ~12k of RSUs vesting next month. Going to sell and treat this as found money by maxing Roth early and adding to savings.
10k in outstanding student loans at 3% interest I've been slow paying
Saving toward home purchase

Thank you, friends!

FIRE@50

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Re: Struggling to bite the max HSA bullet
« Reply #1 on: January 29, 2020, 07:33:08 AM »
I'm curious as to what reasons people are giving you for not maxing out your HSA. It is one of the best tax shelters around AND people list healthcare costs as one of their biggest worries when they get older. IF you don't use it on healthcare, it just basically becomes an IRA. What is the downside?

RWD

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Re: Struggling to bite the max HSA bullet
« Reply #2 on: January 29, 2020, 07:35:30 AM »
Even if you never use it for medical expenses it can be withdrawn later without penalty (although taxed) similar to a 401k. That's why it between the recommendations for contributing enough for the 401k match and maxing the 401k. You should even probably prioritize it over the Roth IRA you are already maxing.
https://www.madfientist.com/ultimate-retirement-account/
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

wellactually

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Re: Struggling to bite the max HSA bullet
« Reply #3 on: January 29, 2020, 07:35:39 AM »
What is your deductible and OOP max? I know the investment order is based on the idea of the HSA as an investment vehicle. I'm 30 and have been on an HDHP for going on 3 years. I've hit the deductible each year so far.

It's great to be healthy and be able to use the HSA for investing. But it's also really nice to know you've got that money sitting there for a health emergency. If you're having trouble feeling the urge to max it for investment, I'd consider at least figuring out how much to put in to have your deductible fully funded.

Also, saving for a downpayment isn't really on the investment order, so based on your situation and priorities, you could put it in your savings order. Maybe it's save up to the deductible in the HSA and then save for downpayment and then max HSA and then max 401k for you.

charis

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Re: Struggling to bite the max HSA bullet
« Reply #4 on: January 29, 2020, 08:18:09 AM »
What possible reason could they have for thinking it's crazy to max an HSA, which doubles as a retirement account? Are they similarly against IRA and 401k contributions? What would they rather you spend the money on?

terran

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Re: Struggling to bite the max HSA bullet
« Reply #5 on: January 29, 2020, 08:23:19 AM »
It sounds like you're afraid you'll never use that much money for medical expenses? First, hah! Second, even if you don't, once you're 65 you can withdraw from the HSA for any reason and pay tax, but no penalty, which makes it basically the same a traditional IRA, so still not a bad deal. It's actually likely better than an IRA if you can contribute through payroll deduction because that also gets you a FICA tax deduction.

martyconlonontherun

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Re: Struggling to bite the max HSA bullet
« Reply #6 on: January 29, 2020, 08:38:46 AM »
Hi all!

I'm turning 26 and enrolling in health benefits...what joy. Investment order is telling me my next move is to Max HSA. I've spoken to a few coworkers around my age who wouldn't dream of maxing it. My Mom thinks I am crazy for doing this of course. This is all making me feel crazy for doing it even though I have the wiggle room and want to reduce my taxable income.

I guess I'm looking for reinforcement from the group. I have no preexisting conditions, medications, but want to get on a good schedule of going to the doc now that I'll be insuring myself.

So far:
64k base salary
10% to 401k
Max Roth IRA
12k in HYSA
*Coming up on ~12k of RSUs vesting next month. Going to sell and treat this as found money by maxing Roth early and adding to savings.
10k in outstanding student loans at 3% interest I've been slow paying
Saving toward home purchase

Thank you, friends!
Do they also think 25% of your salary going to retirement accounts is crazy (as you currently have it)? If so, do you really want to take advice from them?

therethere

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Re: Struggling to bite the max HSA bullet
« Reply #7 on: January 29, 2020, 08:46:07 AM »
Max out your HSA for a few years and leave it untouched but invested. It will eventually grow to the point where the balance supports a 4% withdrawal rate that covers your deductible. It's like saving for future "free" health care in later years you may need it. I've been maxing mine for the last 6 or so years and now have 60k in it (switched between family/individual contributions several times). It's a very nice safety blanket to have. For me it also relieves a lot of worry about going to the doctor and not knowing what the costs will be and if I have the money available.

