HSA after you ER

[teejayevans]

Benefits for HSA while you are working are obvious,
anybody continued with HSAs after you ER? If you
did, I be interested in hearing your thoughts.
Tom

[travelover]

My former employer provides health care in retirement, but of the high deductible variety -($1050 for a single person). I have continued my HSA so I deduct my health expenses from my Federal Income tax.

[Khan]

I'm a retired fed employee and I have an HSA with high deductible. Haven't touched it yet.

[kaneohe]

Quote:

Originally Posted by teejayevans Benefits for HSA while you are working are obvious, anybody continued with HSAs after you ER

Are you thinking the benefits for the HSA after ER are different? If so, why? My employer did not offer these till after I left . While I am not thrilled by the high deductible, it seems to be the lesser of the evils due to the lower premiums (vs. the more conventional policy). The double tax benefits of having the $2850 deductible in 2007(for single) regardless of whether you itemize or not and tax free earnings (for medical purposes) are a great benefit not found in most IRAs (usually you get one or the other but not both). Like the others, I am planning to let it sit untouched for some time.

[teejayevans]

Quote:

Originally Posted by kaneohe Are you thinking the benefits for the HSA after ER are different? If so, why?

I was assuming that the tax deduction would be less of an issue because
the tax bracket. And HSAs seem to have less options regarding investment
options, hence lower return on investments, and higher management fees.
Tom

[mykidslovedogs]

Probably the biggest benefit is that you can continue to use what you have saved throughout the rest of your life without having to pay taxes on the distributions just as long as you use the money for an eligible medical expense. The savings itself could prove to be very valuable as you get older, which is when you will likely begin to need more and more health related services.

No matter how old you get, you still have to pay taxes on your IRA distributions, even if you use them for a medical expense. Therefore, the HSA offers an advantage that the IRA does not. The IRA may pay a marginally higher interest on the account, but you will have to pay the taxes when you withdraw the money. With the HSA, you won't necessarily have to pay taxes on the withdrawals, just as long as you are using the money for medical expenses.

[TromboneAl]

Also, no RMDs.

[teejayevans]

Quote:

Originally Posted by mykidslovedogs No matter how old you get, you still have to pay taxes on your IRA distributions, even if you use them for a medical expense.

True, which is why I'd convert a portion my IRA to Roth (as long as I'd stay in the 15%
bracket). And I believe I can also do a 401k->IRA->Roth IRA as well if I still have years
with low taxable income.
When the times comes to making the decision I'll have to work the numbers, which is
why I posted, thought maybe somebody already did.
Thx, Tom

[teejayevans]

Quote:

Originally Posted by Khan I'm a retired fed employee and I have an HSA with high deductible. Haven't touched it yet.

Understand, but my HSA costs are currently paid by my employer and they are helping to
contribute, so it's a no-brainer. But once I retire, its $3/month charge and the current
interest rate is like 4%, means on a balance of $1000 that would be about $4 profit...
correct?? So I don't think I will be depositing more money after I retire, just letting it
ride. It kinda depends on the balance, but that's what I was thinking.
Tom

[kaneohe]

Where are you located? In northern CA, there are a couple of credit
unions w/ no fee or low fee HSAs with reasonable rates: Perhaps there are some in your area too.

Tech CU--7% on first 1K, 3.5% after that, no fees
Patelco CU-5% + , no fees for first yr, then $1/mo after that.

I understand your concern w/ high fees esp when the balance is low.
Also you are right that your tax bracket after ER determines whether that deduction is worthwhile or not.

[teejayevans]

Quote:

Originally Posted by kaneohe Where are you located? In northern CA, there are a couple of credit unions w/ no fee or low fee HSAs with reasonable rates: Perhaps there are some in your area too. Tech CU--7% on first 1K, 3.5% after that, no fees Patelco CU-5% + , no fees for first yr, then $1/mo after that.

My CU has only 1.25% with no fees in NC :-(

[kramer]

Quote:

Originally Posted by teejayevans True, which is why I'd convert a portion my IRA to Roth (as long as I'd stay in the 15% bracket). And I believe I can also do a 401k->IRA->Roth IRA as well if I still have years with low taxable income. When the times comes to making the decision I'll have to work the numbers, which is why I posted, thought maybe somebody already did. Thx, Tom

The difference is that an HSA has the advantages of both a traditional IRA and a ROTH IRA. When you convert your IRA/401k to ROTH you will pay taxes. On HSA money, if you use it for health care, you never pay any taxes on the original money or the gains. Except that certain states tax it (like Taxifornia!).

