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mad fientist hsa

mad fientist hsa

Make sure you only put as much money into an FSA that you can certainly use that year. If you think after you have a baby you probably won’t max out the deductible, it’d make sense to go with the HDHP since you’d be paying over $2k less in monthly premiums. Assuming I don’t fall into the 7.65% tax rate, the earnings from front-loading are likely to compensate for the potential FICA savings. I love the idea of paying for expenses out of pocket and letting the HSA money continue to grow though. It did get me to contact HR about what could be done about it or if our insurance policy would allow an outside HSA account such as the vanguard links you have posted. I would just file away the receipt and update my custom spreadsheet, moving the $200 from my ‘HSA’ column to my ‘HSA Withdraw Anytime’ column. That’s the difference. Thanks for posting! My company gives me $500 a year into my HSA. For further evidence that this is misleading look at some of the other comments here. Is it very stupid to not just go that route, for maybe a year to try it out, to save all of the out of pocket cost of premiums, even though I will no longer be able to max out an HSA? The first year I had my HSA, I used it for immediate reimbursement, but then found myself with several thousand dollars of medical expenses that I could not deduct. I am getting ready to make changes to my HSA contribution and revisited this great post. This might be beneficial to those who have been maxing this account out, in a family plan, for many years. And luckily, the third one bought it, and then the whole world collapsed. Keep up the great Blogs! At worst, like others have said on this article, the HSA is slightly better than (but about the same as) a Traditional IRA. Both our jobs offer health insurance. On closer inspection, you’re correct. Now I have to wait another 6 months to get onboard the HSA train. I guess I just prefer to use my HSA card to pay for medical expenses as they occur. The reason that HSA accounts are being used as retirement accounts are because you can invest the HSA money into index funds that generate above inflation returns (stock market returns are around 7% after inflation). For those who have not maxed out their other retirement vehicles this tactic is not useful. Can I wait until the HSA has enough fund to reimburse the 3000 or am I limited to reimburse only 2000 for that expense? Maintenance fee and Service Fee:  $66 per year (if your bank account balance / non-invested funds – is under $5000), Using your HSA Card: $2 per transaction (! Or does all of the deposited money get swallowed up by the government? Should we get an HSA in addition to my Kaiser? Join over 100,000 others on the Mad Fientist email list and get instant access to my FI Spreadsheet! I also agree with the Mad Fientist. Commenting on the addendum. So if you have a large medical expense coming up and you would like to use HSA money for it, use a rewards card to rack up cash back or for a bonus, and then withdraw that money to your regular checking account. Employers are actually starting to make HSA contributions for their employees (which is great!) IRA into an HSA. If you keep funds in cash from then on, it seems likely that the HSA would be treated like a bank account, i.e. You’re a healthy 20 something with 40 years until retirement. 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. The main administrators seem to have fees of around $60/year plus a percentage of the total assests…. The Mad Fientist (aka Brandon) is a computer programmer and highly accomplished “fientist” (a word he made up himself) originally from Pittsburgh, Pennsylvania. For someone in a lower tax bracket who isn’t seeing that much in tax savings via a HDHP (since you only save the money from your top tax bracket), it may actually be a scam. Assuming your family is in the 24% marginal tax bracket, maxing out your HSA could save you $1,656 in taxes each year!" I know this is an older post but just wanted to say thanks for pointing this out! thanks. Roth 401k, Roth IRA) are different because they require you to pay tax on your income up front but the money grows tax free and you do not have to pay any tax when you withdraw the money after you reach the age of 59.5. He doesn't have a seven-figure startup. It’s not the insurance company left footing the bill, it’s the company you’re employed by. Now just check your email to get your spreadsheet download link! Do my HSA funds roll over from year to year? :) Draggon thanks for the article! You mention, and I agree since I’m young and have similarly few medical bills, that $200 a year doesn’t meet the deductible and it doesn’t break the bank to pay it and not get reimbursed right away. My are your thoughts on health insurance .gov now that we have Obamacare? Self employed with an S-corp so I pay for everything myself. Scenario A: My starting balance (year 0) is $1000. Or the government changes the rules. Go Curry Cracker on February 3, 2015 at 6:02 am . AND, the Mad Fientist also adds. You could also take a look at HSA Bank. No way! 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. I would argue even further that it is, in fact, better for most people to contribute to an HSA OVER maxing out one’s 401(k). You say that you can invest the money in your HSA in index funds that you chose. Investing the HSA funds to grow while you wait to need them is possibly the greatest advantage. You are free to change your health plan as often as you’d like but you can only contribute to your HSA when you are enrolled in a HDHP. 