Also note that if you ever go without employer coverage you can use your hsa for paying premiums or cobra. First Name. WHAT IS AN HSA? How does this affect your view of spend vs save HSA qualified expenses? For most of the population, an HSA is simply a savings account for medical expenses that provides some tax benefits. As a financial planner, just wanted to add one extra feature that gives the HSA an extra vote as the “ultimate” retirement account. I have somehow landed on a somewhat arbitrary number of $1400 for the upcoming year to go into my HSA, based on room I had within my budget and my expectations for the year etc. But I have never thought, or been told by anyone how I could benefit from it, until I read this article. I’m deciding on open enrollment health plan options, and I find myself trying to decide on different plans based on their HSA options (unlike most people in my company). Roughly, we’ve seen it as low as about $95, up to $220 (going into 2019). Being able to avoid FICA taxes may outweigh any benefit from lower fees. (I am now leaving it untouched) I do take advantage of deductions in years when I top 10%, so I have to track that. The individual owns the HSA, not the employer, so even if your husband leaves his job, the HSA will stay with him. FWIW I’d like to share my brief HSA story, full of mistakes and definitely not an optimized HSA strategy, but still some lessons learned. After that all my medical expenses were covered by the HDHP. The best part is, you can take the distributions whenever you want (assuming you’ve had a qualifying medical expense after setting up the account) so this can be used to fund your early retirement! Her employer also offers an HSA. Yes, any after-tax contributions to an HSA or Tradition IRA will be reported on your tax forms and will reduce your taxable income. Brandon, Regarding foreign taxation, it’s actually worse than just getting taxed on withdrawals. I was working under the assumption that all retirement accounts would be maxed out so what you proposed isn’t an option in that scenario. I have two months worth of HSA funds at my new employer – though I’ve heard they’re actually using HSA bank now and transferring to a new system. Once you move out of US (quit your job or transfer), employer may no longer pay account maintenance fees. Family Out of Pocket Max: $5k Eventually the traditional plan can no longer sustain itself, and the employees who are most in need of coverage can no longer afford the rates or the lowered benefits. My health care FSA is called a “Health Spending Account” and has the same acronym as a Health Savings Account even though it is not the same thing. Thanks! Jim’s blog is one of my favorites so whatever nice things he said about my site, I’m sure I would say the same things about his. He actually wrote this a number of years ago, but I just stumbled on it earlier this year. How many receipts will you have accumulated over your lifetime? In the best case, if I don’t go to the doctor at all, I save $1865! Inversely, what is to stop somebody (other than the risk of jail time) from magically pulling a 10K medical receipt from 20 years ago from a hospital that was since shutdown? However, this fall, my wife and I (she’s also in grad school in the same boat) will be spending 3 months abroad on a fellowship. “Mark, you can defer withdrawals. Our retirement date is Jan 2025. Just thought you might want to add a caveat that it’s potentially the worst retirement account in terms of asset protection and not to put all your eggs in one. Mrs. Pie, Hi Mad Fientist, My premiums are around $350 currently with a max out of pocket $6700. Email You’re absolutely right, Geoff. My HSA with my employer is through Chase and it’s telling me my investment threshold is $99,999. Would appreciate any insights on this, as I may have missed something out there. In my case, my employer will contribute $500 per year, in 2 payments of $250 each, one early in the year and the other late in the year. $220 is not insignificant, but won’t break the bank. I have HSA for a long time, and people, including HR, always tell me that I should max the contribution, because it is a great benefit. IRA, etc.) I’m having trouble getting detailed information from my HSA admin on what exactly qualifies as a “receipt” for future claims. Otherwise, I’m not sure they offer better savings than a lower deductible account and saving that money to put into the market. The bank my employer chose (UBM) only offers high expense ratio, actively traded funds. This only made sense once we decided to switch from my health insurance to hers, she had some options I didn’t. There’s a limit of $3,550/$7,100 each year that you can deposit. HA CEY