HSA pro/con

[cchoukal]

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All right, investment gurus, I've got a question for you all.

I have a high tax liability (high income, no mortgage interest to deduct).

My tax guy suggested an HSA as a way to decrease my taxable income while putting money away for (nearly certain) future health care expenses. The problem, as I see it, relates to two things:

1) HSAs are only available paired to high-deductible plans. Such a plan is all well and good while I'm young and healthy, but I'll age and have a family. What happens then? I assume the HSA is maintained, but I would lose the ability to make additional contributions (a major drawback) once I have to change to a more comprehensive health plan.

2) Won't Obamacare mean I won't have any future healthcare expenses? But seriously, folks, what IF that happens? Will all those contributions be for naught?

Discuss!

 

[OB1🤙]

http://whitecoatinvestor.com/retirement-accounts/the-stealth-ira/

 

[deleted126335]

If you choose a high deductible health plan HSAs are a no brainer. Best deal around. Whether or not you should choose a high deductible health plan depends on you individual circumstances.

 

[cchoukal]

If you choose a high deductible health plan HSAs are a no brainer. Best deal around. Whether or not you should choose a high deductible health plan depends on you individual circumstances.

So do this for a few years while young? And then switch to a more comprehensive health plan when you get a little older?

I guess it's an individual question whether the $3K per year for a few years is worth it. Probably makes more sense to do this when younger (I'm 37 and don't have any health problems, but will probably starting a family within a couple years).

 

[deleted126335]

So do this for a few years while young? And then switch to a more comprehensive health plan when you get a little older?

I guess it's an individual question whether the $3K per year for a few years is worth it. Probably makes more sense to do this when younger (I'm 37 and don't have any health problems, but will probably starting a family within a couple years).

Family contribution limits this year are $6,250. We easily have mre than that in helath costs, but I am not touching the HSA dollars and letting them compound tax free and be withdrawn tax free.

Whether or not it is a good idea to select and HSA option depends on your anticipated health expenses for the coming year, other options for health insurance in the current year, overall financial picture, e.g. do you have high interest debt, etc. Also some employers will partially match HSA contributions.

 

[sevoflurane]

I've been doing this for 5 years. We have about 30k in oh **** funds.
It's a tax write off and you get to use it fully when you need it (OB, broken bones, hip replacement when you turn 65... or even prescription meds).

There is no downside if you have a high deductible.

 

[sevoflurane]

I use chase sapphire HSA. I have no complaints.

 

[cchoukal]

I've been doing this for 5 years. We have about 30k in oh **** funds.
It's a tax write off and you get to use it fully when you need it (OB, broken bones, hip replacement when you turn 65... or even prescription meds).

There is no downside if you have a high deductible.

And how long are you going to keep doing the high-deductible plan? Do/will you do it with kids? At what age do you think it makes sense to switch back to a more traditional health plan?

 

[cchoukal]

Family contribution limits this year are $6,250. We easily have mre than that in helath costs, but I am not touching the HSA dollars and letting them compound tax free and be withdrawn tax free.

Whether or not it is a good idea to select and HSA option depends on your anticipated health expenses for the coming year, other options for health insurance in the current year, overall financial picture, e.g. do you have high interest debt, etc. Also some employers will partially match HSA contributions.

I don't really have any health expenses or debt (other than med school loans at 3.5%), so this would really just be a tax shelter. My employer does not match HSA contributions.

If you use an HSA apart from your employer (Sevo mentioned a Chase product), how does the IRS know whether or not you have a high-deductible plan?

 

[caligas]

I don't really have any health expenses or debt (other than med school loans at 3.5%), so this would really just be a tax shelter. My employer does not match HSA contributions.

If you use an HSA apart from your employer (Sevo mentioned a Chase product), how does the IRS know whether or not you have a high-deductible plan?

They dont. Until the audit.

 

[sazerac]

All right, investment gurus, I've got a question for you all.

I have a high tax liability (high income, no mortgage interest to deduct).

My tax guy suggested an HSA as a way to decrease my taxable income while putting money away for (nearly certain) future health care expenses. The problem, as I see it, relates to two things:

1) HSAs are only available paired to high-deductible plans. Such a plan is all well and good while I'm young and healthy, but I'll age and have a family. What happens then? I assume the HSA is maintained, but I would lose the ability to make additional contributions (a major drawback) once I have to change to a more comprehensive health plan.

2) Won't Obamacare mean I won't have any future healthcare expenses? But seriously, folks, what IF that happens? Will all those contributions be for naught?

Discuss!

I don't understand why you think you have to switch to a different health insurance plan when you get older or have children. You can just stay in the HSA combined with a high deductible health insurance plan.

Ideally you would have a deductible that is equal to the annual maximum contribution limit to an HSA. You would contribute that maximum. If your health costs are less than that amount, you would spend from the HSA and keep the difference in the HSA. If your health costs exceeded that amount, you would spend your annual contribution and then insurance would cover 100% of everything else. So either way, you don't lose.