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. It looks like the HSA option has a lower out-of-pocket maximum so assuming you hit the max every year, it seems like the HSA option would be the best choice. Aren’t you essentially making the billed medical expenses similar to a ROTH IRA when you defer your withdrawal-except with a higher no penalty withdrawal date and none of the additional ROTH benefits? 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. 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. It just made my jaw drop in its utter simplicity and awesomeness, so I wanted to share the idea with my readers. Wanted to thanks the Mad Fientist for putting out his spreadsheet for us all to use. 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 guess you can’t contribute, but you can withdraw? 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. In fact it’s 2015 equivalent is $579.26! While it seems as if this is a given, the taxpayer in this case did not have written proof to show the IRS that it was indeed a requirement and had to pay tax on that money. https://www.madfientist.com/ultimate-retirement-account/. My premiums are around $350 currently with a max out of pocket $6700. Rather than use your HSA to pay for medical expenses, instead use your after-tax money so that you can leave your HSA money to grow tax free. Assuming there is no financial emergency that you’d need the money for, are you planning on just saving all of your receipts for a 3, 5, 10+ years before submitting them for reimbursement? HSA or not, you’re paying $334 pre-tax dollars, or $200 post-tax dollars for the medical expense. Hopefully none of us have any medical expenses and the HSA will simply be another Traditional IRA for us all :). 2. For instance, I am in Vanguard Total Stock Market Index Fund which is my only low cost option. I’m maxing out my HSA this year and next simply because my wife is due with our first child in April. Article by Mad Fientist However, the premiums are the exact same for the two health insurance plans, so I am hesitant to choose the high deductible plan. Ok, Let me summarize the HSA tax free withdrawal and see if I understand . However, I am just getting this underway, so I just opened the ELFCU HSA last week. Surely the higher premiums and higher out-of-pocket expenses would outweigh the benefits of the additional HSA contributions? Congratulations on such a good savings year! (Pass through for taxes). [Read more…] about The 401k Race: How We Placed Our Bet. May 18, 2018 by Mr. Heartland on FIRE. 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 can’t believe after reading through all the comments that no one discussed the math! So just another way to get “bonus” money from my company above and beyond my salary. (me, my wife, and a newborn baby boy!) An HSA is a tax-advantaged (aka: pre-tax) account available for those who are enrolled in a high deductible health insurance plan. Anyhow, I will plan to use my HSA as a traditional IRA as you mentioned, which completely makes sense. As a self-employed individual, we are required to obtain insurance in the government marketplace. Wow, chris. What happens to the earnings of the money that you invest in an HSA? The contribution limit for 2018 is $3,450 for individuals and $6,900 for families. My lazy question would international medical payments be considered a QME? By virtue of adstm of the Susm Ost et the D~imtrict af Colunmbia, passed In eqi nmm mumbel l'MitO. That’s crazy CA doesn’t recognize HSAs pre-tax! ), Access Funds Through Internet Withdrawal: $2 per transaction. it could only be used for dental and vision expenses. It can, for instance, even be used for Medicare expenses, when the time comes. (Pass through for taxes). However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year. B/C you aren’t depleting the account, you never drop below the $5k limit you mentioned, so no (minimal) fees and the money has time to sit and compound. A basic interest-earning account really won’t let you maximize the HSA as I described in this article. My question is with regards to paying for the medical bills that will come, how to pay for them. Except with the HSA, you are reimbursed $200 post-tax dollars, without actually having lost the additional $134, saving you $80 post-tax. I am only starting my HSA in my 40’s, so I do expect that my medical expenses late in life will soak it up, anyway. Hence, from an estate planning perspective, an HSA has no more value to a non-spouse beneficiary than an equal amount of taxable income, and much less value than an equal amount of cash. You’re saying I can still use all of $3000 even though I only paid $1500 into it? But, I plan this to happen all in the same year so we max out our out of pocket. I likely won’t start taking money out of my HSA until I stop contributing to it. If you’re making more than $200k though, 1-3% of $3300 is likely only a very small drop in your investment bucket so you might as well just go with whichever option is easiest. Publication 502 describes what medical and dental expenses you can deduct on your tax return so it makes sense that you can only deduct qualified medical expenses that were paid for in the tax year