HSA Questions

[kaneohe]

1) are there any income restrictions on being able to deduct your HSA
contribution ?(similar to not being able to deduct IRA if AGI > xxx)
2) Pub. 969 suggests that qualified medical expenses for either you or
spouse can be reimbursed from HSA. Is this true even if HSA is in
my individual name?
3) I was told that in the year you turn 65, you can only contribute an
amount (deductible + catchup) that is proportional to the part of the
year that you are less than 65. True? and if so, is this based on days
or months or weeks that you are less than 65?
4) Does it matter when in the year you make the contributions? Can you
be reimbursed for expenses incurred before you made the contributions

Thanks for your help.

[Martha]

Originally Posted by kaneohe

1) are there any income restrictions on being able to deduct your HSA
contribution ?(similar to not being able to deduct IRA if AGI > xxx)

There aren't any specific income limits. Aren't HSA contributions above the line deductions and it doesn't matter if you itemize? I think that would mean that the itemized deduction phase out for high income tax payers shouldn't apply. Probably OK for AMT too, but not sure.

2) Pub. 969 suggests that qualified medical expenses for either you or
spouse can be reimbursed from HSA. Is this true even if HSA is in
my individual name?

Yes.

3) I was told that in the year you turn 65, you can only contribute an
amount (deductible + catchup) that is proportional to the part of the
year that you are less than 65. True? and if so, is this based on days
or months or weeks that you are less than 65?

Isn't this rule based on when you become medicare eligible? And you only can contribute for the months before the first month you are eligible? That is what I recall.

4) Does it matter when in the year you make the contributions? Can you
be reimbursed for expenses incurred before you made the contributions

I believe that is the case. Read the details in this US treasury publication:
http://www.ustreas.gov/offices/publi...hsa-basics.pdf

[TromboneAl]

Yes.

Wow, that's good to know, I didn't realize that!

[Martha]

Originally Posted by TromboneAl

Yes.

Wow, that's good to know, I didn't realize that!

Yeah, read page 28 of the treasury pub I attached. It really has a lot of good info.

[kaneohe]

Martha,

thanks for the info and the link.

Just to clarify some of my original questions which could have been worded more clearly :

1) I believe that the HSA deduction is, as you stated, an above-the-line
deduction that you can take even if you don't itemize. The question
was meant to say that I think traditional IRA deduction is also above
the line deduction---yet whether you can take that deduction is a
function of other factors like ? whether you have a retirement plan at
work and ? AGI.

2) I have the HDHP and the HSA but spouse has separate medical insurance plan. I was surprised that it feels like spouse medical
expenses could be reimbursed from my HSA. Another thing that surprised me is that it appears that some significant portion of LTC
premiums can be covered by the HSA even tho the HDHP medical
insurance premiums cannot.

3)IRS told me that the HSA form 8889? contains the calculation for
prorating the max amount allowed (deductible + old age catch up)
in the year I become medicare eligible so I ordered the form to find out how that calc is done

4) Since the returns within the HSA seem so poor, is it a reasonable
strategy to just keep the minimum amount to avoid penalties in the
HSA until there are expenses to be reimbursed. Then contribute
enough to cover the expenses and withdraw the funds. Or does the
HSA custodian require either a lump sum or a regular monthly
contribution?

[Martha]

Originally Posted by kaneohe

Martha,

thanks for the info and the link.

Just to clarify some of my original questions which could have been worded more clearly :

1) I believe that the HSA deduction is, as you stated, an above-the-line
deduction that you can take even if you don't itemize. The question
was meant to say that I think traditional IRA deduction is also above
the line deduction---yet whether you can take that deduction is a
function of other factors like ? whether you have a retirement plan at
work and ? AGI.

There are no special rules that I know of that limit your ability to deduct the HSA. My only worry was whether the itemized deduction phase out for high income people would apply (probably not) or if it is an AMT exclusion (also probably not).


Don't know about your last question, but have you looked at moving your HSA to get better returns?

[REWahoo]

Originally Posted by Martha

Don't know about your last question, but have you looked at moving your HSA to get better returns?

kaneohe, have you checked out www.hsaadministrators.com ? After doing some comparison shopping plus a recommendation from a poster who has used them for almost a year (T-Al), I'm going to open an HSA account with these guys next month. They have relatively low fees and allow you to invest in a group of Vanguard Funds, including their Prime MMkt Fund.

[MooreBonds]

Originally Posted by kaneohe

1) I believe that the HSA deduction is, as you stated, an above-the-line
deduction that you can take even if you don't itemize. The question
was meant to say that I think traditional IRA deduction is also above
the line deduction---yet whether you can take that deduction is a
function of other factors like ? whether you have a retirement plan at
work and ? AGI.

Yes, as far as I can tell, the only requirement on whether or not you can take the HSA deduction is if you have a qualified HDHP, are not on Medicare, and contribute that amount to your HSA account. You can make $1 or $1,000,000.

Originally Posted by kaneohe

4) Since the returns within the HSA seem so poor, is it a reasonable
strategy to just keep the minimum amount to avoid penalties in the
HSA until there are expenses to be reimbursed. Then contribute
enough to cover the expenses and withdraw the funds. Or does the
HSA custodian require either a lump sum or a regular monthly
contribution?