OFA VALUSLE GU LUMBIA. Thanks for the tips. What am I missing? This is great, but even for the cheapest Bronze plan to qualify for an HSA monthly premiums are over $500 for us. After reading your article, I feel like such a moron. What does “forfeit” mean? Since this person didn’t spend $3172 on healthcare this year (including the $3400 investment), they have $1742 left to invest in taxable accounts. Now I need to go look into the investment choices I will have with my new HSA in 2015 and find out how much I can contribute to max it out. I likely won’t start taking money out of my HSA until I stop contributing to it. We could have gone lower deductible, that we never meet, and paid $365/month. I thought it was okay since I was given money to use towards my health care expenses. That's my…, I hold onto my ESPP too but for income purposes I calculate how much I would have earned if I sold i…, Yup. I have a crappy administrator through work ( wells fargo ) their funds are overpriced. Q-39. Don, Now, if I’m planning on quitting or leaving my job, my employer will be on the hook for the full $2400, even if I haven’t contributed the full amount. So I got an individual HDHP PPO last year and set my self up an HSA and maxed it out. alternative option, Aetna HDHP: cost for me is $1,500 per year, they pay $750 per year to a HSA, I can add $3,300 to the HSA pre-tax. Kristy: Oh, my God! This is awesome. While it seems as if this is a given, the taxpayer in this case did not have written proof to show the IRS that it was indeed a requirement and had to pay tax on that money. Our current HSA charges $24/yr to use the investment option and does offer a Schwab S&P index with a .09% expense ratio. We are supposed to get travel insurance for that time. What if my company’s payroll structure does not support pre-tax contributions to the HSA so I need to make them post tax? I’m running some numbers and I must be missing something, because my calculations show that it’s better to pay for medical expenses with the HSA immediately (as opposed to waiting)…. Oh I agree that the benefits of an HSA are great and I fully fund my HSA (as opposed to my 401K), my point was with your idea of not using the HSA for medical expenses and as a retirement fund. We file taxes MFJ if that matters. I’ve done the math, for every 1k of income I will receive .80 cents extra in SS benefits per month. Thks anyway. Your article served to re-enforce what I already assumed about HSAs. If you max out your deductible every year, you’d be paying nearly $900 more to go with the HDHP so I doubt that’d be worth it, just to get access to an HSA. Withdraw (from HSA) money for eligible medical expenses For those who have not maxed out their other retirement vehicles this tactic is not useful. Just filed my taxes and ran into an issue with my HSA. Then I also get the benefit of the HSA growing over the years. I was wondering if it wouldn’t be safer to “pay yourself” for your yearly expenses and stash that tax free money in a Roth IRA? Just wanted to say thank you.. we’re new to HSA and been paying kid’s doc bills with HSA acct… Mainly, who would my employer get in touch with to set up a payroll-deductible HSA? While HDHPs are usually best for people with low medical expenses, sometimes they can actually be a good option for people with very high medical expenses as well. Software won’t let me reply to your latest comment (too deep of a nest, probably). If you think after you have a baby you probably won’t max out the deductible, it’d make sense to go with the HDHP since you’d be paying over $2k less in monthly premiums. Keep in mind, however, that this will require another form, which will cost you more in tax preparation fees (unless you do everything manually like me, but I’m studying to become a CPA, so I’m a special case). This year though, my boss got fired and replaced by a new one that I can see I won’t be able to tolerate for long! That’s crazy CA doesn’t recognize HSAs pre-tax! I assume we can roll it over to somewhere else (which will save some annoying monthly fees we pay now to my employer provided account). Is there something similar for self-employed/1099? An HSA you can keep forever. Awesome article! Next, I would speak to your employer to see if you could automatically contribute to an HSA through a payroll deduction (this will allow you to save on FICA taxes). All true retirement accounts fall under federal law and are fully exempt. The plan is to live in various countries for about 1-3 months at a time. You do not receive this extra tax break if you do not contribute through your paycheck at work. My question is if I roll over the account, does that reset the start date and nullify my old receipts? I