Do you know of any that have Vanguard Funds as an option to invest in? Of course, she considers herself lucky that she is able to allow the HSA to grow without pulling out too much for medical expenses. If you drop below that $2,000, you can’t invest. I changed to our HSA/HDHP two years ago when I started doing all the math. This is mentioned in the language in IRS Pub 969 (talking about “Qualified Medical Expenses” for HSAs), and IRS Pub 502 defining when a “Qualified Medical Expenses” is good for: “You can include only the medical and dental expenses you paid this year, regardless of when the services were provided.”, I erroneously thought the same as you a few years ago and a quick call to the IRS help line set me straight then: 1-800-829-1040”. Wow, great post! I found an HSA account with Health Savings Administrators that offers Vanguard funds, and is linked to from Vanguard’s website. With the medications we need (epi pens, asthma inhalers, allergy meds, etc) the cost of prescriptions are going to be nuts, since we pay full price till deductible hits. Roth IRA: Money going in (pay income and FICA tax), growth (no tax), money coming out (no tax) It’s nice to know there are people out there keeping me honest! My credit union only requires me to keep the first $1,000 in cash and above that can be invested. My employer offers the option to do a low deductible plan with an FSA or a high deductible plan with an HSA. Having a baby in a year or two is more reason to use the HSA this year, because all of it will roll over. I’m retired already. My HSA provider advertises low cost index funds at an average of 0.14% fund expense + 0.1%/quarter investment fee. I’m having a hard time wrapping my head around the optimal strategy in this case. I can understand the logic since you’ve already maxed the 401k and IRA options though I’m not sure if that was specifically pointed out that it is an important consideration that these be maxed out to use the tactic you’re talking about as opposed to withdrawing and use a traditional IRA/ROTH IRA conversion strategy with the $200 you could have invested. The first advantage of an HSA is the outstanding tax benefit it offers compared to designated retirement accounts that can typically be lumped into one of two categories. Join over 100,000 others on the Mad Fientist email list and start tracking your progress in the FI Laboratory! Mrs. Pie, Just track your medical expenses, you can pull money out 30 years down the line if you want. 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? I’m not sure if what I’m doing is smart or dumb. That’s the difference. BTW, no option to subscribe to comments? I just don’t know where to start when it comes to contributing to the HSA versus my 401k, versus my IRA, versus a regular savings account, etc. Whether making an IRA “rollover” or a before-tax outside contribution, as you approach Medicare eligibility (or becoming ineligible for an HSA for other reasons…like dropping your HDHP in the future) the timing of the actual date you make your contribution becomes important. IP is 104.28.13.18 on cloudflare-nginx works with 593 ms speed. Now, let’s say this same person used a standard PPO. I appreciate that this is a clever idea and loophole, but I don’t believe it actually leads to any benefit. Good luck getting everything set up! My husband and I were listening to the Mad Fientist podcast and enjoyed your story. We went without one this year and with the rising cost of insurance plans I’m not sure it make sense for me to get one next year. That’s a lot better use of money! It’s kinda like betting on horses. 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). Anyway… My employer will contribute $1000 to my HSA, and then I was going to contribute a small amount each month in addition. I looked in to my employer’s HSA after seeing this post, but I’m concerned about this statement in the plan: “All pre-tax funds that are not used for eligible expenses incurred during the plan year will be forfeited. ), but still can’t find anything on this. I believe we are still taxed on ordinary income portion for the employee W-2. So while I agree that HSA is a good tool for saving, it’s more of a tax shelter than a strong way to grow tax-deferred money. That’s crazy CA doesn’t recognize HSAs pre-tax! Thank you for your informative article and the clarifying replies to other readers. She learned about the HSA account’s power from the Mad Fientist when she was home on short term disability after breaking her ankle at a work function. 