Tax benefit to HSA contributions while retired?

[OverThinkMuch]

According to the IRS you don't need to earn money to contribute to an HSA, and you can get an income deduction even without itemized deductions (1). I'm wondering if retirees have tried this and seen the deduction in their taxes.


(1) IRS: "You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040."
https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204020

 

[MichaelB]

Many of us use HSAs to reduce our taxable investment sourced income.

 

[audreyh1]

Yes, it's a nice up front deduction off our taxable income.

 

[pb4uski]

Used to but my current health insurance plan is non-HSA.

 

[travelover]

Yup. It is free money.

 

[easysurfer]

HSAs are the best kept secret.

Well, maybe not best kept secret, but I remember when I FIRE'd (before ACA), the missing piece of the puzzle was what to do for health insurance. That was my first introduction to HSAs and had me thinking, almost too good to be true. What's the catch? If there is any catch, I say to keep good records in case you have to show all the receipts of qualified medical expenses to the IRS. But, that's really not a catch as you should be keeping good records anyhow.

 

[aaronc879]

It's only available if you have a high deductible plan. Since i'm low income my deducible is $500 so i'm not eligible. I'd definitely use it if I could but i'll take the cost sharing too.

 

[eta2020]

It has even better use

If your income is over 64k per couple and you face "Subsidy Cliff"... that is paying for Health insurance 10k+ instead of upper limit of 5800. You can reduce that income via HSA contribution.

That can mean 5k-8k savings on Health Insurance. 13k in this example: https://www.healthinsurance.org/blog/2014/03/15/beware-obamacares-subsidy-cliff/

 

[OverThinkMuch]

Thanks for the replies, I'll give HSA contributions a go.

 

[eastnortheast]

Somewhat older thread, but seems to cover the subject I am looking for.

Currently, have an HSA through mega corp - money taken out of each paycheck. Contribute the family max each year. Doesnt seem to build up much, but with a family of 7, always seems to be some medical charge or other (braces, prescriptions, etc. etc)

When (not if) I RE, seems that I can continue to contribute to an HSA account (assuming my insurance meets the criteria).

I assume contributions to an HSA would come after receiving any income (pension, part time work, etc.) and then you claim this deduction when taxes are filed? I am guessing that it is not possible to have money taken from the pension payment first? Just curious on how best to fund an HSA in retirement.

Thanks

 

[LiveBelowMeans]

You just write a check (or electronic wire) to the HSA custodian. In my case Optum. By the way, if you have enough other money available to pay for your medical expenses, you can leave all the HSA money in the account to grow tax free. Most people don't understand the benefit of this. My HSA money is in a Vanguard small cap stock fund thru Optum. I have never taken money out of the account and it is now 6 figures and growing. This is especially good for individuals in high tax brackets. Keep all your medical receipts however so you can always pull the money out later if need be without penalties and taxes. JMHO

 

[bingybear]

It has even better use

If your income is over 64k per couple and you face "Subsidy Cliff"... that is paying for Health insurance 10k+ instead of upper limit of 5800. You can reduce that income via HSA contribution.

That can mean 5k-8k savings on Health Insurance. 13k in this example: https://www.healthinsurance.org/blog/2014/03/15/beware-obamacares-subsidy-cliff/

Another way to look at it if you are below the cliff, you can do a roth conversion for the amount put into the HSA without effecting a subsidy. This will be my first year possibly getting a PTC. I used COBRA most of the last 2 years.

Additionally if you have other $ for medical expenses, you can invest much of the HSA for future needs like LTC.

 

[ownyourfuture]

I’m new to HSA’s, so forgive me if this is old news.

Someone mentioned that it's only available to people with high deductible plans.

I opened mine at HSA bank early in 2017, & made a contribution for 2016.
I ‘do’ have a high deductible plan, so I qualify. But I don’t recall HSA bank asking for any info about my HC plan ?
It's certainly possible that they did & I just forgot. I've been doing so much paperwork & learning so many new things over the past two months that somedays, I have full on information overload

If it's true that HSA's are only available to HD plan participants,
& I am correct in thinking that HSA bank never asked for my HC plan specifics, (deductible amount) couldn't someone who opened one not realizing that it's a requirement, get in trouble with the IRS at some point ?

 

[travelover]

...........
If it's true that HSA's are only available to HD plan participants,
& I am correct in thinking that HSA bank never asked for my HC plan specifics, (deductible amount) couldn't someone who opened one not realizing that it's a requirement, get in trouble with the IRS at some point ?

It is on you to comply with the law including documenting that withdrawals are legitimate medical expenses.

