#SaturdaySchool #HealthSavingsAccounts
So my previous two Saturday posts were the #RothIRA and #Employer401k and I want to stick w/ the idea of posts centered on retirement savings accounts on Saturdays. For this weekend, I wanted to touch upon a retirement savings accounts that you might have available that is not subject to an income limit. At some point, I do want to speak on a #TraditionalIRA or #BackdoorRothIRA so that I do not alienate anyone over the Roth IRA income limits on here. So I would first recommend watching the video as it is tough for me to keep my posts to a reasonable size on your phone ... below is the high points w/ examples.
#HSA :
- An Health Savings Account (HSA) is accessible only if you have a High Deductible and High Premium account and the money used to fund is Pre-Tax money and can be invested and unused funds carry over each year
- This is different from a Flexible Spending Account as the unused balance in an FSA disappears at end of each year and different limits and restrictions on what counts - see link below
- HSA can grow tax free and then can be used to reimburse any qualified medical expenses tax free
- HDHP plans are not a good idea for everyone and you need to think carefully about your situation and your family's situation before signing up for a HDHP just get access to an HSA
Example 1: Young and Healthy
The usual demographics where HDHP can work is a young and healthy individual who does not regularly see a doctor or take medications. This is the perfect plan for me as my personal HDHP plan has a deductible of $3500 and then it takes over and covers 100% after, so I am protected against something catastrophic and can pay cash or withdraw from my HSA if need be for any unexpected medical costs. To date I have maxed it out every year and never withdrawn from it and it has grow nicely and I hope to leave it uninterrupted until I'm in my golden years. I did have chest palpiations one year and had to do a cardiology work-up and so I paid all my expenses with cash outside of my HSA. I did, however, save all my medical receipts so that 30 years from now I can just start drawing down from my HSA after allowing for compounding and take that money out tax free.
Example 2: Chronic Medical Problems
The other demographic where this plan can make sense is someone with chronic medical problems or known large medical bills. So lets say I have an employee that knows that their chronic medical bills are well in excess of our $3500 deductible. If this is the case, then having a HDHP is actually cost savings right away due to our specific plan covering 100% after the deductible is met (please make sure you check what your HDHP plan is as yours might have a % that you are still on the hook for). For this individual the HDHP saves them movey and then on top of that the HSA also could potentially be used to directyl reimburse themselves the full amount to pay down their deductible that year. For 2021 the individual maximum is $3600 which means that if this is funded w/ Pre-Tax money and then reimbursed to you tax free you get to save the difference on whatever your income tax on that money would have been. Ideally you would rather just hold off on drawing from your HSA, but this was a different way of showing the benefits.
Example 3: Family
If you are married or have kids ... then getting a HDHP for the family might be a good or bad idea - this one is definitely more situational. This could be a bad idea because the deductible will be proportionally higher. Meaning that it might still be good against something catastrophic but you have to seriously weigh the pros and cons of what the deductible is and what the coverage is like after meeting the deductible. The HSA contribution limit for a family is $7,200 for 2021, so compare this against the deductible for the plan. My wife has her insurance through her work which has excellent coverage at a reasonable premium and so her and I have separate insurance plans. The plan is for when we finally do have kids that they will be listed under hers.
Videos / Resources:
- HSA: https://www.youtube.com/watch?v=LSEypb1OxJ8&list=PLn0fZqMvSiYDnwoBJFOx8_e32aMv8iYqn&index=7
- HSA vs FSA: https://www.valuepenguin.com/banking/difference-between-fsa-and-hsa
P.S.: Hope this helps and is as clear as mud 😜. Feel free to comment w/ questions and I will do my best to get back as soon as I can this weekend. Gonna be hanging out w/ my parents eating good food and enjoying a cocktail.
#TaxEfficiency #RetirementSavings #HealthyHabits
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@ctsshah my scenario is this: I pick the HDHP because it has the cheapest premium. My employer puts $850/month towards my healthcare, so this amount covers the entire premium for individual insurance and the extra is put into an HSA that I can use to pay for my son’s medical or mine. I don’t choose the family plan because I would not be able to pay all my bills if they took extra out of my paycheck…See more
I think HDHP can be a really great plan. I think it is great for me. It has the cheapest premium because it is hoping to select for healthy individuals w/o chronic medical problems to buy into this pool that are less likely to utilize the insurance plan at all except for emergencies keeping premiums lower. The hope is that the cost savings from the premiums would then be invested in the HSA for an…See more
@ctsshah I’ve always just used the HSA to pay for the medical expenses that aren’t covered.
But I will definitely keep that in mind if my expenses are larger than what I have in the HSA account! 😊
@xiantese That is perfect. Each time you are using the HSA to pay for the medical expenses think of it as using a discount coupon. You literally are saving money by essentially using Pre-Tax money to pay a Post-Tax expense!
@ctsshah My son has MA insurance but there are certain things that aren’t covered, like contacts, so I’m able to cover those with my HSA. I love that.
@xiantese nice! I wish my eyes didn't feel like rocks were in it when I try to wear contact lenses. I actually look half decent w/o glasses.
@ctsshah my boy plays a lot of sports and would break the stems off his glasses like every 5 minutes 😒
I felt bad that he had tape holding them together until we could get them fixed 😆 so I’m glad the contacts are working out for him
@xiantese contacts are great. Once his prescription stops changing, honestly LASIK is a great option. I wish I was a candidate
@ctsshah apparently I’m too old for LASIK 👀 😂
I’m a union guy,so it comes right out of my checks.. but I think it’s about 14 1500.00 a month / Kaiser .. I should be looking at stock
@tapermichael wait you sure that isn’t your 401(k)? Or are you doing a family HDHP with HSA?
@vganti Hope this helps:
1) HSA is an investment account w/ special rules. Kind of like a Roth IRA or 401(k). Think of it as a home w/ special rules. When you put money into the account it is just going to sit there unless you actively invest it. These HSA accounts tend to have monthly fees so be sure to invest. Often time you have to keep a certain amount as a cash balance. For my account it is $1…See more
No that’s not my 401k / I have Annuity plus pension
@tapermichael ah makes more sense! I still need to learn more about annuities
@vganti so basically you need to log into your HSA account, mine had an investing link that pulls me to a different site and then I got to see what options there were for investing. I think they were just set ETFs or mutual funds. Generally the only thing I look for is a broad fund that tracks either S&P500 or the major co…See more
Yea I know with my annuity , which is controlled through John Hancock .. I don’t get an option for investing
They do all that for us
My parents got lucky and moved some stuff into annuities right before the COVID shutdown and market crash. It helped them to have guaranteed income reliably without having to cash out investments at all time lows
Oh yea right I remember watching the market, driving to 16 17 it just kept going down.. I know I lost like almost 15000 .00 .. A buddy of mine lost 40000.00 in his annuity
An Annuity that they control
@vganti 💙👍 now go get those gains! 🤑