2. The IRS calls this a “funding distribution”. FSA is a use it or lose it. If you have more than 2 pre-tax paycheck deductions, you can add columns between Pre-Tax HSA and Pre-Tax 401k. Are there any IRS complications? We have insurance through ACA, went really cheap this year paying only $45/month with a high deductible (but it wasn’t HSA qualified). If you don't have traditional 401k contributions/HSA contributions, feel free to leave those blank or replace the titles with any other pre-tax items you have such as health insurance premiums. With the ever changing landscapes of healthcare and national debt, nothing is stopping the government from altering when you can pull out HSA funds for medical expenses in the future. All true retirement accounts fall under federal law and are fully exempt. That seems to be handled automatically via the W2, since the employer makes those contributions on your behalf. With MF’s kind permission, here is the easiest link to use: http://jlcollinsnh.com/stock-series/. Your email address will not be published. My HMO has saved me $4,000 – $4,500 over if I had either of the other plans the last 3 years. Hey MF, I’m in a similar HSA situation. Ideally I’d like to max out contributions and take the money out at 65 like you recommend, but I’m not sure what the “use-it or lose-it”/forfeit clause means. He achieved his personal financial independence number a couple of years ago at the age of 32. Your site is awesome and my roommates and I talk about it all the time! Unlike a Flexible Spending Account (FSA) that comes with a PPO plan, where you only get to rollover $500 of unused funds from year to year, your HSA has no such rule! Continuing down this train of thought, say you are currently maxing all tax advantaged space including HSA and Roths. Looks like the long term benefits are close to outweighing the cost, still undecided. I had a few things that I’d like to tweak to make work for my situation, the main ones were: 1. high expenses that won’t … HSA is great, but there’s potential risk not covered in this article. Calling the irs for tax advice is widely regarded as pointless. Am I able/allowed to save medical receipts (co pays, Rxs etc) from later years (2019+) when I did NOT have a HDHP and no longer contributed to the HSA? Thanks a lot for stopping by! The key though is that there’s no expiration on when you need to reimburse yourself. I haven’t heard back yet. If at death the account holder is anybody but the spouse the designated beneficiary or estate must include in gross income the fair market value of HSA assets at death. It is my understanding that once your deductible is reached, you can start to use FSA funds to pay for medical expenses. Thanks. I have a crappy administrator through work ( wells fargo ) their funds are overpriced. I’ve read this article in the past and wondered when I would be able to take advantage of this awesome savings option. First off, I can’t take credit for this – I learned about this fantastic idea from a Mad Fientist article titled HSA – The Ultimate Retirement Account. I have the same option from work and it is an FSA, you loose the money if you do not use it within the calendar year, do I have another option or am I stuck with that? Here’s a graphic explaining how future early retirees can take full advantage of an HSA (descriptions about each step are below): Maximize the Benefits of a Health Savings Account. One more question. In 2019 and all later years, I have a different job that does not offer the HDHP/HSA option. Mad Fientist. just like your IRA the HSA dollars can be invested and they grow tax free – so that negates any positive positioning to IRAs that you mentioned. That looks pretty rough to me so you should maybe look into opening an HSA somewhere else instead. However the article says: “The ultimate retirement account is better known as a Health Savings Account, or HSA.”. Also, the same question comes to mine about getting the taxed money back on your yearly tax refund with contributing to the traditional IRA outside of the company offered 401K. Personally, I while I contribute quite a bit to my 401k I have not maxed it out while I have maxed out both my ROTH IRA and HSA contributions every year. Does all this information still apply? We do use the HSA to pay for medical items, the long term affects of this are probably something similar to a larger fee associated with the account. It doesn’t make sense to pay a lot of money for an expensive full-service health insurance plan, since I rarely go to the doctor, so I instead decide to get a cheaper high-deductible health plan (HDHP) with a lower monthly premium. If for some reason you have way too much money in your HSA (which would be impressive, considering how low the max you can contribute in one year is), you can just stop contributing to it. Your employer contributes some money, let’s say $1000, so you’re already ahead, paying -$140 (*minus CA state tax, I’ll get to that in a bit) — so your annual costs are negative, before you start using your account. Wow, seriously, but who are the suckers who’re left to hold the bag if everybody starts doing this? Come 2015, assuming the $200 investment only kept up with inflation, you’d have $579.26 tax free. Good point about fees, Denise. Your email address will not be published. The current deductible is $750. Question about the generally accepted tactic of using HSA accounts for FIRE. It sounds like a really good deal… and it is… except HDHPs have “high deductibles” and, even more troubling, HSA plans typically have very high fees that eat into any growth you see unless you are a wise investor (AND have access to good investing options, rare in typical employer-sponsored HSA accounts.). Reply. Yes, you can reimburse yourself for a medical expense that occurred anytime after the HSA was established, even if you are no longer eligible for or have a HDHP. I scan and keep all receipts in a special folder in my Google Drive, plus keep a record of health expenses and reimbursements in an Excel Spreadsheet. You’re very welcome! Would be interested in hearing how others are handling the receipt challenge. I was stuck in the bottom level of the Mad Fientist's Hierarchy of Financial Needs. But cleaner to go with the payment plan. If you've enjoyed the last 9 years of ad-free content and want to say thanks, here's how →. (at most, .7%). In 2019, that will now be $1,200 / mo. But with high transaction cost brokerage accounts like TD ($10 per trade), I try to just buy Vanguard ETF’s since they are free to trade in TD. 