And, unless you have tons of tax deductions and credits you will barely realize the difference. To me, I could have $2,345 in the bank or I could have $3500 in an HSA.


wbranch

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Re: Struggling to bite the max HSA bullet
« Reply #8 on: January 29, 2020, 09:33:53 AM »
My wife and I have both maxed HSAs for a few years and should have done it sooner. I had some dental issues right when I started working full time and no dental insurance options so running the money through HSA to save almost 40% with IRS, FICA, and state taxes was huge. Minimal other health issues so we have just used ours for dental/vision as needed. I assumed I wouldn't need it for years, then last year I had a major injury (ruptured achilles) and it was nice to have the HSA to cover the $5k in out of pocket expenses. We were doing a rental remodel project so I decided to just pull the money out instead of holding it in the HSA for years.

I think we still have $15k+ between our 2 HSAs even after reimbursing ourselves for quite a few expenses.

MissNancyPryor

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Re: Struggling to bite the max HSA bullet
« Reply #9 on: January 29, 2020, 09:40:35 AM »
Unless your co-workers and mom are FIRE'd they are not in a position to give advice and may even be examples of what not to do.  If you want to be rich, do what rich people do.  They fund their HSAs. 

eav

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Re: Struggling to bite the max HSA bullet
« Reply #10 on: January 29, 2020, 09:49:01 AM »
Thank you for all your feedback! I'm definitely going to max :)

I checked out the plan again and the high deductible plan has a deductible of $2,000. Standard Employee cost is $19.50 twice monthly. Employer contributions to the plan are $1,050 annual (broken up quarterly), so I'd contribute $2,500.

My thought is that my coworkers probably can't imagine having more money deducted from their paychecks (likely), or they think they're invincible and will never incur health costs.



DeniseNJ

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Re: Struggling to bite the max HSA bullet
« Reply #11 on: January 29, 2020, 10:10:43 AM »
Quote
I checked out the plan again and the high deductible plan has a deductible of $2,000. Standard Employee cost is $19.50 twice monthly. Employer contributions to the plan are $1,050 annual (broken up quarterly), so I'd contribute $2,500.

So you will invest 2,500 and work will just give you 1,050.   That's insame.  What a return.
 True you have a high deductible of 2K but you are only paying less than 500 in premiums.  Compare what a regular plan with a 500 deductable but you spend 2K in premiums. As a savings vehicle it's a no-brainer.  As health insurance you want to compare the plans themselves, what they cover, etc.

I guess you can also consider what your net deductible would be.  Like if they give you 1050 and your ded. is 2000 then your deductible could be 950.  So then u have to think if you are likely to meet that.
« Last Edit: January 29, 2020, 10:24:16 AM by DeniseNJ »

DeniseNJ

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Re: Struggling to bite the max HSA bullet
« Reply #12 on: January 29, 2020, 10:33:32 AM »
So if you are someone who is defintily going to meet the deductible in the above situation, you can add your premiums to your net dedectible and that's how much you are paying for insurance.  then you look at what if cover and look at your max out of pocket.  Is that how you would pick a plan?

I haven't done an HSA myself bc my net ded. would be 1,500 for a 300/mo plan and the max out of pocket is like 15,000.  For a slightly higher premium I get a plan with a much lower deductible of 500 and 10 max oop.  Since I always meet the deductible, it seems like I will pay 1,000 more with the HSA high ded plan and maybe as much as 5K more in a bad year.

