Is HSA worth it post-income?

[4tify]

Two part question here:

1. For those of you no longer earning income through work, do you still fund you HSA annually using dividends/interest income? Is it worth it?

2. I stopped working at the end of January but earned a chunk of money consulting. Decided to open my first HSA and a Bronze ACA HDHP, but now I'm wondering if it's worth it.

I plan to do a Roth conversion before the end of the year, and take advantage of any other tax advantages with my S-corp (solo 401k contribution, etc) with the rest of the income, which--assuming I don't earn anything else this year--should just about zero out my earned income, or at least be very low.

So maybe this year it was an ok move, but I'm wondering if I shouldn't have just put money in a Roth instead for simplicity? The solo 401k contribution will definitely be below the max if this proves to be my only income.
 

[Gin1984]

Yes it is worth it.  It is pre-tax and grows tax free.

[less4success]

I知 seriously starting to question if the tax benefits of an HSA outweigh the inconvenience of yet another account with its own unique rules. If I could use HSA money on my largest healthcare expense (non-COBRA insurance premiums), I might feel differently.

Edit to add: on topic, I haven稚 funded my HSA since quitting my job.

[seattlecyclone]

Suppose you owe a hospital $2,000.

One way to take care of that as a FIREd individual is to withdraw $2,000 from your taxable brokerage account and send that money to the hospital directly. Supposing the shares have a cost basis of $1,000 and you're in the 15% capital gains bracket/22% regular income bracket, that will cost you $150 in taxes.

Another way to take care of that bill is to withdraw $2,000 from your taxable brokerage account, deposit it in your HSA, withdraw it from your HSA, and give it to the hospital. The taxable sale costs you $150 in taxes, same as before, but the HSA contribution gets you $440 back from Uncle Sam that you wouldn't have if you didn't run the money through an HSA first. Your MAGI is also $2,000 lower than if you didn't do the HSA trick, which means your health insurance premiums might be lower than otherwise. Is all that worth the hassle? That's your call.

[nalor511]

Yes it's worthwhile. Deduction$7kish for each of the last 7 years.

[bacchi]

We use it as seattlecyclone mentioned: deposit, withdraw, pay the bill, get the tax deduction.

It's also useful as a "relief valve" to manipulate income to where we need it for ACA subsidies. That'll be more important next year when the cliff returns.

[4tify]

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

[seattlecyclone]

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

[sonofsven]

You should check the list of what qualifies as a medical expense also. It's probable that you are purchasing some of these items currently. This means that in the future you can pull money out for whatever you want, as long as it is covered by legit expenses you have already made.
Meanwhile, contribute to the HSA and get a write off now, invest the HSA money and let it grow, tax free. Just think of it as another savings account, with some limitations, but more advantages.
Plus, if you are covered by a HDHP you  have a large deductible that can be covered by your HSA money in an emergency.

[4tify]

You should check the list of what qualifies as a medical expense also. It's probable that you are purchasing some of these items currently. This means that in the future you can pull money out for whatever you want, as long as it is covered by legit expenses you have already made.
Meanwhile, contribute to the HSA and get a write off now, invest the HSA money and let it grow, tax free. Just think of it as another savings account, with some limitations, but more advantages.
Plus, if you are covered by a HDHP you  have a large deductible that can be covered by your HSA money in an emergency.

Great, I can see how this could be helpful in the future thanks.

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

Got it thank you.

[elysianfields]

You should check the list of what qualifies as a medical expense also. It's probable that you are purchasing some of these items currently. This means that in the future you can pull money out for whatever you want, as long as it is covered by legit expenses you have already made.
Meanwhile, contribute to the HSA and get a write off now, invest the HSA money and let it grow, tax free. Just think of it as another savings account, with some limitations, but more advantages.
Plus, if you are covered by a HDHP you  have a large deductible that can be covered by your HSA money in an emergency.

Great, I can see how this could be helpful in the future thanks.

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

Got it thank you.

I'm surprised that nobody has mentioned the possibility of investing one's HSA funds.  After all, it's the ultimate retirement account!

My employer's HSA plan is through HSA Bank, and they allow investments through TD Ameritrade.

Since I changed my health plan to an HDHP with an HSA, I've been contributing the max to my HSA, paying my medical bills out of my own cash flow, and investing the HSA in ETFs. 

For a while, HSA Bank was imposing a minimum balance of $1,000 after any amounts sent to TD Ameritrade for investment, so I rolled my HSA out to Fidelity.  When employer contributions arrive at HSA Bank, I roll them out to Fidelity, keeping a balance of $0.01 at HSA Bank to ensure that they do not close the HSA (voice of experience - *eyeroll*).

Even with the recent market drop, I've made 25% over the last seven years, and my HSA balance exceeds $70k.

