Author Topic: HSA match or Max?  (Read 3155 times)

coldestcat

  • 5 O'Clock Shadow
  • *
  • Posts: 65
HSA match or Max?
« on: October 06, 2017, 10:15:02 AM »
My job has an HSA match up to $150/Month, with no match for 401k or anything else like that. Should I match the HSA and start working on a 457, or max the HSA out before worrying about 457?>

bacchi

  • Magnum Stache
  • ******
  • Posts: 3950
Re: HSA match or Max?
« Reply #1 on: October 06, 2017, 10:31:37 AM »
Do you have single or family insurance?

The maximum single contribution is $3400/yr, which would make your contribution $142/mth and the match $142/mth. Then stuff the bejeezus out of the 457.

coldestcat

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: HSA match or Max?
« Reply #2 on: October 06, 2017, 10:47:20 AM »
I am doing the family plan which is just my wife and I at the moment. contributing 150 to the company's matched 150 for 300/month. Just started working full time recently out of school/temp jobs so I havent started the 457 but I plan on getting that started.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3609
  • Location: Texas
Re: HSA match or Max?
« Reply #3 on: October 06, 2017, 10:52:34 AM »
Max out the HSA. No question.

Sarah Saverdink

  • Stubble
  • **
  • Posts: 122
  • Location: New England
    • The Saverdinks
Re: HSA match or Max?
« Reply #4 on: October 06, 2017, 10:55:44 AM »
Max the HSA. It is a fantastic tax-sheltered account.

coldestcat

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: HSA match or Max?
« Reply #5 on: October 06, 2017, 11:04:19 AM »
Is there ever a time to stop maxing the HSA? I think I read something about taking unused money out of the HSA after you retire but I dont remember where I saw that. Just to make sure I am understanding why the HSA is good is because if I put the max contribution into it, the IRS will charge less taxes?

Thanks for helping me understand this. I also want to know why, and not just listen to people so I can explain it to my wife since she is on-board with the principles, but doesnt look at the site or articles.

sherr

  • Pencil Stache
  • ****
  • Posts: 687
  • Age: 34
  • Location: North Carolina
Re: HSA match or Max?
« Reply #6 on: October 06, 2017, 11:35:45 AM »
Is there ever a time to stop maxing the HSA? I think I read something about taking unused money out of the HSA after you retire but I dont remember where I saw that. Just to make sure I am understanding why the HSA is good is because if I put the max contribution into it, the IRS will charge less taxes?

Yes. For your entire life an HSA is tax-free for medical expenses. So pre-tax money goes in, and then it is not taxed when it comes out for medical expenses.

In addition, when you hit "retirement age" (currently 65, could change), you can also take money out for any reason, and only pay regular income tax on it (no penalty).

So it essentially is the same as a Traditional 401k / IRA, but with the additional "tax free for medical expenses" bonus. The only thing that a 457 plan has to its advantage is that you can withdraw money before retirement age and just pay regular income tax (no penalty). That's not true for the HSA, if you withdraw money before retirement age for non-medical expenses you'll have to pay income tax + 20% penalty.

BTDretire

  • Magnum Stache
  • ******
  • Posts: 2680
Re: HSA match or Max?
« Reply #7 on: October 06, 2017, 11:41:41 AM »
Do HSA contributions reduce FICA?

FICA Tax Implications. If you contribute to your HSA through a payroll deduction, the money is excluded from both income taxes and FICA taxes. ... In contrast, if you make a contribution on your own, your W-2 will show that $1,000 of income but you get to claim the contribution as an income tax deduction.Nov 27, 2010
https://www.sapling.com/7563658/employee-contributions-hsa-subject-fica

So, if it is funded through payroll deduction, you eliminate both FED taxes and FICA taxes.
 And save all your medical receipts and use them in later years after you have grown the HSA stache to harvest tax free money.

coldestcat

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: HSA match or Max?
« Reply #8 on: October 06, 2017, 11:58:12 AM »
So, if it is funded through payroll deduction, you eliminate both FED taxes and FICA taxes.
 And save all your medical receipts and use them in later years after you have grown the HSA stache to harvest tax free money.

OK nice, I will set that up. The only thing that confused me is the last part. How would I use medical receipts to get money? I thought I just use the HSA card to pay for whatever medical expenses I have.

sherr

  • Pencil Stache
  • ****
  • Posts: 687
  • Age: 34
  • Location: North Carolina
Re: HSA match or Max?
« Reply #9 on: October 06, 2017, 12:13:01 PM »
How would I use medical receipts to get money? I thought I just use the HSA card to pay for whatever medical expenses I have.