I am shopping for health insurance as I begin ER, and I am not even considering non-HSA policies.

The way that I look at it is that it gives me a chance to spread out my lifetime healthcare costs more evenly. Hopefully, throughout my 40s and early 50s, I will only be contributing and not using it. My insurance rates will certainly go up as I get older, but now I will have a large, tax-advantaged savings reservoir from which to draw. As my insurance rates go up, I can start using this reservoir for out-of-pockets and deductibles and eventually Medicare supplements.

There are good deals for HSA account locations out there. You just have to look. I do not believe that any are state specific, you can choose any one of them no matter where you live unless they have membership restrictions like a credit union.

Kramer

[CybrMike]

I believe you can invest your HSA in the market if you wish. Check out

http://www.hsabank.com/products/hsa.aspx

They have a full service brokerage option through TD Ameritrade. I believe you can buy vanguard funds.

[teejayevans]

Quote:

Originally Posted by kramer The way that I look at it is that it gives me a chance to spread out my lifetime healthcare costs more evenly. Hopefully, throughout my 40s and early 50s, I will only be contributing and not using it. My insurance rates will certainly go up as I get older, but now I will have a large, tax-advantaged savings reservoir from which to draw. As my insurance rates go up, I can start using this reservoir for out-of-pockets and deductibles and eventually Medicare supplements.

Kramer, that's a good point, I've haven't made the HSA only decision yet, but I am leaning that
way. My current HSA seems in line with others I've checked (hsabank, hsaresources, etc), so
the question became which is better (financially speaking), HSA vs Money Market.

Thanks for the feedback
Tom

[Rich_by_the_Bay]

Quote:

Originally Posted by teejayevans Kramer, that's a good point,

Kramer's points are well taken, but it just depends on what you are trading off in order to get the HSA. In my case, for example, the alternative (while still working) is a very generous traditional indemnity model with prescription coverage, at no cost to me. The HSA option gets funded less by my employer, exposes me to a bigger deductible, etc.

I plan to ride the traditional policy until FIRE, then switch to an HSA and hope for enough years of good health that I can build it up a little. HSAs have merit.

[mykidslovedogs]

Quote:

Originally Posted by Rich_in_Tampa Kramer's points are well taken, but it just depends on what you are trading off in order to get the HSA. In my case, for example, the alternative (while still working) is a very generous traditional indemnity model with prescription coverage, at no cost to me. The HSA option gets funded less by my employer, exposes me to a bigger deductible, etc. I plan to ride the traditional policy until FIRE, then switch to an HSA and hope for enough years of good health that I can build it up a little. HSAs have merit.

Things to think about if you are on a traditional health plan...

On your current plan, what is your deductible? After your deductible is met, do you have to pay a coinsurance split (say 20% to a certain OOP maximum?). How much is an office visit copay? How much is an Rx copay. How much is a hospital copay? Do your copays reduce your calendar year deductible, or are they unlimited out of pocket expenses? When you add up your premiums plus all of the copays you pay, plus the amount of deductible you pay for each year, how much does it all add up to?

For some people, the cost of the deductible, plus coinsurance, plus copays would add up to much more than the out of pocket maximum minus the tax savings on an HSA plan that pays 100% after deductible. For example, on a traditional indemnity copay plan, the out of pocket costs for someone with a $1000 deductible on a $100,000 claim could end up being $1000.00 for deductible, $2000 in coinsurance splits, $25.00 for every office visit, $100.00 for each hospital or ER vist, and $20-50 for each brand name drug per month. These costs could easily exceed a $2500 deductible HSA plan out of pocket maximum in a calendar year AND the premium for the traditional plan might be 50-100% more than the premiums on the HSA plan.

In your case, your benefits are free (to you), so it's probably a good deal for you to stay on the indemnity plan, but for many other people, particularly those in the individual and small group markets, the out of pocket expenses plus cost of premiums on a traditional plan could far exceed the risk associated with a high deductible HSA. Since many on this board are either self-employed or not-employed, an HSA might be the better solution to cap the out of pocket maximum to a predictable figure. With a traditional plan, copays almost never apply to the deductible, so depending on the kinds of prescriptions you might need, you might never really know what your real out of pocket costs are going to be on a traditional plan in the event of a catastrophic illness.