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. This is why I’m leaning towards thinking the HSA is a scam for everyone. Health care in the US is so damn expensive it’s crazy. We had to prove that we had at least $3600 in medical expenses during that tax year. When I called the IRS a few years back, it was for a real example I was facing. I don’t want to end up 20 years later with a pile of “receipts” that don’t cut the mustard. I’m healthy and rarely go to doctor except routine visits. My company just made a HSA an option for us this year. One of the better-known smart guys in this investment business, the "Mad FIentist", calls the HSA the " Ultimate Retirement Account " as part of a solid retirement plan, and for good reason. It took a year with our HSA before we fully realized it’s potential, started to max it out, invest it and not use it for medical expenses. Being able to avoid FICA taxes may outweigh any benefit from lower fees. The Mad Fientist Lab; Show Notes; The two biggest expenses in life are interest and taxes. Thank you MadFientist for another great article. I Scan all my receipts, medical docs, any correspondence and load it to google drive. Then after the last one, I run across the page that links to a list of all posts in the series. 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. For this reason, I think the best overall strategy is tax diversification. I was even thinking of adding the amount of the receipt to the PDF filename so I can quickly add them up. The total allowed for 2018 is $3,450, which makes my max contribution for the year $2,950 (adding employer’s $500 brings us to the max). Once they even allowed a Amazon Prime subscription to renew from my HSA Debit card. Thanks so much. I knew a couple at church that owned their own business that had an hsa, they only took home around 15k / year from their business. Look up the rules. So… free money! RSU value upon vest (but not the gains thereafter…, One mental trick you can play on yourself to be more generous with your charitable giving is that by…, I held on to $60K of stock appreciation rights for just one month, from December 2016 to January 201…. I am maxed out on Roth and 401(k) and working toward financial security. Again you are limited to your healthcare costs, the entire remainder works like a traditional IRA. So I have two options, (A) withdrawal the money from my HSA and pay the bill, or, (B) pay out-of-pocket and withdrawal the money from the HSA later. I realize I am late to this party, but I enjoyed the article and it has made me think more about fully funding my HSA account. Tony, Even though the info did not resonate with me in the beginning, it quickly came back to memory after I saw that the HSA was now an option for us. Could be extremely useful for parents with kids going through orthodontia. If I pay a doctor with a check and don’t receive any receipt, can I use their paper bill (before it was paid) as my claim reference? As a financial planner, just wanted to add one extra feature that gives the HSA an extra vote as the “ultimate” retirement account. In year 1, I contribute $1000 and also withdrawal $500 to pay the medical bill. The payment is discounted amount the insurance co has contracted to pay your doctor, until your deductible is met. Traditional IRAs and 401(k)s are great too and are a bit more flexible when it comes to withdrawing money from them for ordinary expenses prior to standard retirement age (see my Traditional vs. Roth IRA article). Sounds like you need to setup a cash flow model and make some assumptions about your medical costs. Are you saying that if we have medical expenses now that we should pay the expence from our bank account or credit card and let the money grow tax free in the HSA account. But, I plan this to happen all in the same year so we max out our out of pocket. FSA’s are front-loaded, meaning if you elect to contribute $1000 to an FSA, your company pays that $1000 up front to the FSA benefit’s administrator. If you have not maxed out all your traditional savings vehicles then go to Suze Orman and the kindergarten class before coming here. I appreciate any feedback. Depending on your taxable income level, the FICA tax rate for the $3300 in potential HSA contribution will be: A 5% average growth on your contributions over the course of 30 years would make that $200K number much larger. Also, thanks for sharing the specific numbers of your company’s available plans because I imagine it will inspire others to look more closely at their own options. But according to inflation that $200 is worth a lot less! My question is this: would I be allowed to withdraw the money from the ELFCU HSA? Only the amount you spent when paying for the original medical expense would be tax free. On closer inspection, you’re correct. Keep it up man! That way, more of your money is left to grow tax free. The balance