You can do that. That's simpler. However you're not required to: any medical expenses you have after you establish the HSA can be paid from the HSA at any point in the future.

So you could pay your medical bills out-of-pocket right now, let your money in the HSA grow with tax-free interest, and then at some point in the future reimburse yourself for your medical expenses.

However you'd have to keep track of the receipts, and the difference would just be tax-free interest vs taxible interest. I personally don't bother. I think the more practical application of that rule is to save yourself from expenses that happen right after you open the HSA.

Consider:
1) You open an HSA, you have like $100 in it.
2) You immediately get in an accident and have a $5,000 medical bill.

The solution is to just pay the bill now with after-tax money, and then after your HSA gets up to > $5,000 reimburse yourself for it. You've now essentially paid the bill with tax-free money, just several months later.

Do HSA contributions reduce FICA?

FICA Tax Implications. If you contribute to your HSA through a payroll deduction, the money is excluded from both income taxes and FICA taxes. ... In contrast, if you make a contribution on your own, your W-2 will show that $1,000 of income but you get to claim the contribution as an income tax deduction.Nov 27, 2010
https://www.sapling.com/7563658/employee-contributions-hsa-subject-fica

So, if it is funded through payroll deduction, you eliminate both FED taxes and FICA taxes.
 And save all your medical receipts and use them in later years after you have grown the HSA stache to harvest tax free money.

I think there's a lot of confusion about that question. It seems like it might make a difference if your plan is a "Cafeteria plan" or not:
https://www.bogleheads.org/forum/viewtopic.php?t=151121

ender

  • Magnum Stache
  • ******
  • Posts: 4882
Re: HSA match or Max?
« Reply #10 on: October 06, 2017, 01:11:01 PM »
Max out the HSA. No question.

Yep.

Another benefit for why you should do this is you do not pay FICA on HSA contributions which is another ~8% tax boost.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3609
  • Location: Texas
Re: HSA match or Max?
« Reply #11 on: October 06, 2017, 08:20:58 PM »
How would I use medical receipts to get money? I thought I just use the HSA card to pay for whatever medical expenses I have.

You can do that. That's simpler. However you're not required to: any medical expenses you have after you establish the HSA can be paid from the HSA at any point in the future.

So you could pay your medical bills out-of-pocket right now, let your money in the HSA grow with tax-free interest, and then at some point in the future reimburse yourself for your medical expenses.

However you'd have to keep track of the receipts, and the difference would just be tax-free interest vs taxible interest. I personally don't bother. I think the more practical application of that rule is to save yourself from expenses that happen right after you open the HSA.

Consider:
1) You open an HSA, you have like $100 in it.
2) You immediately get in an accident and have a $5,000 medical bill.

The solution is to just pay the bill now with after-tax money, and then after your HSA gets up to > $5,000 reimburse yourself for it. You've now essentially paid the bill with tax-free money, just several months later.

Do HSA contributions reduce FICA?

FICA Tax Implications. If you contribute to your HSA through a payroll deduction, the money is excluded from both income taxes and FICA taxes. ... In contrast, if you make a contribution on your own, your W-2 will show that $1,000 of income but you get to claim the contribution as an income tax deduction.Nov 27, 2010
https://www.sapling.com/7563658/employee-contributions-hsa-subject-fica

So, if it is funded through payroll deduction, you eliminate both FED taxes and FICA taxes.
 And save all your medical receipts and use them in later years after you have grown the HSA stache to harvest tax free money.

I think there's a lot of confusion about that question. It seems like it might make a difference if your plan is a "Cafeteria plan" or not:
https://www.bogleheads.org/forum/viewtopic.php?t=151121

There is a middle ground (the 80/20 solution!) between "reimburse now" and "save for later after money grows" that maximizes the result per effort. If you have the cash on hand to float the cost, of course.

For piddly little stuff, reimburse now. Get it done, don't track/keep receipts.
For the BIG medical stuff, save the receipt, reimburse later.

Should get you ~80% of the benefit with ~20% of the effort.

talltexan

  • Magnum Stache
  • ******
  • Posts: 2577
Re: HSA match or Max?
« Reply #12 on: October 09, 2017, 12:22:31 PM »
TomTX, i want to high-five you!

TomTX

  • Magnum Stache
  • ******
  • Posts: 3609
  • Location: Texas
Re: HSA match or Max?
« Reply #13 on: October 13, 2017, 07:25:23 AM »
TomTX, i want to high-five you!

Glad you liked my idea. Came up with it on the fly. Seemed the optimum solution to me.