have to keep $1000 in the cash account, but I immediately invested the rest in VTSAX. Where is the best place to buy these policies? I first heard of this triple tax-advantaged aspect of HSAs from this article by the Mad FIentist and I immediately wanted to get my hands on one. Depends on the premium of the other health plan. (*Head-smack! It’ll help you even if your marginal tax rate is 10% and your effective rate is 0% because you get to avoid fica. The Mad Fientist Lab. I am considering signing up for an HDHP to access the HSA and having a hard time confirming the answers to a couple of questions. Exactly. I need to read around roll overs while in service also. You have stated the most efficient way to use your HSA, practically for myself I’m on board 90% of the way. 3. TSP It would take many years before that ate through your savings from the 7.5% FICA and income tax deferment, and the more you contributed the less it would matter. 2. What if the US went to a consumption tax? Already do some of the things you do. Do my HSA funds roll over from year to year? Investing the HSA funds to grow while you wait to need them is possibly the greatest advantage. It wasn’t maxed out and I contributed like $10/ paycheck. Thoughts? Over the six or so years this thread has been running I haven’t seen any mention of the following tactic: You can even make a one-time HSA trustee-to-trustee transfer from your Traditional IRA into your HSA without paying taxes on it. The Mad Fientist turned me onto the realization that your HSA might be The Ultimate Retirement Account through what might be considered a loophole in the rules. One other small benefit with this method is that if you pay out of pocket for medical expenses, using a rewards credit card helps as well. That’s great you already have an HSA set up so that you can start taking advantage of it immediately. Here is a good answer from the IRS Website, which conflicts with my previous statement: Mad Fientist: Yeah, no kidding. Assuming you reach the age of 65 and have not accumulated enough medical receipts to fully liquidate your account, the HSA can be used for ordinary expenses in the same way that a Traditional IRA can be used for any expenses after standard retirement age (note: withdrawals for qualified medical expenses will continue to be tax free but withdrawals for all other expenses will be taxed as income). A good tax attorney might be able to help you identify some “blood in the water”, as MMM says. “The HSA is the ultimate retirement account for early retirees and here's how you can take full advantage of it! I can’t think of a single situation when someone who has $6,900+ in their t-IRA wouldn’t choose a rollover instead of regular contributions. What if someone has a question, how will they ever know if someone replies to them? I’m glad I did. Question #19 in that bulletin is specifically referring to the money an employER contributes to an employEES HSA account. However, I am just getting this underway, so I just opened the ELFCU HSA last week. I’ve had an HSA for a number of years, and have done what’s described herein. Is that possible in all HSAs? He is older and planning to enroll in Social Security Income at FRA which auto enroll in Medicare Plan A. Since you are locked into your HSA custodian you might be locked into their investment options and fees. Husband is covered thru family plan at my employer with HDHP and contribute to family HSA. Then toss the receipts, etc. Suppose next year husband has a different employer and decides to get a traditional health insurance plan. My employer puts in $2600 each year and I have been adding $1400 so that I always have $4000 saved each year. (This is all assuming Jeff’s example tax rate of 40%.). If you do decide to open an HSA to go along with your HDHP, make sure you contribute to it through payroll deductions so that you lower you FICA taxes (as Nick described in the comments below). My question: At this point it asks me what kind of account I want to invest in (Roth IRA, Trad. Hopefully none of us have any medical expenses and the HSA will simply be another Traditional IRA for us all :). Check out the Rule about the Testing Period for your Funding Distribution in IRS Publication 969 for a detailed explanation. A bit late to this discussion, but I have to generally disagree with Eric’s comment. As background, I work for a university and fully fund my pre-tax retirement accounts. Hi Jeff, I don’t have any experience with roll overs either but based on some of the other comments, it doesn’t seem like they are a big deal. Thanks so much. Roth, founder of Get Rich Slowly (you know, back when it was good) Mr. Money Mustache – The original MMM himself, always ready to