HSA account

[ChrisC]

HSAs can be used to pay LTCi premiums up to specified IRS limits.

 

[audreyh1]

I've looked at them, but their $45 annual fee turned me off. There seems to be no way to avoid it, either, whether with a minimum balance or online statements.

As compared to whom?

All the other custodians that offer investment opportunities such as Chase, or HSA Bank with its Ameritrade account charge extra monthly fees for them on top of their bank account fees which add up. The JPMorgan and American Century mutual funds offered through chase have much higher expense ratios.

 

[MichaelB]

I've not seen a (non-employer based) HSA account anywhere that didn't have high fees. If the intention is to leave the money invested and defer use to the future, HSA bank and HSA Adminstrators look like good options.

 

[47]

As compared to whom?

All the other custodians that offer investment opportunities such as Chase, or HSA Bank with its Ameritrade account charge extra monthly fees for them on top of their bank account fees which add up. The JPMorgan and American Century mutual funds offered through chase have much higher expense ratios.

HSAbank waives all the fees provided you keep a specified balance parked in the bank account. The required amount started out at $3K a few years ago, and has slowly crept up. Now they have put it on auto-pilot and tied it to the contribution limit itself! It is listed as the average of single and family HSA contribution limits. Very clever. It works out to about $5K/year of dead money with the zero interest rates at present. Any money above that, you can move to TD Ameritrade and invest.

If you don't have the required balance the fees are $2.50/month to keep the account, and an additional $3/month for investment account.

http://www.hsabank.com/~/media/files/fees_s1

One of the things that tripped me up in HSA was how to split my contribution and spouse's contribution. With all the talk about family HSA limit, I was lulled into thinking it can all be kept in one account. HSA treatment is just like an IRA and it is individually titled and tracked. So your spouse's contribution should go in his/her own separate account, but the combined contribution should be under the limit. It is not clear whether you can put all the money in one individual's account if you have a family plan. But we were each under our own individual HDHP plans. When I found out, I had to take out the excess contribution in my acct. and open a separate account for my spouse. Fortunately, I caught that in the first year itself and unwinding was fairly easy.

 

[audreyh1]

I've not seen a (non-employer based) HSA account anywhere that didn't have high fees. If the intention is to leave the money invested and defer use to the future, HSA bank and HSA Adminstrators look like good options.

That's how things seem to be leaning....

If enough Vanguard ETFs are commission free at TD Ameritrade, that looks like a good option compared to HSA Administrators.

 

[audreyh1]

HSAbank waives all the fees provided you keep a specified balance parked in the bank account. The required amount started out at $3K a few years ago, and has slowly crept up. Now they have put it on auto-pilot and tied it to the contribution limit itself! It is listed as the average of single and family HSA contribution limits. Very clever. It works out to about $5K/year of dead money with the zero interest rates at present. Any money above that, you can move to TD Ameritrade and invest.

If you don't have the required balance the fees are $2.50/month to keep the account, and an additional $3/month for investment account.

http://www.hsabank.com/~/media/files/fees_s1

So for 2014, if you have $5000 in your HSA Bank account (earning 0.4%), you don't pay any additional monthly fees to have a linked TD Ameritrade account?

HSA Directory - Compare Rates for Health Savings Accounts

 

[easysurfer]

Fee or no fee, I'm happy to investing every dollar into Vanguard Funds with HSA Administrators, unlike some custodians where you have to have a larger bank balance before investment eligible.

 

[audreyh1]

Fee or no fee, I'm happy to investing every dollar into Vanguard Funds with HSA Administrators, unlike some custodians where you have to have a larger bank balance before investment eligible.

Yeah, that $5000 threshold is pretty high, and at 0.4% APR it's earning you a whopping $20 a year.

 

[ziggy29]

I've not seen a (non-employer based) HSA account anywhere that didn't have high fees. If the intention is to leave the money invested and defer use to the future, HSA bank and HSA Adminstrators look like good options.

Agreed, assuming you are planning to invest (i.e. not park the money in a savings account earning 0.5% at best). My plan has always been to have about 3 years of combined OOP maximums left as cash in my HSA and I really haven't accumulated enough money above that to justify the charges to invest the rest. There are quite a few places where you can get a "free" account if you have more than (say) $5K and you leave it in cash. Then again, one way or another you pay for it.

 

[audreyh1]

Agreed, assuming you are planning to invest (i.e. not park the money in a savings account earning 0.5% at best). My plan has always been to have about 3 years of combined OOP maximums left as cash in my HSA and I really haven't accumulated enough money above that to justify the charges to invest the rest. There are quite a few places where you can get a "free" account if you have more than (say) $5K and you leave it in cash. Then again, one way or another you pay for it.

I think I'm going to pay medical expenses out of regular savings and use the HSA as a tax-free savings account for medical expenses after I'm 65.