I guess if the ded plus out of pocket minus plan HSA contribution is the same for both plans, The HSA would have the benefit of storing extra cash tax free.  But in my example above I would need to save at least 1K in taxes to make it worthwhile.  What am I missing?
« Last Edit: January 29, 2020, 02:12:01 PM by DeniseNJ »

robartsd

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Re: Struggling to bite the max HSA bullet
« Reply #13 on: January 29, 2020, 12:48:14 PM »
I bet the biggest reason people say you shouldn't max out a HSA is that they are getting confused by the much more common medical FSA. (I'm not sure if DenieseNJ made this mistake or a typo above). A medical FSA should only be funded to the level you expect to use as they must be used in the same year (with a grace period ending mid-March or a $500 rollover allowed in some plans).

DeniseNJ

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Re: Struggling to bite the max HSA bullet
« Reply #14 on: January 29, 2020, 02:12:31 PM »
I bet the biggest reason people say you shouldn't max out a HSA is that they are getting confused by the much more common medical FSA. (I'm not sure if DenieseNJ made this mistake or a typo above). A medical FSA should only be funded to the level you expect to use as they must be used in the same year (with a grace period ending mid-March or a $500 rollover allowed in some plans).

Thanks, I did.  Fixed it.

Dave1442397

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Re: Struggling to bite the max HSA bullet
« Reply #15 on: January 29, 2020, 03:05:36 PM »
My wife and I have both maxed HSAs for a few years and should have done it sooner.
I think we still have $15k+ between our 2 HSAs even after reimbursing ourselves for quite a few expenses.

I hope you're not contributing the maximum for a couple to each account. The IRS wouldn't like that.

dollarchaser

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Re: Struggling to bite the max HSA bullet
« Reply #16 on: January 29, 2020, 06:25:52 PM »
Although I have never maxed mine, I did put it higher on my priority list for a few years.
The contributions going into my 401 were pulled back by the amount I wanted in the HSA. Once I built up to a level equal to the max out of pocket I felt like I had met a goal.
Health expenses will be unavoidable unless you are not around to worry about them.

wbranch

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Re: Struggling to bite the max HSA bullet
« Reply #17 on: January 30, 2020, 09:47:22 AM »
My wife and I have both maxed HSAs for a few years and should have done it sooner.
I think we still have $15k+ between our 2 HSAs even after reimbursing ourselves for quite a few expenses.

I hope you're not contributing the maximum for a couple to each account. The IRS wouldn't like that.

Not doing that. We each have single coverage so it comes out of each of our paychecks.

I am still waiting for the IRS letter about 2018 W2 HSA contributions not matching up with the Form 5498 due to a screw-up by payroll/HR provider Zenefits. I would not recommend Zenefits to any small to medium sized business.

robartsd

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Re: Struggling to bite the max HSA bullet
« Reply #18 on: January 30, 2020, 02:28:42 PM »
Although I have never maxed mine, I did put it higher on my priority list for a few years.
The contributions going into my 401 were pulled back by the amount I wanted in the HSA. Once I built up to a level equal to the max out of pocket I felt like I had met a goal.
Health expenses will be unavoidable unless you are not around to worry about them.
Investment order puts HSA before maxing 401k but after getting 401k match because funds in the HSA can be claimed tax free for medical expenses (with no time limit to claim them). If you get to standard retirement age and have excess, you can also choose to take out as deferred income. Only disadvantage to HSA over 401k is there is no way to funnel into a Roth conversion ladder.

FIRE@50

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Re: Struggling to bite the max HSA bullet
« Reply #19 on: January 30, 2020, 02:28:49 PM »
Although I have never maxed mine, I did put it higher on my priority list for a few years.
The contributions going into my 401 were pulled back by the amount I wanted in the HSA. Once I built up to a level equal to the max out of pocket I felt like I had met a goal.
Health expenses will be unavoidable unless you are not around to worry about them.
Max out of pocket for one year, multiple years, or lifetime?

dollarchaser

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Re: Struggling to bite the max HSA bullet
« Reply #20 on: March 15, 2020, 08:19:40 PM »
I only have a year or two covered. My income was/is low enough to make investing difficult. But I am thankful to know good options. Because of this site I knew a healthy balance in an HSA will be another investment opportunity.