HSAs (Health Savings Account)

[mancunian]

Hello Everyone

Is anyone familiar / has an HSA?

It seems like the best tax savings option. My question is which one and how to qualify:

Why is it such a good tax vehicle?
You can withdraw against medical expenses which include co-pays and deductibles.
The withdrawal does not need to be at the same time, or even in the same year, as the expense. The money does not even need to be available in the HSA at the time of the expense.

So it can be used just as a pass through for money spent on healthcare, even after the money is spent.
Or, it can be used for pre-tax investments, and withdrawn as needed tax free, provided that one has medical expenses/receipts again the withdrawals.

Also, it can be funded until taxes are filed like a 401(k), which effectively means money earned one year can be applied to the prior year's deductions.


My Questions:
To qualify, one needs to have a 'Catastrophe Plan'.
Now, after the HSA is open, can one up their plan to a regular insurance plan (notwithstanding the requirements for changing one's plan...)?
What if one has no insurance plan at all?

Where is a good bank to open with?
I don't want a 0.2% APY interest rate... I want to choose where the money is invested....

Am I missing anything about the benefits here?

Anyone familiar or done this before?


thanks

[alexk.]

You only qualify if you have an HSA eligible plan. There are specific plans that are eligible.

With Obamacare at the forefront, there are less options for these type of plans (atleast in my area).

I had one for a few years and really enjoyed the benefits.

I don't know if this is something you want to go overly aggressive as far as investment, but there are banks out there that will set you up with a Money Market if there is over a certain amount in the account.

[mlomni]

I have a HSA account. "The money does not even need to be available in the HSA at the time of the expense."
this is not accredit card. you must have the funds available before you swipe the card.
In order to get a HSA account you will need to be enrolled in a High Deductible health plan.
What if one has no insurance plan at all? With Obama care you must have insurance unless it is worth it to pay the fines for not having insurance.

I am happy with TD Bank for this type of account.

[mancunian]

Thanks for your replies. Still a few uncertainties:

You only qualify if you have an HSA eligible plan. There are specific plans that are eligible.

With Obamacare at the forefront, there are less options for these type of plans (atleast in my area).

In order to get a HSA account you will need to be enrolled in a High Deductible health plan.
What if one has no insurance plan at all? With Obama care you must have insurance unless it is worth it to pay the fines for not having insurance.

Now, after the HSA is open, can one up their plan to a regular insurance plan (notwithstanding the requirements for changing one's plan...)?
What if one has no insurance plan at all?

??

I don't know if this is something you want to go overly aggressive as far as investment, but there are banks out there that will set you up with a Money Market if there is over a certain amount in the account.

Do you know of any specifically? I've looked around and all seems to be <1% APY.

I have a HSA account. "The money does not even need to be available in the HSA at the time of the expense."
this is not accredit card. you must have the funds available before you swipe the card.

Yes but you can reimburse yourself by check years later, with money which you deposited in the HSA after the expense was incurred and covered by you outside of HSA. Thereby you can get a tax deduction and still have the money, by depositing and withdrawing, as long as you have receipts against the withdrawal.
Alternatively you can let the money grow tax free if you have it in investments, and withdraw as needed tax free against medical receipts from anytime after the account was opened.

What if one has no insurance plan at all? With Obama care you must have insurance unless it is worth it to pay the fines for not having insurance.

As far as I understand, if one doesn't want insurance, its cheaper to pay the fine, assuming: A. 'Catastrophe' plan costs ~ $200 a month, B. He makes <$10,000 a month C. His projected medical expenses are <~$3,000 a year, D. He hasn't made insurance changes this year / or whatever would disqualify him from getting insurance / he is able to get insurance if foreseen need arises
(Basically if you're single)


Is there a health insurance thread here?


ty

[Wizard]

Hello, I found this thread while searching HSA. I have an HSA account and had some questions:

If my workplace pays me with a separate check for HSA that is pre-tax and it is written to me, why can't I just keep the check and just have receipts to back up the money spent on qualifying expenses? If I can, what is the point of an HSA account at all? Just to keep track of it for you?

[SPOOGER]

Hello Everyone

Is anyone familiar / has an HSA?

