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Can you have too much in an HSA?
Old 04-06-2013, 08:21 PM   #1
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Can you have too much in an HSA?

A little background: Myself and my better half are 31 and have accumulated 33k in an HSA plan. I work for a Megacorp and have a stable job with that company and could move fairly easily if I needed to. My wife is an hourly professional working for a small practice.

We have been maxing out an HSA for the last six years and not using it too much. With ACA coming and early withdrawal penalties now in the 20% range, is it a good idea to still be contributing?

The only positive I can see is these contributions have helped us squeak in under the Roth limits last year. I know they're pre-FICA, but that doesn't do much for me since I'll pay the max either way.

Thanks in advance
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Old 04-06-2013, 08:36 PM   #2
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A little background: Myself and my better half are 31 and have accumulated 33k in an HSA plan. I work for a Megacorp and have a stable job with that company and could move fairly easily if I needed to. My wife is an hourly professional working for a small practice.

We have been maxing out an HSA for the last six years and not using it too much. With ACA coming and early withdrawal penalties now in the 20% range, is it a good idea to still be contributing?

The only positive I can see is these contributions have helped us squeak in under the Roth limits last year. I know they're pre-FICA, but that doesn't do much for me since I'll pay the max either way.

Thanks in advance
In my opinion, no. However, I have to say you have a lot accumulated for your age.

One caveat: with that much accumulated, I hope you have an investment option in your HSA (more than just bank rates). You need to invest most of it in more than just bank savings. If you don't have that flexibility with the administrator, then perhaps you can get too much in the HSA.

Maybe you should start using it to pay some of your medical stuff. Some of us don't, but sounds like you are getting enough in there to use it. Remember, later in life you can use it like an IRA (more than just medical), so it will obtain more flexibility when you retire... Although I suspect you'll be using it up for medical purposes.
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Old 04-06-2013, 09:29 PM   #3
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At your age, no.
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Old 04-07-2013, 06:06 AM   #4
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Originally Posted by JoeWras View Post

In my opinion, no. However, I have to say you have a lot accumulated for your age.

One caveat: with that much accumulated, I hope you have an investment option in your HSA (more than just bank rates). You need to invest most of it in more than just bank savings. If you don't have that flexibility with the administrator, then perhaps you can get too much in the HSA.

Maybe you should start using it to pay some of your medical stuff. Some of us don't, but sounds like you are getting enough in there to use it. Remember, later in life you can use it like an IRA (more than just medical), so it will obtain more flexibility when you retire... Although I suspect you'll be using it up for medical purposes.
Thanks for the advice. We are using it to pay every eligible dollar we can right now. We have decent investment options and it automatically sweeps all but 3k into mutual fund choices. Part of the accumulation is from market gains.
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Old 04-07-2013, 06:15 AM   #5
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You are asking that question when you and your loved one are both young and healthy. No one can predict how much medical expenses one can run up in his/her lifetime.

And on top of that, unused money in the HSA just go into the estate to be passed on to spouse or other beneficiaries if one dies. It is not like the money disappeared if left unused, and the invested money is not unlike those in an IRA

"What happens should an account owner die? At death, if a surviving spouse is the designated beneficiary of an HSA, it becomes a HSA for that widow or widower. If someone other than a surviving spouse is the designated beneficiary, the HSA is terminated as of the date of death and the fair market value becomes taxable income to that person. If there is no designated beneficiary, the remaining assets become part of the deceased's estate."
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Old 04-07-2013, 06:29 AM   #6
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I saw a seminar on the taxation of HSA.... the guy giving it had over (IIRC) something like $150K... this was many years ago before Apple made a big rise... he said he had a lot invested in Apple... (wonder what it is worth now)...

He also said he did not take a cent out of the account.... he kept ALL of his receipts... said that he could take the money out anytime he wanted.... there was no requirement to take it out when spent....

So the answer from me is NO, you can not have too much in an account... with the caveat that you have to be able to invest it and not leave it in some CD or checking account that gets little return....
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Old 04-07-2013, 07:02 AM   #7
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Originally Posted by chasesfish View Post
A little background: Myself and my better half are 31 and have accumulated 33k in an HSA plan. I work for a Megacorp and have a stable job with that company and could move fairly easily if I needed to. My wife is an hourly professional working for a small practice.