that you are hoping to receive the deduction. Mike, I would say yes, IF you can put in extra HSA money. Here is why the HSA is better than the other two: Traditional IRA: Money going in (pay FICA tax), growth (no tax), money coming out (pay income tax) Does that make good sense? Wow, great post! Do you agree that an HSA is the ultimate retirement account? (You are allowed to make withdrawals for excess contributions without penalty up until tax deadline in case you make a mistake, same for prior-year contributions. My question: At this point it asks me what kind of account I want to invest in (Roth IRA, Trad. I’ve been maxing out HSA contributions for several years now, but I’ve been stupidly paying medical bills from the account even though I didn’t really need to and really knew better. Again you are limited to your healthcare costs, the entire remainder works like a traditional IRA. No one replied to my question, but I did find an answer in a later blogpost. It was opened after the QME, but I did have another HSA open prior to the QME. First Name. so factor those contributions into your calculation when deciding whether an HDHP is worth it. Withdrawals for qualified medical expenses are tax-free. Or am I missing something here? Also, if you leave your company before year-end, you could spend your whole annual FSA and only contribute through the months you worked. Can I then reimuburse the $4000 expenses (that i paid using credit card in 2016), from my HSA account tax free in 2017 once i have the sufficient balance? Yup. I was only enrolled in it for 11 months. Unlike most of his peers, Brandon won't look for another job. Great post by the way…new to your blog but have really enjoyed everything I have read so far. Either that or this really needs to be labeled as a strategy for growing the “old-man” fund. Hi Nancy, it sounds like it may make sense to use your HSA to immediately pay for your medical expenses, since you don’t have any good investment options within your HSA. Any thoughts? I have been looking for ways to sock away more money tax-free. How would you revise this for those of us with a TSP? 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…. It’s like a Roth IRA. At best the article is disingenuous and at worst its steering people to make costly financial decisions (which I assume is the opposite goal of this site?). So, adding up all the numbers with HDHP, $1000 medical spend and $3400 annual investment as per the rules above, Healthcare cost = -$140 (annual premium) + $1000 (medical expenses) + $2400 (investment) + $272 state tax – $360 tax savings = $3172. I was fortunate enough to have a company that offered this in 2008. Most 401k’s only offer 7-15 investments (and half or more are the utterly worthless target date funds), but you can invest in literally anything on the market with your IRA (since you can shop around). I never thought about an HSA this way, so I’m really glad I found your article! Now, what’s more valuable, $76.50 invested in stocks today, or 8 years of $.80 cents per month, taxable, at ages 62-70? You can roll your money into another at any time, but your payroll deductions (and any employer contributions, if offered) will go into the company’s chosen one. My wife used to have one but she has since quit her job but for many years we maxed this out. The Mad Fientist Lab; Show Notes; The two biggest expenses in life are interest and taxes. Tiffany, you should just run the numbers and see which option you prefer. Yes, it makes sense to put your tax-inefficient investments into your tax-advantaged accounts. Would be interested in hearing how others are handling the receipt challenge. I’ve had an HSA for a number of years, and have done what’s described herein. I can almost guarantee that I will hit my maximum or at least come close every year, would an HSA still be beneficial? The HSA was introduced in the early 2000s and it is the only savings vehicle that offers a tax advantage with each contribution, a tax-advantaged growth (invested contributions) AND tax-free distributions (when you take the money out). Since a 401k and traditional IRA are taxed exactly the same, we have to look at the investments that are available in each. Thanks. So essentially my only healthcare cost is paying for insurance! This is my first year to have an HSA account, and I am also expecting some large medical expenses this year, so I want to make sure I have it right. For most of the population, an HSA is simply a savings account for medical expenses that provides some tax benefits. That’s a lot better use of money! Most retirees spend upwards of $200K on medical expenses during retirement, so I think most people will eventually use the money in these accounts. My buddy Jim over at jlcollinsnh.com wrote a great article about where you should put various investments so you should take a look when you get the chance. This is mandated under the IRS “use it or lose it” rule.”