 

[bingybear]

I’m new to HSA’s, so forgive me if this is old news.

Someone mentioned that it's only available to people with high deductible plans.

I opened mine at HSA bank early in 2017, & made a contribution for 2016.
I ‘do’ have a high deductible plan, so I qualify. But I don’t recall HSA bank asking for any info about my HC plan ?
It's certainly possible that they did & I just forgot. I've been doing so much paperwork & learning so many new things over the past two months that somedays, I have full on information overload

If it's true that HSA's are only available to HD plan participants,
& I am correct in thinking that HSA bank never asked for my HC plan specifics, (deductible amount) couldn't someone who opened one not realizing that it's a requirement, get in trouble with the IRS at some point ?

The "having a high deductible plan is really not enough, you need an HSA compatible plan. Since you say that you opened an hsa in 2017 and made a contribution for 2016, did you have an hsa compatible plan in 2016? Do you now?. There is a range for deductible per person. But there are other requirements. Most plans I've seen note is some way that they are HSA compatible if they are. The one place I've seen that fall apart is with cost sharing with silver on exchange plans. The cost sharing changes can make what started being HSA compatible not be compatible.

When I opened a new HSA with HSA bank, I did get a couple questions about the plan when I did my conversion. The questions necessary, but not sufficient to determine if my plan was HSA compatible.

In the end, you are responsible for validating if your plan meets the standard every year, not the HSA custodian.

 

[ownyourfuture]

"did you have an hsa compatible plan in 2016? Do you now?.

I retired on June 6, 2015, then went on Cobra for 18 months.
That expired on December 6, 2016, that's when I signed up through the ACA.
It's from Medica & it is a high deductible plan. $6,400.00
I'm still on the same plan


In the end, you are responsible for validating if your plan meets the standard every year, not the HSA custodian.

Thanks!

 

[bingybear]

"did you have an hsa compatible plan in 2016? Do you now?.

I retired on June 6, 2015, then went on Cobra for 18 months.
That expired on December 6, 2016, that's when I signed up through the ACA.
It's from Medica & it is a high deductible plan. $6,400.00
I'm still on the same plan


In the end, you are responsible for validating if your plan meets the standard every year, not the HSA custodian.

Thanks!

Medica .... based on a search offers plans that are

Copay, copay plus, health savings account compatible or catastrophic plan options

Do you have co-pays? Does your plan clearly state that yours in HSA compatible?
You note that you retired mid month. When I've (or I've seen) people laid off or left a company, the insurance ended at the end of the month even if they only worked on day. Cobra started the first day of the next month if cobra was elected. Have you got your 1095B from your cobra provider? Does is say they covered you in December? If they did and if that cobra plan was not HSA compatible, you might not be able to fund an HSA. I'm not sure you could anyway fund last year with the HDHP starting after 12/1. At least not for the full year. I would suggest you check with your insurance company and see if you have a HSA compatible plan.

 

[ownyourfuture]

Medica .... based on a search offers plans that are
Do you have co-pays? Does your plan clearly state that yours in HSA compatible?
You note that you retired mid month. When I've (or I've seen) people laid off or left a company, the insurance ended at the end of the month even if they only worked on day. Cobra started the first day of the next month if cobra was elected. Have you got your 1095B from your cobra provider? Does is say they covered you in December? If they did and if that cobra plan was not HSA compatible, you might not be able to fund an HSA. I'm not sure you could anyway fund last year with the HDHP starting after 12/1. At least not for the full year. I would suggest you check with your insurance company and see if you have a HSA compatible plan.

When my cobra ended on December 6, 2016, my coverage ended. It did not continue for the remainder of that month. I know this to be a fact, because I had to contact my ex employer, & they had to fax a worded, signed statement to the guy I'll cover in the next paragraph, stating that my cobra ended on December 6, 2016 & that I would not be covered for the remainder of the month.

That's why I had to get signed up through MNsure before that. I worked with a professional. He helped people get signed up, & the state of Minnesota reimbursed him. There was no charge to me.

I talked to him about my income levels for 2016, & he's the one that suggested I put money into an HSA for that year, because he knew that I would be very close to the $47,520.00 maximum allowed for a subsidized plan.

I have to assume he knew it was an HSA compatible plan.
But I'm definitely going to take out all my paperwork from Medica & read through it closely.

Thanks for the reply & info.