We have been maxing out an HSA for the last six years and not using it too much. With ACA coming and early withdrawal penalties now in the 20% range, is it a good idea to still be contributing?

The only positive I can see is these contributions have helped us squeak in under the Roth limits last year. I know they're pre-FICA, but that doesn't do much for me since I'll pay the max either way.

Thanks in advance
DW and I are almost twice as old and we still max our HSA. Not as good as a Roth but how many options do you have for tax free investing? Even if new HSA policies go away, high deductible options will always be available so you will have plenty of opportunities to spend that money.
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Old 04-07-2013, 07:07 AM   #8
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I don't think so, if you look at the "excess" as retirement funds you can access without penalty at age 65.

Sure, there are other things I'd do first if I thought HSA funding was exceeding my perceived need for medical expenses: Get all of an employer's 401K match, fund a Roth IRA, that sort of thing. But after that, if you still want/need tax deferral (or avoidance), why not? Again, it's not like you lose the money if you don't use it for medical expenses; the only downside is that to take it as penalty-free retirement income, you have to wait until 65, not 59.5 (or even 55 with a 401K in some circumstances).
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Old 04-07-2013, 08:08 AM   #9
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I've had my own individual HI policy since right before HSAs were created, and always took a high deductible to minimize my premium...and have been maxing out my individual HSA contribution since they started, so my account (w/ a TD Ameritrade investment account) is at $46k.

I also had some great investment moves for a change (total contributions of $26.6k), and it makes me laugh when I look at the fact that my best-performing account by far over the past 10 years has been the account that is least accessible!

I have wavered back and forth on the issue of "do I keep contributing?"
As others have mentioned, you can pass it along to your spouse as an HSA...but my big reason for still doing it is that I have had the fortune of making 'too much money' (sometimes by just a few thousand $) for some of the previous 9 years to quality for ROTH IRA contributions. The HSA lets you contribute (and deduct!) whether your income is $5,000 or $5,000,000, so since I already max out my 401k, the HSA is the only way to increase my tax-advantage savings.

And don't forget - the HSA is the only truly 100% TAX FREE way to save - your contributions are 100% tax deductible and your earnings/withdrawals are 100% tax free (for medical expenses). No other vehicle in the tax code provides this kind of advantage!!! The only thing that comes close is the 'savers credit' for lower-income people making 401k contributions.

If I stay healthy, then I can always withdraw from the HSA after age 65 with just income taxes owed - so at the worst case scenario, the HSA is just another 401k, but one that can't be tapped (without penalty) before 65 instead of 59.5. At the best case, I take money out (still tax-free) for medical expenses.

However, I do have a good wad in accessible funds for ER, so I can take the total portfolio view of my SWR and simply spend a little more in my taxable savings while the HSA grows untouched until age 65, and then access it. If you need to shift more funds to taxable accounts, I would keep maxing out the HSA at all costs, and reduce 401k contributions if need be (unless you get a sweet employer match), just because the HSA is truly tax free (at least, for now...until politicians possibly change it).
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Old 04-07-2013, 09:20 AM   #10
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Under current rules I would continue maxing HSA contributions while you can. No telling when gov't might curtail or eliminate HSA deductions. It's nice that you are both young & healthy, but consider that $33k is not as much as it seems when it comes to health care bills. Annual max out-of-pocket cost limit under ACA for 2014 is $12,500, and IIRC providers could still bill you for "non-covered" services (i.e. care you received which gov't considers "not medically necessary"). And if you &/or DW loose your HI for whatever reason (co decides to not offer, eliminates spousal coverage, j#b loss, etc.), that OOP max does NOT include HI insurance premiums. IIRC unemployment/COBRA is one of those exceptions where HSA could be used to pay HI premiums.

Health Reform Subsidy Calculator - Kaiser Health Reform
Health Savings Account Resource Center: Are health insurance premiums qualified medical expenses?
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Old 04-07-2013, 09:37 AM   #11
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from what i've read high deductibe bronze plans can be paired with hsa's
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