I'm Austin-based if meant that literally ;)

Lan Mandragoran

  • Bristles
  • ***
  • Posts: 269
Re: HSA match or Max?
« Reply #14 on: October 13, 2017, 09:23:54 AM »
This an unpopular choice here, that I'm welcome to being convinced is wrong but I don't max my HSA. My company contributes 5500 to our family (of a max of 6900 atm). I am 10~ years(will be 37) from fire at current rates of progress.

So an HSA for me would only be useful for medical expenses for 28 years, as I don't believe there is anyway to get out the money without large penalties, unlike other tax protected buckets.

I currently have lots of other things I want to my money towards and there's a good chance the 50k+ we are likely to have invested making returns by then will cover us for a time.  Also for our situation we are likely to have a fair amount of inheritance, pensions, and the ability to continue working (as my wife's job and mine both have alot of flexibliity) that makes money substantially less valuable in our 60's than our 40's.

My opinion may change, as that's all just conjecture, but for us it makes sense :).  Also its a pretty small difference and just isnt the #1 priority atm (we want to get in a house hack asap).

kendallf

  • Handlebar Stache
  • *****
  • Posts: 1065
  • Age: 53
  • Location: Jacksonville, FL
Re: HSA match or Max?
« Reply #15 on: October 13, 2017, 10:52:27 AM »
This an unpopular choice here, that I'm welcome to being convinced is wrong but I don't max my HSA. My company contributes 5500 to our family (of a max of 6900 atm). I am 10~ years(will be 37) from fire at current rates of progress.

So an HSA for me would only be useful for medical expenses for 28 years, as I don't believe there is anyway to get out the money without large penalties, unlike other tax protected buckets.

I currently have lots of other things I want to my money towards and there's a good chance the 50k+ we are likely to have invested making returns by then will cover us for a time.  Also for our situation we are likely to have a fair amount of inheritance, pensions, and the ability to continue working (as my wife's job and mine both have alot of flexibliity) that makes money substantially less valuable in our 60's than our 40's.

My opinion may change, as that's all just conjecture, but for us it makes sense :).  Also its a pretty small difference and just isnt the #1 priority atm (we want to get in a house hack asap).

It sounds like you're relatively close to maxing it out anyway, but I'm not sure what you mean by the bolded here.  Your HSA money can be withdrawn at any time tax free as long as you can document the medical expense you're reimbursing yourself for.  You need to have an eligible HDHP while you're accumulating the HSA but not necessarily later; your medical expenses that are not covered by insurance will all be applicable toward whatever you've accumulated in the HSA.  Just pull the money out and if you get audited, have receipts to show.

Additionally, most of us who are using it as "another retirement account" have the money invested just like we would with an IRA or 401k.  If I need it, I'll sell some shares and cash it out.

Lan Mandragoran

  • Bristles
  • ***
  • Posts: 269
Re: HSA match or Max?
« Reply #16 on: October 15, 2017, 09:14:11 PM »
Oh, yeah sorry not very clear. I just mean once im FIRE the only to access it will be through medical expenses.

Yes, I have the money invested as well =]. You still can't take the money out without penalties unless it's for medical expenses.

All im saying is that it has less flexibility than trad/roth IRA in exchange for being a triple tax benefit (you cant use mad fientist technique's to get the money out as far as I know).

coldestcat

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: HSA match or Max?
« Reply #17 on: October 17, 2017, 12:47:14 PM »
This is something I've thought about too, as someone who is just getting started investing. The money I put in is being saved but I wont have access to it for a long time except for medical purposes. Its hurting now, but in a few years promotions/new jobs should help alleviate the pressure this is giving us.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3609
  • Location: Texas
Re: HSA match or Max?
« Reply #18 on: October 22, 2017, 07:05:21 AM »
Oh, yeah sorry not very clear. I just mean once im FIRE the only to access it will be through medical expenses.

Yes, I have the money invested as well =]. You still can't take the money out without penalties unless it's for medical expenses.

All im saying is that it has less flexibility than trad/roth IRA in exchange for being a triple tax benefit (you cant use mad fientist technique's to get the money out as far as I know).

Sure, but you minimize that problem by "saving up" the receipts from big medical expenses instead of cashing them in. That lets your balance grow, and later when you are FI and need the money, you just file those receipts to get reimbursed as needed.

talltexan

  • Magnum Stache
  • ******
  • Posts: 2577
Re: HSA match or Max?
« Reply #19 on: October 23, 2017, 07:20:39 AM »
So I just used my HSA for a $14 and a $17 expense. Wish me luck!