An HSA is a fantastic deal. In fact, it's the only triple-tax-free investment vehicle left in America today. Tax deductible contributions, right there on the bottom of the front page of the 1040 form. Tax-free growth. Tax-free withdrawals (assuming they go towards health expenses). No other IRA or roth or anything else can beat that combo.

If for some reason you do decide to switch to a different health insurance plan, all those savings in your HSA will continue to grow tax free until you withdraw them for health expenses.

What's not to like?

 

[cchoukal]

I guess my thinking was that unpredictable health expenses (up to the deductible) could exceed the tax break generated by the HSA contribution (the funds for which would have otherwise been put in some different investment with less risk than my health).

Put another way, if I contributed 3000, and my deductible was $3000, and unpredicted expenses exceeded that amount, my whole annual contribution would be spent. Whereas under a less risky health plan, that $3000 would've been invested instead in one of my other mutual fund accounts and my deductible would've been much lower.

The older I get and the more kids I have, the higher the likelihood of incurring such costs. Of course, that's set against a higher premium. I'm sure there's a formula for figuring out where the line is.

 

[Mr Wizard]

I guess my thinking was that unpredictable health expenses (up to the deductible) could exceed the tax break generated by the HSA contribution (the funds for which would have otherwise been put in some different investment with less risk than my health).

Put another way, if I contributed 3000, and my deductible was $3000, and unpredicted expenses exceeded that amount, my whole annual contribution would be spent. Whereas under a less risky health plan, that $3000 would've been invested instead in one of my other mutual fund accounts and my deductible would've been much lower.

The older I get and the more kids I have, the higher the likelihood of incurring such costs. Of course, that's set against a higher premium. I'm sure there's a formula for figuring out where the line is.

I imagine it would be worth the gamble to bet that your health and the health of your future children will be fairly good for the next 18+ years you would be covering them. The cost of routine preventative care should be the majority of your health care costs. Being in SF, that may be more than in other locals, but I don't think it would be more than your max HSA contribution. Unless you are trying to emulate the Duggars.

You pay a little more in health care but you get the triple-tax benefit of the HSA to help cover your almost certainly increased health care costs in your later years. If you continue to be a strapping physical specimen in your twilight years, it seems advantageous that it still can function similar to an traditional ira with multiple investment risk options.

I will definitely be checking this out once I exit Tricare's umbrella.

 

[aneftp]

Like Sevo, I've had a HSA for a long time. Had it since 2006.

Got married in 2008 and started putting my wife on the HSA since 2009.

Our total contributions have also been around $30K. Maxed out every year.

However, unlike Sevo, we've used up quite a chunk of that HSA

This big expenses are maternity and kids. These will eat up your HSA quickly. Probably spent about $15K on our HSA the past 3 years (really $20K HSA spending but we ending up getting a refund of $5K from the hospital/OB because of over charges and us contesting whether a elective C section scheduled 2 months in advance was considered a "complication" by the insurance). Yes this is the crap you have to deal with insurance companies.

So we have about $10K left in our HSA.

Unless you work for a huge group or university group, expect to see higher and higher deductible. Remember with Obamacare, unless you make less than 400% of the federal poverty line ($88K/familiy of 4) you won't see any health savings.

If you are young and healthy and HSA is a no brainer. But once marriage and kids come, be prepared to use the HSA a lot. The insurance company even eliminated pediatric only plans in Sept 2010 shortly after discriminating again pediatric pre existing conditions became illegal. Insurance companies answer was to eliminate pediatric only plans since many parents would game the system. Not pay for children's health care. Once child gets sick/breaks leg, re-add insurance.

That's why Obamacare will become very expensive.

I have my HSA with First American Bank of Illinois. I like them because there are no fees involved. Many banks try to charge $5/month. If you have a lot of money with them, some will waive the fees. I just mail the bank a $6000 plus check each year as a deposit.

Keep in mind, Democrats are trying to make "loopholes" as unattractive as possible. So you may not get the same type of deduction from the HSA for tax year 2013 as in previous years if Obama and the Dems get their way. (maybe they try to limit all deductions to 28% tax bracket).

 

[jwk]

It all depends on your individual situation, and, whether or not you have a choice in what type of health insurance you have available to you.

I'm in my mid-50's. My wife and I will be forced into an HSA next year. It's not a great deal for us, at least on the surface, because we each have at least one chronic health issue. We would easily burn through our deductible each year. For someone fresh out of school, young and healthy, an HSA is a great deal. If you discipline your spending, you can amass quite a bit in your HSA before you ever need to spend anything.

HOWEVER - you have to look at premium cost as well. HDHP/HSA costs generally don't exceed what you probably paid for regular indemnity insurance premiums, and may actually be less.