 

[ziggy29]

I think I'm going to pay medical expenses out of regular savings and use the HSA as a tax-free savings account for medical expenses after I'm 65.

One thing to be mindful of also, when looking at HSA investments, is that some HSAs charge a "transaction fee" every time you make a purchase. So if you are "dollar cost averaging" (so to speak) into an HSA with monthly contributions, you probably want to avoid any HSA that charges $10-20 any time you place a buy. It's not a big deal if you only do that once a year with thousands of dollars at a time, but it would be a real drag to be hit with a transaction fee every month!

 

[bamsphd]

One of the things that tripped me up in HSA was how to split my contribution and spouse's contribution. With all the talk about family HSA limit, I was lulled into thinking it can all be kept in one account. HSA treatment is just like an IRA and it is individually titled and tracked.

Thanks, I had missed that aspect, though it is mentioned in the HSA Bank FAQ. Frequently Asked Questions - HSA Bank

So if we went with our state's Silver HSA family plan for 2014, we would have a $5000 family medical deductible, and an $8000 family OOP max. However, instead of having one $6,550 HSA to cover those costs, we will apparently need to have two individual $3,275 HSA plans. Since one of us tends to use medical services, and the other rarely uses medical services, splitting it that way is much less efficient than I had expected.

Edit: See revised understanding in my post below.

 

[mpeirce]

I think I'm going to pay medical expenses out of regular savings and use the HSA as a tax-free savings account for medical expenses after I'm 65.

The first year I had an HSA I used it to pay for OOP medical expenses. The next year my CPA noticed this and sat me down for a talk. He pointed out the almost amazing tax advantages the accounts have.

So now I max out the HSA and don't plan on touching it for a long time.

 

[ziggy29]

So if we went with our state's Silver HSA family plan for 2014, we would have a $5000 family medical deductible, and an $8000 family OOP max. However, instead of having one $6,550 HSA to cover those costs, we will apparently need to have two individual $3,275 HSA plans. Since one of us tends to use medical services, and the other rarely uses medical services, splitting it that way is much less efficient than I had expected.

Are you sure about that? That may be true if you have separate individual policies (I'm not sure), but in my experience if you have a single family policy you can put it into one HSA (in the name of the primary insured) and use it for expenses for everyone on the policy. My Megacorp HSA covered both of us and I put the max in the HSA ($6K plus -- though Megacorp put in the first $1000) for expenses for both of us.

Is that not right? Or has that changed in the post-ACA world?

I can't contribute any more, since we won't have any HDHP, we're only in the 15% bracket now after my layoff and we don't have the cash flow to max this out anyway. But my HSA is sitting at just a little over $25K and if I decide I won't touch it until I'm over 65, I'll probably move it to a place where I can invest in low-cost mutual funds.

 

[audreyh1]

One thing to be mindful of also, when looking at HSA investments, is that some HSAs charge a "transaction fee" every time you make a purchase. So if you are "dollar cost averaging" (so to speak) into an HSA with monthly contributions, you probably want to avoid any HSA that charges $10-20 any time you place a buy. It's not a big deal if you only do that once a year with thousands of dollars at a time, but it would be a real drag to be hit with a transaction fee every month!

Right - only considering NTF options.

 

[47]

Thanks, I had missed that aspect, though it is mentioned in the HSA Bank FAQ. Frequently Asked Questions - HSA Bank

So if we went with our state's Silver HSA family plan for 2014, we would have a $5000 family medical deductible, and an $8000 family OOP max. However, instead of having one $6,550 HSA to cover those costs, we will apparently need to have two individual $3,275 HSA plans. Since one of us tends to use medical services, and the other rarely uses medical services, splitting it that way is much less efficient than I had expected.

As I mentioned, I think the split is needed only if you two are on your own policies (i.e. not a family policy) and both of you are HSA eligible. If you are on a family policy, you can split optionally. Also it appears the account needs to be split if you are planning on using the accelerated contribution for your spouse.

http://www.hsaresources.com/pdf/HSA_Resources_Eligibility_Contribution_Worksheet.pdf

In any case, the split treatment is only for the contributions and the accounts themselves. You can always pay for your other family members' expenses from your HSA and so can your spouse. This is true even if you happen to have one from your bachelor days, continue it only for yourself with never opening an account for spouse etc. There is no restriction on that.

Of course, it does become less efficient in terms of the fees as you have to pay the custodian doubly in terms of direct fees or minimum balances.

The split account treatment becomes relevant in cases of death/divorce etc.

 

[bamsphd]

Are you sure about that?

Nope.

From IRS.gov Publication 969.

Rules for married people. If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2012 is $6,250. You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouse's Archer MSAs. After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division.

and later in the same document

Qualified medical expenses are those incurred by the following persons.