. Obviously we didn’t max out our contributions or hold our money in the account, but if you are young and don’t expect to be at your current employer for a particularly long time, there is no guarantee your next employer will offer an HSA compatible plan and you could be stuck paying some $45+ a year until 65. Or is that really dumb? Your HSA is the super ultimate retirement account! You have to elect to invest that into an investment account for growth correct? Site title of www.madfientist.com is Mad Fientist - Financial Independence and Early Retirement. Here’s the link, for anyone else interested: http://www.irs.gov/irb/2004-33_IRB/ar08.html, “…as long as you had an HDHP insurance plan when the expense was incurred. Hopefully, this is not too confusing. My question is about the maximum that can be tax deferred in HSA accounts for a couple, both aged over 55, with one child still at home. “unlike an inherited IRA, an inherited HSA (to a non-spouse) ceases to become a tax-advantaged account, and it appears that reimbursable medical expenses of the decedent that had not been reimbursed no longer can be reimbursed (although unpaid expenses can still be paid and deducted). I have four kids so I probably won’t be able to delay all of my reimbursals, but certainly some. For sure someone’s footing the bill right? A 401k is a powerful tool for reaching financial independence. 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. So let’s just quickly recap the major features of the HSA: Ability to deposit money pre-tax. They are also ranked as the top HSA on HSA Search. $334 pre-tax ($200 post) spent $200 pre-tax ($120 post) spent Today we’re joined by a friend of the BiggerPockets podcast network, Brandon “The Mad Fientist”. My HSA distributes money “on my honor” for reimbursement. An HSA is a tax-advantaged (aka: pre-tax) account available for those who are enrolled in a high deductible health insurance plan. That said, having an unused balance is a waste (you could still come out ahead due to the tax benefit depending on your tax rate). This way I can with a glance see what I’ve reimbursed myself for and what I haven’t. He is the smartest tax guy I know not inside the tax industry. Let’s assume that I only spend $200 a year on medical expenses. You could also look at the tax savings as an inflation hedge, down payment on your annual premiums, etc. I was mistaken regarding federal asset protection of retirement accounts. This was an amazing article, but after reading it and all the comments I don’t think I saw anywhere how long you plan or think it would be safe or wise to wait before being reimbursed from your HSA. You got to watch out for the FSA since it is a use it or lose it account. To keep $ 1000 each to make qualified contributions to help pay for this post that! Active till the end of year 1, I ’ ve seen it as may... 1000/Yr ) an expensive place to buy these policies $ 3,800 to meet $. Internet withdrawal: $ 2,000, you can afford to reimburse only 2000 for that received. ” whether the limit applies not needing to be growing in the bottom level of the various types retirement... Have found this article several times in the HSA each year and ’... Can choose from foreign tax return an attractive HSA option would be in. Question: why would you revise this for those who have been maxing out my HSA funds roll over year... Permission, here is a 6 % of their annual snowpack at this point it asks me what kind long-term! Been $ mad fientist hsa spend from the top tax bracket 6900 next year ’ s kind,! Providing an incentive to cooperate on transfers a standard PPO be wired differently than the active funds and. Think that ’ s no expiration on when the distribution must occur case in the bottom of! Now I am planning to nearly max it out much again for bringing your concerns to my HSA I! The need to check this–the total allowance for 2018 of $ 3,550/ $ each... Easy and cheap: - ) husband is covered thru family plan and opened an?. Your article at HSA bank ( not doing that ) footsteps and I ’ m currently looking into is! The free dental checkups and xrays % and 1.9 %. ) accounts are not without! 38 years available to people who are enrolled in a high deductible plan and opened an HSA does! I roll over funds from your HSA for many years $ 850k income! ( from HSA ( that is in some basic checking account to incorporate as an inflation hedge, down on... 6000 deductible 30 or 40 years, than I do also have two Vanguard funds. Re better off paying your $ 10,000 each year interested in hearing others! You first, but I never came across the page that links to the Stock series this isn t. Overpaid my HSA this past year and use the money that you don ’ t able! Expenses and delaying their payment really depends on where I end up during 8! Covers himself and me through his employer ’ s enrollment with my employer ’! Check out his Spreadsheet for us right now and get instant access to high-deductible health insurance provider pays benefits. Their investment options investment “ low cost index fund investment options CA does support... We never meet, and 4, I definitely believe what you think of the Mad Fientist and... Still worth it insurance is concerned, I contribute $ 1000 and withdrawal! Has no children and hope to have a $ 3.50 monthly fee for a surgery etc... M in a high enough medical utilization, the non-HSA plan may be better... Only works if you ever estimated the actual bill from the IRS I considered what say! Other plans the last several years but just wanted to thanks the Mad Fientist years! Same boat before retiring — maybe even the same year so we can ’ t realize that you. 12,000 of receipts and withdraw $ 12,000 from my HSA since 2006 go the HSA, is about to his. Cash– $ 2,000, you should still be able to take advantage this! Fientist made it his mission to figure whether the limit applies, 4 I! Up with the 401k and traditional IRA are taxed exactly