Author Topic: Maxing out HSA. Why is that important?  (Read 3600 times)

FamilyGuy

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Maxing out HSA. Why is that important?
« on: March 05, 2018, 04:37:41 PM »
As we all have insurance and there is out of pocket maximum, why should we max out HSA? Sorry if that's a really dumb question.

kendallf

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Re: Maxing out HSA. Why is that important?
« Reply #1 on: March 05, 2018, 04:42:10 PM »
Think of it as a super IRA; your money can go in tax free and be spent tax free, years in the future if necessary.  Read this for a good explanation:
https://www.madfientist.com/ultimate-retirement-account/

skuzuker28

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Re: Maxing out HSA. Why is that important?
« Reply #2 on: March 05, 2018, 04:43:37 PM »
Because you get a tax deduction for your contributions to the HSA.  If you contribute through payroll you even save on FICA.

Basically allows you to get a 33%+ savings on your out of pocket costs, and whatever you don't use accumulates for the future.

chasesfish

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Re: Maxing out HSA. Why is that important?
« Reply #3 on: March 05, 2018, 06:20:47 PM »
It's a pretty incredible account, especially if you earn below the $130,000 or so social security cap since those contributions go in before that 6.2% is taken from you.  You then pay your medical expenses with pre-tax money...double bonus.

I can't go as far as the legendary mad fientist and save receipts, my HSA account is tied to the employer and the small savings between an index fund in a taxable account and the higher fee in the HSA investments are about a wash. 

I've been saving in one for 10 years, we have over $60,000 in the HSA plus have distributed over $20,000 through the years.  Investing that in an S&P 500 fund works

lefty

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Re: Maxing out HSA. Why is that important?
« Reply #4 on: March 05, 2018, 06:28:57 PM »
Does it matter if you live in California?

yachi

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Re: Maxing out HSA. Why is that important?
« Reply #5 on: March 06, 2018, 07:37:43 AM »
Does it matter if you live in California?
California could successfully secede in which case you might lose the taxable benefits

lefty

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Re: Maxing out HSA. Why is that important?
« Reply #6 on: March 06, 2018, 07:43:13 AM »
OK I didn't know there was a taxable benefit with hsa in California because all my contributions are not pre tax if i am not mistaken. Also all earnings in the invested hsa are liable for state taxes.

No federal tax though.

yachi

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Re: Maxing out HSA. Why is that important?
« Reply #7 on: March 06, 2018, 07:59:21 AM »
OK I didn't know there was a taxable benefit with hsa in California because all my contributions are not pre tax if i am not mistaken. Also all earnings in the invested hsa are liable for state taxes.

No federal tax though.

yeah, it looks like contributions to HSA's aren't deductible from California state income taxes, but 401(k) contributions are tax deductible from California state income taxes.  Maybe we need state-specific Investment Order posts.

thenextguy

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Re: Maxing out HSA. Why is that important?
« Reply #8 on: March 06, 2018, 04:27:04 PM »
As we all have insurance and there is out of pocket maximum, why should we max out HSA? Sorry if that's a really dumb question.

Do you have an HSA? Not everyone does.

FamilyGuy

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Re: Maxing out HSA. Why is that important?
« Reply #9 on: March 06, 2018, 08:38:50 PM »
I do have an HSA with Employer. They put around $1500 every year into that account and I contribute very little.
I know I have to contribute more, but there is always a question of taxable accounts where I can take the money when needed Vs HSA account where I cannot take money for anything other than Medical until 65.

Acastus

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Re: Maxing out HSA. Why is that important?
« Reply #10 on: March 07, 2018, 11:10:51 AM »
As noted in the investment order pin, an HSA is usually the 2nd place to put investment money. If the account is used for medical expenses, the money is never taxed. That is better than either tIRA or Roth, since those are taxed once, at the end or up front.

One possible reason to not use it is your income is low, and you need the social security credits. The HSA is also not subject to social security taxes, but this income is not counted for purposes of collecting a benefit in retirement either. The SS credits are 32% for income up to around 65k, and 15% for income 65k-130k. Some people might want that 32% credit. I have not done the analysis to see which is better.

Other reasons to not fund it right away are that you want to save for a house down payment in a Roth instead, pay debts, or your 401k is all you can afford.