punch you in the face if you make a poor financial decision This is a great helpful post however for someone like me that will retire abroad it’s quite dangerous. Monthly Cost (Annualized): $1030(*with employer coverage and contribution), HSA contribution: $6900 Have a $1,000 deductible and no HSA. I’ve read this article in the past and wondered when I would be able to take advantage of this awesome savings option. If for some reason that gets repealed, you could always just work part-time for health insurance or you could move to somewhere that offers free or cheaper healthcare. I prefer the HSA over the FSA but you have to have a certain amount of discretionary income to make it work. I’m turning 65 and have a nice HSA. * This limit doesn’t apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Vanguard recommends a company called Health Savings Administrators because they exclusively offer Vanguard index funds. I think I would still go the payroll-deduction route, since that’s a guaranteed return and I like to minimize my taxes as much as possible. mSATUMDA . Check out https://payflex.com/, they offer Vanguard Index Funds. Overall an interesting article, unfortunately my insurance disqualifies me from this plan. So to summarize, I have saved myself from paying income tax on the $3,450 of income I used to fund the HSA, I now have $3,250 that is growing in the account tax free, and I have another $200 that is in the HSA growing tax free that I can withdraw whenever I want to! Tiffany, (Check out his post for a more thorough explanation.) FSAs are use it or lose it, however, there is a provision called the “uniform coverage rule” that requires the annual value of the employee’s election be available on the first day of the plan year. As you mentioned, this is more useful for people who already max out all of their other retirement accounts but is also useful for people who already have money in an HSA and don’t tend to invest every last cent they have every month. From personal experience – I have a HDHP through my Employer with a Family Deductible of $4,000 each year. That way, more of your money is left to grow tax free. c. Would you declare that as earned income on your foreign tax return? Interesting. If both you and your wife have HSA-eligible health plans, you should be able to max out the family contribution limits. High Deductible Health Plans (HDHPs) definitely aren’t for everyone so I agree HSAs are useless for people who are better off with another type of insurance plan. Like what it to stop the government to challenge your receipts and your medical provider at that point has no record and you are left unable to pull the money out tax free. In your spreadsheet, you could use hypothetical growth and contributions to see where you might sit at age 65. I am not aware of any other retirement account contributions that are exempt from the 7.65% FICA taxes so this is yet another reason the HSA is the ultimate retirement account! I was hoping you’d be willing to help me with a couple of specific questions. I have an HSA with work that does not allow investment, so I opened a second HSA at Eli Lilly Federal Credit Union that does allow investing, and plan to roll over my balance from the work HSA to the investing HSA each year. I usually use spend about $1,000 on doctors and medicines a year and use the free dental checkups and xrays. I’d love to know. Your considerations are not only tax and retirement growth, but business tax and actuarial. For example, if you go to the doctor in December 2012 — but pay the bill in January 2013, then that is a “Qualified Medical Expense” for tax-year 2013. You’re very welcome! So just another way to get “bonus” money from my company above and beyond my salary. If we say your income tax rate is 25%, you would have needed to make about $267 to pay that out of pocket. I’ve had an HSA for many years. You may need to check this–the total allowance for 2018 of $3,450 includes employer contributions unlike a 401k. If your health plan is HSA eligible but your employer can’t help you set one up, I’d take a look at Health Savings Administrators. If you are wanting to use the HSA for long-term investment ad described by MF, you should first confirm that your administrator allows you to invest the HSA and that it won’t just be stuck in a cash savings account. No, but any reduction in taxable income comes from the top tax bracket. Question: When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year? Maybe back in 2016 this was not true, and that’s why no one mentioned it. You just paid $334 pre-tax dollars right now and in exchange, you’ll get $200 pre-tax dollars in the future……. 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