I use HSA Bank (hsabank.com) They have low returns in their bank accounts, but they offer a FREE account with Ameritrade Corporate Services. Stock trades are just $20 (they're higher than their standard Ameritrade rates), you can invest in mutual funds, and the ONLY annual fees you pay are to have your HSA Bank account, if the bank account balance is under $3,000 ($2.25/month). Almost every place charges monthly fees for an HSA account, but the upside is that I invest my HSA funds in preferred stock and REITs, earning an average yield of 7.04% (it's actually yielding a much higher rate off of my cost basis, but my REIT holding has risen 40%, dropping the yield down).

You start out by depositing funds in your HSA bank account. If you want to transfer funds to your Ameritrade HSA account, you simply call up HSA Bank, give them the account numbers, and you're good to go.

Since the max you'll be able to put in is $2,700 for the first year, your monthly fees will amount to 1% of assets...however, after funding it for just 3 years, you can accumulate over 8,000, and by that time, the $27 in annual HSA Bank fees are just 0.33% of assets! After 4 years, it's just 0.25%! If you can earn 7-8% off of REITs, preferred stocks, and other investments, it's worth it to pay the HSA Bank fees.

As REWahoo/T-Al have mentioned, they prefer the Vanguard route with HSA Administrators, which bases their annual fees as a % of assets, rather than a set monthly fee.

[eridanus]

Originally Posted by kaneohe

4) Since the returns within the HSA seem so poor, is it a reasonable
strategy to just keep the minimum amount to avoid penalties in the
HSA until there are expenses to be reimbursed. Then contribute
enough to cover the expenses and withdraw the funds. Or does the
HSA custodian require either a lump sum or a regular monthly
contribution?

I know of one employer's plan that requires an employee monthly contribution, which is matched. Otherwise, if it's your own plan, you can contribute however you like.

Your strategy could work but I agree with Martha -- get a better custodian. Like others here, I invest with Vanguard funds at hsaadministrators.com. I have a (smaller) 2nd HSA at cattlebank.com, which pays 5%. They charge few fees and provide a debit card. It's painless to pay a medical bill as there's no paperwork to fill out and mail.

[kaneohe]

5) I have a HDHP that covers me only. DW has her own non-HDHP plan.
I understand that my HSA can cover qualified expenses for both of us.
How much can I contribute to my HSA---my deductible + one catchup?
Or my deductible + 2 catchups (both of us over age 55)?

6) What if my HDHP covered both of us? and spouse did not have own
plan. How much can I contribute to my HSA---my deductible + one
catchup?Or my deductible + 2 catchups (both of us over age 55)
note: the deductible in this case is 2x that in question 5)above

or does spouse need to have own HSA to get own catchup?
(can she have a separate HSA if my HDHP covers her and she does not have own plan?)

7) If HDHP is thru employer, are you free to select your own HSA provider?
I can understand that if you want HSA contributions to be pretax, that
you may have to use HSA provider mandated by employer. But if you
want to select your own HSA provider (or if you are retired and have no
income that you can provide pretax to HSA provider), can you simply
provide aftertax contributions and then take the tax deduction later
and be free to select your own HSA provider regardless of employer
dictates?

[Martha]

Originally Posted by kaneohe

5) I have a HDHP that covers me only. DW has her own non-HDHP plan.
I understand that my HSA can cover qualified expenses for both of us.
How much can I contribute to my HSA---my deductible + one catchup?
Or my deductible + 2 catchups (both of us over age 55)?

6) What if my HDHP covered both of us? and spouse did not have own
plan. How much can I contribute to my HSA---my deductible + one
catchup?Or my deductible + 2 catchups (both of us over age 55)
note: the deductible in this case is 2x that in question 5)above

or does spouse need to have own HSA to get own catchup?
(can she have a separate HSA if my HDHP covers her and she does not have own plan?)

Here are the rules for husbands and wives and catch up contributions: http://www.treas.gov/offices/public-...ng.shtml#hsa12 As you will see, it is a bit complicated, depending on the type of plan or plans you have.

7) If HDHP is thru employer, are you free to select your own HSA provider?
I can understand that if you want HSA contributions to be pretax, that
you may have to use HSA provider mandated by employer. But if you
want to select your own HSA provider (or if you are retired and have no
income that you can provide pretax to HSA provider), can you simply
provide aftertax contributions and then take the tax deduction later
and be free to select your own HSA provider regardless of employer
dictates?

Justin had that question a while ago and I am not aware of a clear answer. You own your own HSA account and if you leave the job you can take it with you and if you want move it to another provider. However, the question may be whether an employer can restrict you to one provider while you remain employed, maybe in consideration of making pretax contributions to the account. I am not aware of anything that would bar an employer from doing this, though I could be wrong.

[kaneohe]

Thanks Martha for the great link. A bit complicated indeed. I'm glad I just have a single policy covering just me. But some of my friends are in the other more complicated boat and are asking questions.

[magellan_nh]

Originally Posted by REWahoo!

kaneohe, have you checked out www.hsaadministrators.com ?

FYI, I checked on the fees at this site and it looks like it's around .36% .036% annually for mutual fund accounts in addition to the actual mutual fund expenses. This does seem very reasonable compared to some plans out there.

Also, there's a $20 setup fee and a $39 annual account fee. That means if you maintain a balance around $5k, the annual fee brings the expenses to about .12% plus the cost of the funds (if my math is right).

Thanks to REWahoo! for posting this since it looks like the best deal out there that gives you access to Vanguard funds.

Jim

[REWahoo]

Originally Posted by magellan

Thanks to REWahoo! for posting this since it looks like the best deal out there that gives you access to Vanguard funds.

Thanks, but the credit actually belongs to TromboneAl, who opened an HSA account early this year and let us know about them.