 

[Z3Dreamer]

Next step and, IMHO the most important step is to invest your HSA money. Do not draw it down each year. Keep a record of your medical expenses that you have not been reimbursed (by HSA or insurance). Some day, very far in the future, you begin drawing that down. Currently, we have $35,000 in the HSA and a list of $24,000 of expenses. As we hit Medicare age we will no longer qualify for HSA and maybe then, we will draw down on the money. Those earnings are NEVER taxed (as long as you have qualifying expenses).

 

[pb4uski]

Somewhat older thread, but seems to cover the subject I am looking for.

Currently, have an HSA through mega corp - money taken out of each paycheck. Contribute the family max each year. Doesnt seem to build up much, but with a family of 7, always seems to be some medical charge or other (braces, prescriptions, etc. etc)

When (not if) I RE, seems that I can continue to contribute to an HSA account (assuming my insurance meets the criteria).

I assume contributions to an HSA would come after receiving any income (pension, part time work, etc.) and then you claim this deduction when taxes are filed? I am guessing that it is not possible to have money taken from the pension payment first? Just curious on how best to fund an HSA in retirement.

Thanks

A couple things. First, you might consider paying for your medical expenses from your pocket rather than from the HSA and let the HSA grow tax-free... it is sort of like a stealth Roth IRA but with a limitation that it only be used for medical costs. If you keep records of what you paid out-of-pocket for medical costs during the period you have the HSA you can always withdraw that cumulative amount if an emergency arises and you need to tap that money. It essentially becomes a back door Roth IRA.

Second, once you retire if your insurance is HSA qualified you can continue to make contributions... I did this for the first couple years I retired and then our plan changed so I don't do it anymore. In my case, the HSA deduction increased the amount of Roth conversion I could do each year so it was a great thing.

 

[NW-Bound]

I have always put money in my HSA whenever I was eligible. There was no HSA-eligible plan to choose for 2016 and 2017 where I am (for a while I thought we would have NO plan). The plan must have a high deductible, but it cannot be too high (why?). The limit is $13,100 and my plan is $13,600.

Anyway, one advantage of HSA is that only the medical expenses over 10% of your income are tax deductible. The HSA effectively allows you to have deduction for smaller expenses, whether they are claimed in the current year or in the future.

 

[stepford]

I have the choice between a couple of similar BCBS plans subsidized by my former employer - a HDHP and a conventional plan with a much lower deductible. As I'm in the 15% tax bracket now that I'm retired the conventional plan works out to a slightly better deal in terms of short term cost (i.e. the amount of the additional deductible with the HDHP exceeds the tax savings associated with a $4350 maximum annual HSA contribution).

I understand that the benefits of tax free growth may negate this advantage over time, but I have still opted for the conventional plan. I can always switch back to the HDHP if I eventually decide it's the better approach, so I expect this is one of those "near wash" financial choices I'll periodically reevaluate.

 

[NW-Bound]

A lot depends on a person's circumstances.

Between a plan with $2K deductible and one with $13.6K deductible, my choice is easy when I see the difference in premiums. Our total medical expenses last year were less than $1K, and that even included dental costs.

 

[pb4uski]

IMO you (stepford) are probably looking at the wrong things in selecting a conventional plan vs a HDHP. I've had both over the years.

If you take a combination of premiums and reasonably expected claim costs for a year... which is lower? I know in our case we have few claims so the HDHP saves us a lot because the premiums are a lot lower. OTOH, if one has some health issues or regular prescriptions, etc. the savings from the lower deductibles from a conventional plan can exceed the higher premium of a conventional plan compared to a HDHP.

For example, for 2016 my BCBS offered a gold plan for $550/month and a bronze plan for $400/month with deductibles of $1,250 and $6,550, respectively. If someone expects $2,000/year in claims, with the gold plan they would pay $7,850 for the year ($550*12, +$1,250).. if they have a bronze plan they would pay $6,800 for the year ($400*12 + $2,000). The bronze plan would save them $1,050 in an average year, albeit with some risk that if they have a bad claims year that those savings could evaporate or the bronze plan could be even more expensive or it could go the other way and the savings could be as much as $1,800 if they have no claims that year.

 

[stepford]

pb4uski, the annual costs of both the conventional and HDHP I have available are similar and nominal (company subsidized retirement plan). My assumption is that my medical fees will exceed the deductible of the HDHP in any given year. Thus my cost is the deductible minus any tax savings (plus whatever long term benefit I'd get from tax free growth - a factor I'm admittedly ignoring for now). Does this sound wrong to you?

PS. I certainly agree that if I'm anomalously healthy this year and don't even reach the low deductible of my conventional BCBS plan then the HDHP would be a considerably better deal. But quoting the sublime Yogi: "It's tough to make predictions, especially about the future".