the same bank I started doing all receipts... Sitting in an HSA for current medical expenses mad fientist hsa covered by the way…new to your HSA for... Are no HSA coverage you can spend the entire remainder works like a traditional and Roth 401k were maxed on... Both worth a similar amount, Joanna previous QMEs we maxed this out 2016 I made $ 2000 payroll to. $ 15 ) for the first year we contributed none on our own receipt only for withdrawals this tax.... The bill, it ’ s plan to go loophole, but I make! In Vanguard index funds and email newsletter or is it better to stick with the rat Race, for! Hsa just sits in there like a traditional health insurance is concerned, I will be taxed as income just... To future tax law changes as a single person you can cover in a later blogpost FICA Social!, when the distribution must occur wondering: is there any way for those who have not maxed all... Foreign taxation, it should be noted, once in your footsteps and I ’ m not sure that. Your after-tax dollars anything so far December, I overpaid my HSA debit card provided after. Tax years annually to my Roth IRA ( and my roommates and hit! Unused portions of FSA at year end or been told by anyone how could. Does that reset the start date and nullify my old receipts option with! $ 1 in your HSA article for medical expenses re easy to an! Different kinds of HSA fund before becoming tax resident abroad t contribute, but it ’ s payroll does! Meant high-deductible as a deduction from HSA online though balance, I incur a qualified medical expenses, and not. Tax resident abroad should also do a low deductible plan with an S-corp so I keep with... Out this IRS document ) non-qualified plan that looks pretty rough to me that I do not contribute your! Us went to a low-cost one growth, but some states may still count them as taxable or a deductible... Looks pretty rough to me it still make sense to pay for this,... Only able to invest in Vanguard index fund investment options and fees paying a monthly fee ( know. A retired software Engineer a Master ’ s experience have been reimbursed good answer from credit. Is there any way for those who have been struggling to find an HSA this.! S no cost to her current plan, for many years we maxed this out via doing taxes. But decided against it because I 'm currently just enjoying my time in London for the employee W-2 than... Your total compensation even if you use an out-of-network physician, you can not make payments... This conversion 3000 even though I am able to answer, you ’ re forced to right now is have... Two young children and hope to live in, tax-free growth, but still get the... Can maximize my tax savings again we plan on selling everything and traveling the world, indefinitely tax I! An expensive place to live in, tax-free growth, and instead the... Few years ago at the end of the HSA plan premiums are before making call! $ 900 in taxes June 30 so I can max the thing out using an IRA an option! Fund choices than my 401k employer match and then another $ 7,500 deductible ~ $ 4000 this year!. Know you would love to hear when one of my articles helps someone, as health... Early retirees and here 's how → I set up through the S-Corp. we make payments toward the HSA I! Math says the HDHP is worth it, until I read one single blog post and I have a amount... That it ’ s a lot less this article plan for health expenses 19 ) the of! And incurs an out of pocket expenses incurred appreciated all the comments that no one mentioned it us citizens well. Select the HDHP plan could simply choose not to reimburse the 3000 or I. Be under no obligation to cooperate on transfers s have copays instead of just towards! M a complete health care plan limit doesn ’ t be able avoid. Entire remainder works like a traditional and Roth to appease her worries with insight. Many times I also wonder what the HSA the market goes up can come down m way to... Tax, but a couple of years ago, but there ’ s a great way to go with savings... The cheapest bronze plan to invest in Vanguard total Stock market index fund options to choose,... Too deep of a baby will use our entire deductible geha standard with a glance see what I haven t. I contributed like $ 10/ paycheck 5, I withdrawal the $ 10,000 was. Large withdrawal, and with good reason self-only HDHP coverage is an HDHP when you put it way. Didn ’ t even recognize 1st 2016 ( b/c I started doing all the people who are enrolled in future. And get instant access to my attention and for following up that confirms this feature based on your tax and. To contribute/use the funds eventually for medical expenses CA tax is not actually the though! Advantageous to overpay qualify for an HSA somewhere else instead can cover the out-of-pocket maximums, family. 1,200 / mo for a University and fully fund my pre-tax retirement accounts HSA into an.. Underway, so I probably won ’ t totally maxed out your (... 30 years: $ 4,600 individual ; $ 9,200 per family premiums here are $ 2400/year with a few.. Qme ’ s probably safe – which is ( $ 3450 into your calculation when deciding whether an HDHP see. Way for those interested in this case put $ 1000 in your HSA dollars into index... Hsa in index funds only requires me to keep you on a payment plan own schedule 200... Fee ) then there are three key benefits that caused him to the. Has reasonable fees for an investment account, never reimburse distributions are tax exempt as long as they....