It seems like the best tax savings option. My question is which one and how to qualify:

Why is it such a good tax vehicle?
You can withdraw against medical expenses which include co-pays and deductibles.
The withdrawal does not need to be at the same time, or even in the same year, as the expense. The money does not even need to be available in the HSA at the time of the expense.

So it can be used just as a pass through for money spent on healthcare, even after the money is spent.
Or, it can be used for pre-tax investments, and withdrawn as needed tax free, provided that one has medical expenses/receipts again the withdrawals.

Also, it can be funded until taxes are filed like a 401(k), which effectively means money earned one year can be applied to the prior year's deductions.


My Questions:
To qualify, one needs to have a 'Catastrophe Plan'.
Now, after the HSA is open, can one up their plan to a regular insurance plan (notwithstanding the requirements for changing one's plan...)?
What if one has no insurance plan at all?

Where is a good bank to open with?
I don't want a 0.2% APY interest rate... I want to choose where the money is invested....

Am I missing anything about the benefits here?

Anyone familiar or done this before?


thanks

I think there is a testing period for 12 months after you contribute. If your plan does not qualify for 12 months your rate is prorated. If you aren't eligible for the 12 months and you contributed more than you where allowed you need to fill out some irs form. I believe there is a penalty for over contributing. 

[ChasunaFund]

Hello, I found this thread while searching HSA. I have an HSA account and had some questions:

If my workplace pays me with a separate check for HSA that is pre-tax and it is written to me, why can't I just keep the check and just have receipts to back up the money spent on qualifying expenses? If I can, what is the point of an HSA account at all? Just to keep track of it for you?

That would be comingling the funds and you would supposedly lose the tax benefits of the money.

[ChasunaFund]

I have an HSA with elements financial (formerly Elfcu). They were paying 1% when I opened, and once you go over a certain balance you can transfer to a linked Ameritrade account and invest in anything available there.

I believe Lake Michigan Credit Union has one of the best rates for HSA.

I have been doing this for a long time, since the predecessors to HSAs - MSAs.

[Wizard]

That would be comingling the funds and you would supposedly lose the tax benefits of the money.

Whats comingling? What tax benefits would I loose?

[googwallet]

To qualify, one needs to have a 'Catastrophe Plan'.
Now, after the HSA is open, can one up their plan to a regular insurance plan (notwithstanding the requirements for changing one's plan...)?

It looks like the answer to this question is no - if you no longer have a Catastrophe plan, you will no longer be eligilble and all previous contributions from the year you were no longer under a Catastrophe plan will be subject to income taxes https://www.irs.gov/publications/p969/ar02.html

<sup>If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2014 is $6,550 even if you changed coverage during the year.
Last-month rule.   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.
Testing period.   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. For example, December 1, 2014, through December 31, 2015.
  If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are shown on Form 8889, Part III.
Example 1.

Chris, age 53, becomes an eligible individual on December 1, 2014. He has family HDHP coverage on that date. Under the last-month rule, he contributes $6,550 to his HSA.

Chris fails to be an eligible individual in June 2015. Because Chris did not remain an eligible individual during the testing period (December 1, 2014, through December 31, 2015), he must include in his 2015 income the contributions made in 2014 that would not have been made except for the last-month rule. Chris uses the worksheet in the Form 8889 instructions to determine this amount.

January   -0-
February   -0-
March   -0-
April   -0-
May   -0-
June   -0-
July   -0-
August   -0-
September   -0-
October   -0-
November   -0-
December   $6,550.00
Total for all months   $6,550.00
Limitation. Divide the total by 12   $545.83
Chris would include $6,004.17 ($6,550.00 – $545.83) in his gross income on his 2015 tax return. Also, a 10% additional tax applies to this amount.</sup>

While doing some searching, you can open an HSA where the money is invested in 'real' investments look at this company http://healthsavings.com/hsa/vanguard-funds/ they use exclusively Vanguard funds.

[mancunian]

I've done a lot of research since initially posting.

1. It isn't an annual contribution, its actually more like a monthly contribution limit.
You divide the annual limit by 12, and for each month out of the year that you are eligible (hold eligible plan) you can contribute 1/12 of the annual limit. This is regardless of your status at time of contribution (say March 2016), and regardless of the other months out of the year.

