Maxing out my HSA as a resident - terrible idea?

[theWUbear]

I am a healthy PGY1 resident who chose a high deductible (~$1,500) health plan offered by my residency/employer because it offered the ability to contribute (and have the employer contribute) to an HSA.

The money goes in the HSA tax free, grows tax free, and can be used tax free for medical expenses for the rest of my life. If I don't use it, I will withdraw it after age 65 without penalty but as income, being charged income tax.

I am maxing it out, at $3,100 for this annual year and investing it within the HSA account - hoping to get 10% returns annually.

Here's the thing: if I didn't do the HSA, I would not get $40/month from my employer paid into a savings account, but I would get that $3,100 into my bank account taxed at 10% (my low income tax). Instead, I run the risk of this money being withdrawn at age 65 at whatever tax bracket I am at that time (maybe 33%).

The difference between 10% and 33% is huge - means I'm making a big loss putting the money in the HSA if I plan on using it as an investment account. The thing not yet considered is the money growing tax free if in the HSA vs not if I invest money on my own right now. I have no idea how capital gains taxes work and whether money invested in, for instance, Vangard funds, for 30 years, are subject to significant capital gains taxes.

Would love anyone's thoughts on the matter regarding the utility of a healthy, healthcare non-user Resident (in low tax bracket) investing in HSAs

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[ThoracicGuy]

I am a healthy PGY1 resident who chose a high deductible (~$1,500) health plan offered by my residency/employer because it offered the ability to contribute (and have the employer contribute) to an HSA.

The money goes in the HSA tax free, grows tax free, and can be used tax free for medical expenses for the rest of my life. If I don't use it, I will withdraw it after age 65 without penalty but as income, being charged income tax.

I am maxing it out, at $3,100 for this annual year and investing it within the HSA account - hoping to get 10% returns annually.

Here's the thing: if I didn't do the HSA, I would not get $40/month from my employer paid into a savings account, but I would get that $3,100 into my bank account taxed at 10% (my low income tax). Instead, I run the risk of this money being withdrawn at age 65 at whatever tax bracket I am at that time (maybe 33%).

The difference between 10% and 33% is huge - means I'm making a big loss putting the money in the HSA if I plan on using it as an investment account. The thing not yet considered is the money growing tax free if in the HSA vs not if I invest money on my own right now. I have no idea how capital gains taxes work and whether money invested in, for instance, Vangard funds, for 30 years, are subject to significant capital gains taxes.

Would love anyone's thoughts on the matter regarding the utility of a healthy, healthcare non-user Resident (in low tax bracket) investing in HSAs

If you have medical expenses, it can be withdrawn tax free. If you take it out in retirement, it will be taxed like an IRA. The HSA is a win-win thing. I'd keep doing it, especially since you're getting an employer addition to it.

 

[Zenabi90]

I agree with the above. You're healthy now, but you have no idea what may or may not happen in the future. With an employer match (even partial), that's "free" money. Anytime I see an employer match, I would always consider contributing the amount required to maximize the "free" money as a good idea.

Consider the following article from a non-anonymous source, published by a respected site (Forbes):
Why You Should Max Out Your HSA Before Your 401(k)

 

[FlowRate]

It looks like your employer match is only $40/mo?

Are you maxing a Roth?

As an aside for any lurkers, be aware of what type of HSA your employer has. Mine doesn't roll-over contributions and in fact gets to eat all of your annual leftovers. Very different from the investment vehicle HSA mentioned ITT.

 

[ThoracicGuy]

It looks like your employer match is only $40/mo?

Are you maxing a Roth?

As an aside for any lurkers, be aware of what type of HSA your employer has. Mine doesn't roll-over contributions and in fact gets to eat all of your annual leftovers. Very different from the investment vehicle HSA mentioned ITT.

That sounds like a FSA.

 

[Stroganoff]

As an aside for any lurkers, be aware of what type of HSA your employer has. Mine doesn't roll-over contributions and in fact gets to eat all of your annual leftovers. Very different from the investment vehicle HSA mentioned ITT.

HSA by federal law is the employee's money and portable (not tied to the employer). FSA, limited purpose FSA, childcare FSA, and HRA (Healthcare Reimbursement Account) usually expire annually.

 

[Stroganoff]

OP I vote HSA all the way. Even before Roth IRA in priority. Double check me on this, but you may be able to use the same funds you've saved now via your individual HSA to pay for spouse and dependent children in the future, once you add them to your HDHP. With the free money from employer, this is a no brainer.

Even if you're healthy now, you're still human. Even if you maintain immaculate health, you can still use HSA funds to pay for Medicare premiums once you're 65.

Some light reading: Health savings account - Bogleheads
Heavier reading would be the IRS publications.

 

[FlowRate]

HSA by federal law is the employee's money and portable (not tied to the employer). FSA, limited purpose FSA, childcare FSA, and HRA (Healthcare Reimbursement Account) usually expire annually.

Thanks for the clarification!