Health Saving Account (HCA) Eligibility

[G-Man]

Health Saving Account (HSA) Eligibility

I have been doing a lot of research on the benefits of the Health Saving Account (HSA). It looks like folks are adding this type of account to their overall retirement portfolio. This is a great way to accumlate tax free dollars for medical and non-medical expenses. Currently I have all tax-deferred investments (401K plan) for retirement.

My company does not offer a HSA, however; they do offer a Flexible Saving Account (FSA). My health care provider today is CIGNA OAP Coinsurance Plan and I don't believe this plan is a HSA-compatible health plan. So, I would not be able to contribute to a HSA account using pre-tax dollars.

With that being said, can I open up a HSA account on my own using post-tax dollars? I read over the HSA eligibility on the IRS website, but not sure if I qualify since I have a health care plan with my employer today. Please advise.

 

[pb4uski]

No, you need to have a HDHI (high deductible health insurance) plan to contribute to a HSA. You could ask your employer if they are considering including a HSA-eligible option to their health insurance plans. My former employer offered both HSA and traditional plans.

 

[G-Man]

No, you need to have a HDHI (high deductible health insurance) plan to contribute to a HSA. You could ask your employer if they are considering including a HSA-eligible option to their health insurance plans. My former employer offered both HSA and traditional plans.

Thanks.. I will ask my employer because they constantly add new plans each year during the enrollment period.

 

[kaneohe]

Are you participating in FSA? Sounds like you can't have HSA and full-fledged FSA at same time Internal Revenue Bulletin - December 5, 2005 - Notice 2005-86
although a limited purpose FSA covering dental and vision (but not medical) would work?

not the easiest thing to read.......perhaps google something like:
can I have HSA and FSA at the same time
and you might get a better link.

 

[G-Man]

Are you participating in FSA? Sounds like you can't have HSA and full-fledged FSA at same time Internal Revenue Bulletin - December 5, 2005 - Notice 2005-86
although a limited purpose FSA covering dental and vision (but not medical) would work?

not the easiest thing to read.......perhaps google something like:
can I have HSA and FSA at the same time
and you might get a better link.

No.. I am not participating in the FSA today.. My wife and I have very little medical bills per year.. Additionally, I believe you have to use all the money you contribute to FSA during that year. There is no carryover.

 

[MooreBonds]

I don't know the rules behind funding FSAs and HSAs at the same time, but I do know that you do NOT have to use your employer's HSA provider.

As long as you have a qualified HDHP (individual or through an employer), you can put money into any HSA provider you wish, subject to the annual caps for individual/family coverage.

It's true that you may miss out on avoiding the 7.65% payroll tax by making your own after-tax contribution to an HSA, but if the investment choices in that HSA are crappy enough, you could conceivably offset that after a number of years of maxing out HSA contributions into your own selected HSA provider.

For instance, a number of people (myself included) on both this board and Boggleheads use HSA Bank. HSA Bank lets you create an investment account @ TD Ameritrade that lets you buy virtually anything you can buy in a TD Ameritrade retirement account (stocks, mutual funds, ETFs, perhaps limited covered call writing).

If you are stuck in an employer's HSA investment account with high-fee funds, you might save 7.6%% that first year by contributing pre-tax...but after, say, 5 or 7 years, those expensive mutual funds might have expense ratios much higher than 1%/year more than what you could find in an Ameritrade account.

One note: While HSA Bank charges account fees,virtually all HSA providers do as well. I pay about $5.50/month total for having my HSA Account with less than $5,000 cash and a TD Ameritrade account. I keep a minimal amount of cash in my HSA Savings account because $5,000 can earn more in dividends from my investments than it would cost to keep it as dead money in the account to avoid their $3 monthly fee for a balance less than $5,000.

 

[G-Man]

I don't know the rules behind funding FSAs and HSAs at the same time, but I do know that you do NOT have to use your employer's HSA provider.

As long as you have a qualified HDHP (individual or through an employer), you can put money into any HSA provider you wish, subject to the annual caps for individual/family coverage.

It's true that you may miss out on avoiding the 7.65% payroll tax by making your own after-tax contribution to an HSA, but if the investment choices in that HSA are crappy enough, you could conceivably offset that after a number of years of maxing out HSA contributions into your own selected HSA provider.

For instance, a number of people (myself included) on both this board and Boggleheads use HSA Bank. HSA Bank lets you create an investment account @ TD Ameritrade that lets you buy virtually anything you can buy in a TD Ameritrade retirement account (stocks, mutual funds, ETFs, perhaps limited covered call writing).

If you are stuck in an employer's HSA investment account with high-fee funds, you might save 7.6%% that first year by contributing pre-tax...but after, say, 5 or 7 years, those expensive mutual funds might have expense ratios much higher than 1%/year more than what you could find in an Ameritrade account.

One note: While HSA Bank charges account fees,virtually all HSA providers do as well. I pay about $5.50/month total for having my HSA Account with less than $5,000 cash and a TD Ameritrade account. I keep a minimal amount of cash in my HSA Savings account because $5,000 can earn more in dividends from my investments than it would cost to keep it as dead money in the account to avoid their $3 monthly fee for a balance less than $5,000.

OK.. So how can I verify whether or not I am eligible to setup a HSA? Once again, my employer does not offer this option.

 

[kaneohe]

Publication 969 (2012), Health Savings Accounts and Other Tax-Favored Health Plans

 

[Mulligan]

OK.. So how can I verify whether or not I am eligible to setup a HSA? Once again, my employer does not offer this option.

The description and benefits of your policy determines whether or not it is considered a HD plan that is HSA eligible. You will have to compare the policy features to what the IRS guidelines considers HSA eligible. It definitely doesn't hurt to check out for confirmation, but it would seem most unusual at best for a company to be supplying you with an HSA ready deductible plan, but neither not informing you of that or providing an HSA bank to directly link to the provider.

 

[Clover5]

Hopefully easy question. If one is retiring in mid 2014 at 53 and is considering the Bronze Plan + opening HSA should I decline my company's FSA for 2014? Think I could COBRA till end of 2014 and exhaust the FSA as another option. Have assumed PPACA is much cheaper than my co's COBRA.

Thanks

 

[sengsational]

Hopefully easy question. If one is retiring in mid 2014 at 53 and is considering the Bronze Plan + opening HSA should I decline my company's FSA for 2014? Think I could COBRA till end of 2014 and exhaust the FSA as another option. Have assumed PPACA is much cheaper than my co's COBRA.

For me, the FSA is almost more trouble than it's worth. Do you spend many medical dollars while using your company's medical plan? I don't. I get a tiny bit of tax savings that requires a whole lot of book keeping and end of year tooth gnashing if I haven't spent it.

My expectation is that the PPACA will be less expensive than paying the full megacorp COBRA in my case because, for a couple of years anyway, I'll be getting the subsidy (living without any W2 income and spending out of taxable accounts...not pulling out of pre-tax and generating income. It's likely your COBRA and PPACA would be similarly priced if you don't qualify for the subsidy.