2. The 'last month rule' you posted about means that if you're eligible on December 1, you are retroactively eligible for whole previous year. (But not the other way around, if you're ineligible December 1, you're still eligible for monthly contribution limit for those months you were eligible.)
If you use that December 1 'last month rule', you much remain eligible until close of following year ('testing period'). However, if you were eligible on December 1, but don't contribute full annual limit, rather you contribute monthly limit for those months you were eligible (including month of December), you are not using the 'last month rule' and don't need to keep to the 'testing period'.

So either you contribute monthly limit for eligible months, or total annual limit (monthly limit x 12) using 'last month rule' etc.

3. Catastrophe plan is actually not eligible!
The criteria for HSA plan eligibility is high deductible and high out of pocket - offhand I think $12,700 out of pocket and like $4,000 deductible. I don't recall why, but as far as I recall the catastrophe plan is ineligible.
In addition, from what I recall the catastrophe plan premiums are not qualified and cannot come off your paycheck, i.e. catastrophe plans are not offered through companies only marketplace.

Therefore, catastrophe plan premium costs 15-50% more that what you actually pay, plus can't use HSA for deductibles (so that costs 15-50% more), plus can't contribute to HSA (in excess of annual expenses to lower tax liability / save) -- and you don't really have insurance!

4. Insurance companies offer specific 'HSA' plans built to be eligible.

5. Oxford uses Optum Bank for their HSAs, and they offer some mutual funds, I think they let you invest the HSA balance above $2000.

[thaber]

It seems you have tu use the bank your insurance company partners with. (in my case Mellon) is that correct?

[mancunian]

It seems you have tu use the bank your insurance company partners with. (in my case Mellon) is that correct?

AFAIK you don't have to per se, but if your work is contributing (top line I think its called - before social security) which is what you want, then they will use the bank the insurance company works with.

I think you can transfer then to any HSA, as you can roll over an IRA, and I think you can hold 2+ HSA accounts so that isn't a problem.

Also, I stumbled upon a great alternative to HSAs in regards to deductibles being pre tax. Its a company that covers your deductibles for you, like a separate insurance plan to insure your insurance plan (because our insurance system is so cost effective). Their fee is pre tax pre social security etc., employer must set it up for the whole plan.
I'll post details next week iyh.

HSA is still worthwhile for investments / lowering tax liability IMHO, unless you're offered a 401(k).

[tageed-lee]

Can you add up to the monthly limit each month in year 2015 to your HSA account, so that your income bracket is lower, and then pull the money out in 2016?

Will the money be counted (taxed) as 2015 or 2016?

Just trying to understand...

[ChasunaFund]

AFAIK you don't have to per se, but if your work is contributing (top line I think its called - before social security) which is what you want, then they will use the bank the insurance company works with.

Not necessarily. It's still the employer's choice. If you are the employer (as I am) you can choose to work with a bank other than the one the insurance company recommends. I believe Optum is owned by UHC/Oxford.

I think you can transfer then to any HSA, as you can roll over an IRA, and I think you can hold 2+ HSA accounts so that isn't a problem.

You can have as many HSA accounts as you want, as long as you are eligible and as long as contributions do not exceed max.

If I am not mistaken, you can only roll over an HSA into a traditional IRA at retirement age. Even if you can roll it over earlier, there would be no benefit to doing so (unless your HSA balance is very low), as HSAs have options to take the money out tax free, while traditional IRAs have none!

Also, I stumbled upon a great alternative to HSAs in regards to deductibles being pre tax. Its a company that covers your deductibles for you, like a separate insurance plan to insure your insurance plan (because our insurance system is so cost effective). Their fee is pre tax pre social security etc., employer must set it up for the whole plan.
I'll post details next week iyh.

That is true. If you own the company, you might want to establish an HRA, it's a lot more flexible than an HSA (and doesn't need a compatible plan), but you only get a tax advantage if you actually have the expense. An FSA will give you a tax advantage whether you have an expense or not, but is more limited in contribution amounts. All of these alternatives work great for the business owners.

HSA is still worthwhile for investments / lowering tax liability IMHO, unless you're offered a 401(k).

I think you're comparing apples and oranges. HSA (along with a compatible plan) is a tool in managing medical expenses in a tax advantaged way. A 401(k) is an employer defined contribution tax qualified (retirement) plan.

And don't forget: owing a lot of taxes is a GOOD problem to have (to I will admit it is a problem with a very BAD feeling attached - feels like a total waste of money, especially with the current administration)