1. You and your spouse.
2. All dependents you claim on your tax return.
3. Any person you could have claimed as a dependent on your return except that:
   1. The person filed a joint return,
   2. The person had gross income of $3,800 or more, or
   3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2012 return.

So my revised tentative understanding is that based on the HSA Bank FAQ a husband and wife must have separate accounts. However, if the husband and/or wife is covered by a "family" high deductible health plan, then if both the husband and wife agree, you could split the "family" HSA contribution anyway you wanted between their two HSA accounts. You could also withdraw money from either account to pay for "Qualified" medical expenses incurred by either person.

Dizzy yet?

 

[Cedar]

Cedar, there's no doubt the second link you provided is incorrect on this, the IRS language clearly defines O-MAGI as starting from adjusted gross income, which excludes retirement plan contributions.

I wanted to thank Ziggy, Michael and 47Percent for helping to clear up the answer, “Does Traditional IRA contributions reduce your OMAGI which will help with subsidies”. IRS Rules are pretty clear that HSA contributions that reduce OMAGI but there are ambiguous readings in regard to TIRA’s. I believe everyone on this board now believes that Traditional IRA contributions will lower your OMAGI to help with subsidies. Thanks for everyone’s impute.

 

[ziggy29]

I wanted to thank Ziggy, Michael and 47Percent for helping to clear up the answer, “Does Traditional IRA contributions reduce your OMAGI which will help with subsidies”. IRS Rules are pretty clear that HSA contributions that reduce OMAGI but there are ambiguous readings in regard to TIRA’s. I believe everyone on this board now believes that Traditional IRA contributions will lower your OMAGI to help with subsidies. Thanks for everyone’s impute.

As of now, I'm choosing to treat MichaelB's link to a government site specifically talking about MAGI for ACA purposes as the final word on this.

I'm not eager (in the 15% bracket next year) to move up to $11K out of savings and into a TIRA next year, but if needed to get our MAGI below 300% of the FPL, it's nice to have that arrow in the quiver held in reserve.

 

[47]

Is this an actionable tax saving loop hole?

If you have individual (non-group) non -HSA-compliant insurance now, and plan to get into an HSA compliant insurance next year the following sounds really interesting.

If I am reading this correctly, it looks like you can switch to a HSA compliant policy just for December 2013, and contribute the full years HSA for 2013.

I always thought it is pro-rated month to month. Now it looks like it is pro-rated only if you start with being HSA-eligible and lose eligibility mid-year.

What's going on here??


from Wells Fargo HSA site:
https://www.wellsfargo.com/help/faqs/investing-hsa/

Last month rule: If you’re an eligible individual on the first day of the last month of your tax year (December 1 for most tax payers), you’re considered an eligible individual for the entire year. You’re treated as having the same HSA-qualified health plan coverage for the entire year as you had on the first day of that last month. However, the IRS requires that you maintain HSA qualified coverage through December 31 of the following year (this is referred to as the “testing period”).7

 

[SteveNU]

So the way I understand the catch up feature, if you split the HSA account into two accounts both you and your spouse could do the catch up extra contributions. So you could put in a total of $8450 this year?

 

[47]

So the way I understand the catch up feature, if you split the HSA account into two accounts both you and your spouse could do the catch up extra contributions. So you could put in a total of $8450 this year?

Yes.

 

[audreyh1]

It seems nigglingly odd (is that a adjective?) that the family limit is $50 less that the combined limits of two individuals. Why bother?

But I guess for next year we would be limited to $8,550, rather than $8,600 if we were not married and filing jointly. Kind of annoying. I guess we'll each contribute $25 less.

 

[ziggy29]

It seems nigglingly odd (is that a adjective?) that the family limit is $50 less that the combined limits of two individuals. Why bother?

I believe the law regarding HSA limits calculates the limits to the nearest $50 based on inflation (general CPI, not health care inflation) and family limits are calculated after doubling the individual limit.

So if the single limit in your case were (say) $4,280 (including the catchup over age 55), then it would be rounded to the nearest $50 as ($4280 * 2) = $8560 which rounds to $8550 for a family, but rounds to $4300 individually.

It could work the other way, of course. If the limit went to $4,320 next year, for example, the single limit would be $4300 but the family limit would be $4320 * 2 = $8640, rounded to $8650 to the nearest $50.

 

[audreyh1]

I believe the law calculates the limits to the nearest $50 and family limits are calculated after doubling the individual limit.

So if the single limit in your case were (say) $4,280, then it would be rounded to the nearest $50 as ($4280 * 2) = $8560 which rounds to $8550 for a family, but rounds to $4300 individually.

It could work the other way, of course. If the limit went to $4,320 next year, for example, the single limit would be $4300 but the family limit would be $4320 * 2 = $8640, rounded to $8650 to the nearest $50.

OK - thanks for the explanation. I'll expect it to vary +/-$25 from year to year then.