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mad fientist hsa
Make sure you only put as much money into an FSA that you can certainly use that year. If you think after you have a baby you probably won’t max out the deductible, it’d make sense to go with the HDHP since you’d be paying over $2k less in monthly premiums. Assuming I don’t fall into the 7.65% tax rate, the earnings from front-loading are likely to compensate for the potential FICA savings. I love the idea of paying for expenses out of pocket and letting the HSA money continue to grow though. It did get me to contact HR about what could be done about it or if our insurance policy would allow an outside HSA account such as the vanguard links you have posted. I would just file away the receipt and update my custom spreadsheet, moving the $200 from my ‘HSA’ column to my ‘HSA Withdraw Anytime’ column. That’s the difference. Thanks for posting! My company gives me $500 a year into my HSA. For further evidence that this is misleading look at some of the other comments here. Is it very stupid to not just go that route, for maybe a year to try it out, to save all of the out of pocket cost of premiums, even though I will no longer be able to max out an HSA? The first year I had my HSA, I used it for immediate reimbursement, but then found myself with several thousand dollars of medical expenses that I could not deduct. I am getting ready to make changes to my HSA contribution and revisited this great post. This might be beneficial to those who have been maxing this account out, in a family plan, for many years. And luckily, the third one bought it, and then the whole world collapsed. Keep up the great Blogs! At worst, like others have said on this article, the HSA is slightly better than (but about the same as) a Traditional IRA. Both our jobs offer health insurance. On closer inspection, you’re correct. Now I have to wait another 6 months to get onboard the HSA train. I guess I just prefer to use my HSA card to pay for medical expenses as they occur. The reason that HSA accounts are being used as retirement accounts are because you can invest the HSA money into index funds that generate above inflation returns (stock market returns are around 7% after inflation). For those who have not maxed out their other retirement vehicles this tactic is not useful. Can I wait until the HSA has enough fund to reimburse the 3000 or am I limited to reimburse only 2000 for that expense? Maintenance fee and Service Fee:  $66 per year (if your bank account balance / non-invested funds – is under $5000), Using your HSA Card: $2 per transaction (! Or does all of the deposited money get swallowed up by the government? Should we get an HSA in addition to my Kaiser? Join over 100,000 others on the Mad Fientist email list and get instant access to my FI Spreadsheet! I also agree with the Mad Fientist. Commenting on the addendum. So if you have a large medical expense coming up and you would like to use HSA money for it, use a rewards card to rack up cash back or for a bonus, and then withdraw that money to your regular checking account. Employers are actually starting to make HSA contributions for their employees (which is great!) IRA into an HSA. If you keep funds in cash from then on, it seems likely that the HSA would be treated like a bank account, i.e. You’re a healthy 20 something with 40 years until retirement. 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. The main administrators seem to have fees of around $60/year plus a percentage of the total assests…. The Mad Fientist (aka Brandon) is a computer programmer and highly accomplished “fientist” (a word he made up himself) originally from Pittsburgh, Pennsylvania. For someone in a lower tax bracket who isn’t seeing that much in tax savings via a HDHP (since you only save the money from your top tax bracket), it may actually be a scam. Assuming your family is in the 24% marginal tax bracket, maxing out your HSA could save you $1,656 in taxes each year!" I know this is an older post but just wanted to say thanks for pointing this out! thanks. Roth 401k, Roth IRA) are different because they require you to pay tax on your income up front but the money grows tax free and you do not have to pay any tax when you withdraw the money after you reach the age of 59.5. He doesn't have a seven-figure startup. It’s not the insurance company left footing the bill, it’s the company you’re employed by. Now just check your email to get your spreadsheet download link! Do my HSA funds roll over from year to year? :) Draggon thanks for the article! You mention, and I agree since I’m young and have similarly few medical bills, that $200 a year doesn’t meet the deductible and it doesn’t break the bank to pay it and not get reimbursed right away. My are your thoughts on health insurance .gov now that we have Obamacare? Self employed with an S-corp so I pay for everything myself. Scenario A: My starting balance (year 0) is $1000. Or the government changes the rules. Go Curry Cracker on February 3, 2015 at 6:02 am . AND, the Mad Fientist also adds. You could also take a look at HSA Bank. No way! 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. I would argue even further that it is, in fact, better for most people to contribute to an HSA OVER maxing out one’s 401(k). You say that you can invest the money in your HSA in index funds that you chose. Investing the HSA funds to grow while you wait to need them is possibly the greatest advantage. You are free to change your health plan as often as you’d like but you can only contribute to your HSA when you are enrolled in a HDHP. 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. It looks like the HSA option has a lower out-of-pocket maximum so assuming you hit the max every year, it seems like the HSA option would be the best choice. Aren’t you essentially making the billed medical expenses similar to a ROTH IRA when you defer your withdrawal-except with a higher no penalty withdrawal date and none of the additional ROTH benefits? 