[4tify]

You should check the list of what qualifies as a medical expense also. It's probable that you are purchasing some of these items currently. This means that in the future you can pull money out for whatever you want, as long as it is covered by legit expenses you have already made.
Meanwhile, contribute to the HSA and get a write off now, invest the HSA money and let it grow, tax free. Just think of it as another savings account, with some limitations, but more advantages.
Plus, if you are covered by a HDHP you  have a large deductible that can be covered by your HSA money in an emergency.

Great, I can see how this could be helpful in the future thanks.

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

Got it thank you.

I'm surprised that nobody has mentioned the possibility of investing one's HSA funds.  After all, it's the ultimate retirement account!

My employer's HSA plan is through HSA Bank, and they allow investments through TD Ameritrade.

Since I changed my health plan to an HDHP with an HSA, I've been contributing the max to my HSA, paying my medical bills out of my own cash flow, and investing the HSA in ETFs. 

For a while, HSA Bank was imposing a minimum balance of $1,000 after any amounts sent to TD Ameritrade for investment, so I rolled my HSA out to Fidelity.  When employer contributions arrive at HSA Bank, I roll them out to Fidelity, keeping a balance of $0.01 at HSA Bank to ensure that they do not close the HSA (voice of experience - *eyeroll*).

Even with the recent market drop, I've made 25% over the last seven years, and my HSA balance exceeds $70k.

That痴 awesome. I値l definitely plan to invest it yes. Then maybe start paying off Medicare premiums when I hit 65

[Tempname23]

I'm retired and have been saving my medical receipts for 6 years. Last year I maximized my income in the 22% bracket with a large Roth Conversion. Part of my income was a tax free withdrawal from my HSA against $22,000 of receipts I had saved. Without the HSA money I would have had to reduce my Roth conversion by $22,000.
 Note: I paid for my medical expenses with current income those 6 years.

[secondcor521]

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

One minor benefit that I've discovered is the AGI targeting aspect of HSA contributions.  What one can do is something like the following:

0.  Don't contribute to the HSA during the year.
1.  Figure out your target AGI - say $50,000.
2.  Do everything in December to hit that target AGI plus about $2,000.
3.  When the dust settles early in the following calendar year and you've got all of your tax statements, do a preliminary tax return to see your tentative AGI.  Say it is $52,132.
4.  Contribute $2,132 to your HSA for the previous year.  Like IRAs, HSAs accept contributions for the previous year up to the tax filing deadline.  (Of course, be sure to notify the HSA custodian that it is a prior year contribution.)
5.  Update your tax return to reflect the HSA contribution and see that your AGI is now exactly $50,000.

The point being that you can lower your AGI after 12/31 to the extent that you have available HSA contribution space.

[4tify]

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

One minor benefit that I've discovered is the AGI targeting aspect of HSA contributions.  What one can do is something like the following:

0.  Don't contribute to the HSA during the year.
1.  Figure out your target AGI - say $50,000.
2.  Do everything in December to hit that target AGI plus about $2,000.
3.  When the dust settles early in the following calendar year and you've got all of your tax statements, do a preliminary tax return to see your tentative AGI.  Say it is $52,132.
4.  Contribute $2,132 to your HSA for the previous year.  Like IRAs, HSAs accept contributions for the previous year up to the tax filing deadline.  (Of course, be sure to notify the HSA custodian that it is a prior year contribution.)
5.  Update your tax return to reflect the HSA contribution and see that your AGI is now exactly $50,000.

The point being that you can lower your AGI after 12/31 to the extent that you have available HSA contribution space.

Very cool! Good to know. Thank you :)

[elysianfields]

Thanks everyone. @seattlecyclone that makes sense. If I知 not mistaken the deduction will also potentially allow for an extra bump to Roth conversions, right?

Sorry I知 not a heavy hitter when it comes to math & taxes! Still learning :)

There's no limit on the amount of Roth conversions you can do in a year. If you were trying to hit a particular MAGI target the HSA contribution will push your income down, and if you want to do more Roth conversions to push it back up again you're welcome to do so.

One minor benefit that I've discovered is the AGI targeting aspect of HSA contributions.  What one can do is something like the following:

0.  Don't contribute to the HSA during the year.
1.  Figure out your target AGI - say $50,000.
2.  Do everything in December to hit that target AGI plus about $2,000.
3.  When the dust settles early in the following calendar year and you've got all of your tax statements, do a preliminary tax return to see your tentative AGI.  Say it is $52,132.
4.  Contribute $2,132 to your HSA for the previous year.  Like IRAs, HSAs accept contributions for the previous year up to the tax filing deadline.  (Of course, be sure to notify the HSA custodian that it is a prior year contribution.)
5.  Update your tax return to reflect the HSA contribution and see that your AGI is now exactly $50,000.

The point being that you can lower your AGI after 12/31 to the extent that you have available HSA contribution space.

Interesting idea which I hadn稚 thought of.

I知 contributing to my HSA via my employer痴 payroll, so I contribute the max during the calendar year rather than afterwards.  Since I contribute by payroll, I avoid OASDI and Medicare taxes, though that will reduce my SS benefits slightly when I claim benefits.