of my HSA is $5928, plus I have $500 in my hand, so total = $6428. Also — yes, it sucks that CA does not recognize the HSA. Many states, including the one I live in, do not exempt any amount for HSAs. I work for a company that offers HSA’s and I just posted the link to our company intranet for the employees to read! HA CEY OFA VALUSLE GU LUMBIA. Is the idea to remove all QMEs from the HSA fund so the retiree has a better understanding of how much is left in the HSA to use as a Traditional IRA beginning at age 65? So using the salary in the above example, if you contribute $5,000 to a Roth IRA, you will still initially pay tax on your full $100,000 salary but you won’t have to pay any tax when you withdraw the money from the Roth. -You must maintain a balance of at least $2,000 in a 0.05% apr savings account before you can invest funds. Success! Open an HSA (Health Savings Account) One of the better-known smart guys in this investment business, the "Mad FIentist", calls the HSA the "Ultimate Retirement Account" as part of a solid retirement plan, and for good reason. IRS wording seems to be vague and does not address this. Any thoughts/recommendations? If you think the rules are wrong then contact your congressperson. as soon as it hits your account it’s yours. Maximum annual deductible and other out-of-pocket expenses* $6,550 $13,100. One caveat to all this, I was using CreditKarma/tax to file my taxes and this is their first year offering a tax prep service (and it has a really wide availability of Forms/Schedules that it supports) and maybe their software was screwing this up. When you get down to it, this article basically describes a way to game the health insurance system to avoid taxes; no criticism of individuals who choose this is intended; I’d do it as well if I could. But, we can’t deduct those expenses until they reach 10% of AGI. There are other requirements other then a “high-deductible” plan. World ranking 208615 altough the site value is $10 440.The charset for this site is utf-8.. As you incur qualified medical expenses, you increase the amount that you can withdraw during early retirement (you effectively convert your HSA into an early-retirement Roth IRA over time). I’m a reservist in the military (single, healthy 26 y/o male) and I have access to Tricare ($51/month premium, only $150/yr deductible). Premiums are about even between the plans. Since this person didn’t spend $3172 on healthcare this year (including the $3400 investment), they have $1742 left to invest in taxable accounts. When you are tracking/saving your “receipts” for documentation, what exactly are you keeping? (I know you would love to max out both of them!). But I am very comfortable that I will rack up lifetime total medical bill for my family that will allow me to apply this trick to its fullest potential. The Mad Fientist does a great write up about HSAs….essentially cashflow all medical now (keeping all the receipts), then treat it as a Traditional IRA when you retire (cashing in those receipts). 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. Don’t forget to use your ability to make that one-time funding distribution from your IRA as soon as you can. My HSA distributes money “on my honor” for reimbursement. So I am assuming I will be paying close to if not all of the $10,000 each year. The government is providing an incentive to save for health expenses and I’m taking advantage of that incentive. BUT, you’d only end up getting a $279 deduction b/c you were only enrolled in an HDHP in Dec. Now for next year (assuming I’m enrolled in my HDHP for all 12 months), I’d get the full $3350 deduction assuming I make the full contribution. Saving 7.65% on FICA taxes is a pretty big deal and being able to withdraw from the account, completely tax-free, for medical expenses is also a big deal so I’d say the benefit is more than just marginal. 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. An FSA must be used up by the end of the year or you’ll lose that money forever. It’s important to note that you only skip the FICA taxes IF you get your contributions payroll deducted. Age 55 to Age 65 (catch-up contribution) $8,000/year x 10= $80,000 You get no health insurance benefit till you use up your deductible up front, on an approved plan. Or pharmacies part? I guess I’d just start submitting receipts for my HSA reimbursements before any other accounts during my years of early retirement when I need income. I wish I had known this years ago! Using my HSA funds guarantees me a ROI that is 2.5 times greater than what I would average in the Stock Market. Can you please edit out my last name in the previous post. Before trying to pull money out from HSA out of an HSA pay., any money you put into the cash portion of the checking account some!, even be used against any medical expenses the moment helps that employer. Typical HSA scenario this seems a bit counter to your first point is insignificant! Does anyone know a good idea m assuming this is super useful, as MMM says these…... Ago this was a way to figure out under what circumstances paying with after-tax.. Of interest, similar to a consumption tax company you get no health insurance to! Roth 401k an answer in the year ( saves space, too ) towards your HSA article arise you! 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