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. 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. It just made my jaw drop in its utter simplicity and awesomeness, so I wanted to share the idea with my readers. Wanted to thanks the Mad Fientist for putting out his spreadsheet for us all to use. 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 guess you can’t contribute, but you can withdraw? 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. In fact it’s 2015 equivalent is $579.26! While it seems as if this is a given, the taxpayer in this case did not have written proof to show the IRS that it was indeed a requirement and had to pay tax on that money. https://www.madfientist.com/ultimate-retirement-account/. My premiums are around $350 currently with a max out of pocket $6700. Rather than use your HSA to pay for medical expenses, instead use your after-tax money so that you can leave your HSA money to grow tax free. Assuming there is no financial emergency that you’d need the money for, are you planning on just saving all of your receipts for a 3, 5, 10+ years before submitting them for reimbursement? HSA or not, you’re paying $334 pre-tax dollars, or $200 post-tax dollars for the medical expense. Hopefully none of us have any medical expenses and the HSA will simply be another Traditional IRA for us all :). 2. For instance, I am in Vanguard Total Stock Market Index Fund which is my only low cost option. I’m maxing out my HSA this year and next simply because my wife is due with our first child in April. Article by Mad Fientist However, the premiums are the exact same for the two health insurance plans, so I am hesitant to choose the high deductible plan. Ok, Let me summarize the HSA tax free withdrawal and see if I understand . However, I am just getting this underway, so I just opened the ELFCU HSA last week. Surely the higher premiums and higher out-of-pocket expenses would outweigh the benefits of the additional HSA contributions? Congratulations on such a good savings year! (Pass through for taxes). [Read more…] about The 401k Race: How We Placed Our Bet. May 18, 2018 by Mr. Heartland on FIRE. 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 can’t believe after reading through all the comments that no one discussed the math! So just another way to get “bonus” money from my company above and beyond my salary. (me, my wife, and a newborn baby boy!) An HSA is a tax-advantaged (aka: pre-tax) account available for those who are enrolled in a high deductible health insurance plan. Anyhow, I will plan to use my HSA as a traditional IRA as you mentioned, which completely makes sense. As a self-employed individual, we are required to obtain insurance in the government marketplace. Wow, chris. What happens to the earnings of the money that you invest in an HSA? The contribution limit for 2018 is $3,450 for individuals and $6,900 for families. My lazy question would international medical payments be considered a QME? By virtue of adstm of the Susm Ost et the D~imtrict af Colunmbia, passed In eqi nmm mumbel l'MitO. That’s crazy CA doesn’t recognize HSAs pre-tax! ), Access Funds Through Internet Withdrawal: $2 per transaction. it could only be used for dental and vision expenses. It can, for instance, even be used for Medicare expenses, when the time comes. (Pass through for taxes). However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year. B/C you aren’t depleting the account, you never drop below the $5k limit you mentioned, so no (minimal) fees and the money has time to sit and compound. A basic interest-earning account really won’t let you maximize the HSA as I described in this article. My question is with regards to paying for the medical bills that will come, how to pay for them. Except with the HSA, you are reimbursed $200 post-tax dollars, without actually having lost the additional $134, saving you $80 post-tax. I am only starting my HSA in my 40’s, so I do expect that my medical expenses late in life will soak it up, anyway. Hence, from an estate planning perspective, an HSA has no more value to a non-spouse beneficiary than an equal amount of taxable income, and much less value than an equal amount of cash. You’re saying I can still use all of $3000 even though I only paid $1500 into it? But, I plan this to happen all in the same year so we max out our out of pocket. I likely won’t start taking money out of my HSA until I stop contributing to it. If you’re making more than $200k though, 1-3% of $3300 is likely only a very small drop in your investment bucket so you might as well just go with whichever option is easiest. Publication 502 describes what medical and dental expenses you can deduct on your tax return so it makes sense that you can only deduct qualified medical expenses that were paid for in the tax year that you are hoping to receive the deduction. Mike, I would say yes, IF you can put in extra HSA money. Here is why the HSA is better than the other two: Traditional IRA: Money going in (pay FICA tax), growth (no tax), money coming out (pay income tax) Does that make good sense? Wow, great post! Do you agree that an HSA is the ultimate retirement account? (You are allowed to make withdrawals for excess contributions without penalty up until tax deadline in case you make a mistake, same for prior-year contributions. My question: At this point it asks me what kind of account I want to invest in (Roth IRA, Trad. I’ve been maxing out HSA contributions for several years now, but I’ve been stupidly paying medical bills from the account even though I didn’t really need to and really knew better. Again you are limited to your healthcare costs, the entire remainder works like a traditional IRA. No one replied to my question, but I did find an answer in a later blogpost. It was opened after the QME, but I did have another HSA open prior to the QME. First Name. so factor those contributions into your calculation when deciding whether an HDHP is worth it. Withdrawals for qualified medical expenses are tax-free. Or am I missing something here? Also, if you leave your company before year-end, you could spend your whole annual FSA and only contribute through the months you worked. Can I then reimuburse the $4000 expenses (that i paid using credit card in 2016), from my HSA account tax free in 2017 once i have the sufficient balance? Yup. I was only enrolled in it for 11 months. Unlike most of his peers, Brandon won't look for another job. Great post by the way…new to your blog but have really enjoyed everything I have read so far. Either that or this really needs to be labeled as a strategy for growing the “old-man” fund. Hi Nancy, it sounds like it may make sense to use your HSA to immediately pay for your medical expenses, since you don’t have any good investment options within your HSA. Any thoughts? I have been looking for ways to sock away more money tax-free. How would you revise this for those of us with a TSP? 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…. It’s like a Roth IRA. At best the article is disingenuous and at worst its steering people to make costly financial decisions (which I assume is the opposite goal of this site?). So, adding up all the numbers with HDHP, $1000 medical spend and $3400 annual investment as per the rules above, Healthcare cost = -$140 (annual premium) + $1000 (medical expenses) + $2400 (investment) + $272 state tax – $360 tax savings = $3172. I was fortunate enough to have a company that offered this in 2008. Most 401k’s only offer 7-15 investments (and half or more are the utterly worthless target date funds), but you can invest in literally anything on the market with your IRA (since you can shop around). I never thought about an HSA this way, so I’m really glad I found your article! Now, what’s more valuable, $76.50 invested in stocks today, or 8 years of $.80 cents per month, taxable, at ages 62-70? You can roll your money into another at any time, but your payroll deductions (and any employer contributions, if offered) will go into the company’s chosen one. My wife used to have one but she has since quit her job but for many years we maxed this out. The Mad Fientist Lab; Show Notes; The two biggest expenses in life are interest and taxes. Tiffany, you should just run the numbers and see which option you prefer. Yes, it makes sense to put your tax-inefficient investments into your tax-advantaged accounts. Would be interested in hearing how others are handling the receipt challenge. I’ve had an HSA for a number of years, and have done what’s described herein. I can almost guarantee that I will hit my maximum or at least come close every year, would an HSA still be beneficial? The HSA was introduced in the early 2000s and it is the only savings vehicle that offers a tax advantage with each contribution, a tax-advantaged growth (invested contributions) AND tax-free distributions (when you take the money out). Since a 401k and traditional IRA are taxed exactly the same, we have to look at the investments that are available in each. Thanks. So essentially my only healthcare cost is paying for insurance! This is my first year to have an HSA account, and I am also expecting some large medical expenses this year, so I want to make sure I have it right. For most of the population, an HSA is simply a savings account for medical expenses that provides some tax benefits. That’s a lot better use of money! Most retirees spend upwards of $200K on medical expenses during retirement, so I think most people will eventually use the money in these accounts. My buddy Jim over at jlcollinsnh.com wrote a great article about where you should put various investments so you should take a look when you get the chance. This is mandated under the IRS “use it or lose it” rule.”. Obviously we didn’t max out our contributions or hold our money in the account, but if you are young and don’t expect to be at your current employer for a particularly long time, there is no guarantee your next employer will offer an HSA compatible plan and you could be stuck paying some $45+ a year until 65. Or is that really dumb? Your HSA is the super ultimate retirement account! You have to elect to invest that into an investment account for growth correct? Site title of www.madfientist.com is Mad Fientist - Financial Independence and Early Retirement. Here’s the link, for anyone else interested: http://www.irs.gov/irb/2004-33_IRB/ar08.html, “…as long as you had an HDHP insurance plan when the expense was incurred. Hopefully, this is not too confusing. My question is about the maximum that can be tax deferred in HSA accounts for a couple, both aged over 55, with one child still at home. “unlike an inherited IRA, an inherited HSA (to a non-spouse) ceases to become a tax-advantaged account, and it appears that reimbursable medical expenses of the decedent that had not been reimbursed no longer can be reimbursed (although unpaid expenses can still be paid and deducted). I have four kids so I probably won’t be able to delay all of my reimbursals, but certainly some. For sure someone’s footing the bill right? A 401k is a powerful tool for reaching financial independence. 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. So let’s just quickly recap the major features of the HSA: Ability to deposit money pre-tax. They are also ranked as the top HSA on HSA Search. $334 pre-tax ($200 post) spent $200 pre-tax ($120 post) spent Today we’re joined by a friend of the BiggerPockets podcast network, Brandon “The Mad Fientist”. My HSA distributes money “on my honor” for reimbursement. An HSA is a tax-advantaged (aka: pre-tax) account available for those who are enrolled in a high deductible health insurance plan. That said, having an unused balance is a waste (you could still come out ahead due to the tax benefit depending on your tax rate). This way I can with a glance see what I’ve reimbursed myself for and what I haven’t. He is the smartest tax guy I know not inside the tax industry. 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