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-   -   Best way to manage HSA funds? (http://www.early-retirement.org/forums/f28/best-way-to-manage-hsa-funds-43075.html)

porcelain 03-11-2009 11:26 PM

Best way to manage HSA funds?
 
Here are some assumptions to help evaluating the choices above:
  • Individual has a HDHP (High Deductible Heath Plan) that is HSA-eligable ($2,500 deductible).
  • Individual has a 401(k) account, a Roth IRA account, and an HSA account, but not enough income to maximize contributions to all three accounts in a given year.
  • Individual has a fully-funded emergency account.
  • Individual is a healthy 24 year old male making around $50,000 per year.


After scouring the internet for a few days I have not been able to determine the best way to fit an HSA into an overall finance strategy. I have seen TromboneAl and others on this forum preaching poll Option 1. The original intent of HSAs seems to be Option 2 or Option 3. Option 4 is related to another question I have posted here. Option 5 seems like it could be a valid argument as well.

Lets hear what you think. If any of the assumptions were different, would your vote change?

bssc 03-12-2009 02:08 AM

I picked three as a way to convert money from pretax to post tax without paying taxes on them. If I don't spend the 2900 this year, I can save it for next.

tryan 03-12-2009 10:48 AM

At 24 you should be focused on your 401k ... pay medical out of pocket until the 401k is maxed out.

ziggy29 03-12-2009 10:55 AM

For wealth building, the best thing to do is not tap the HSA. Still, I'd fund the 401K and Roth before the HSA if that's the goal. For cash flow management, there's nothing wrong with tapping the HSA for your ongoing expenses. It depends on your goals.

I'm basically "saving" the HSA and paying routine costs out of pocket in case I get laid off and need to tap into it for COBRA.

Animorph 03-12-2009 10:57 AM

I think the HSA account could work very much like the Roth, except with the limitation that withdrawals must be medically related and the advantage of early withdrawal if (medically) necessary. I may try option 1 when I have to switch to private insurance. You might fund the HSA as part of your emergency funds to cover the deductible and then use it like a Roth if you can. Only you can decide how to split contributions between the HSA and Roth if you don't fully fund both.

TromboneAl 03-12-2009 11:34 AM

Actually, my plan is to not touch the funds for, say, 10 years, keep track of medical expenses, and reimburse myself then for those expenses with HSA money. I'll also use the funds for medicare premiums and medical expenses after age 65. This way the money will never be taxed.

REWahoo 03-12-2009 11:40 AM

What Al said.

jIMOh 03-12-2009 12:24 PM

I picked 3. All of the answers were acceptable and some were missing. I have an HSA and we use it to pay current expenses.

You need to assume you have "other money" to pay for a $200 doctor visit or $2000 shot for your kids. You also need to make some tax bracket assumptions to give any of the answers.

My basic premise is avoid taxes now. I am in 25% marginal bracket on an income of ~120k. Both spouses work. 401ks are used, Roths are maxed. After deductions we are usually in 15% bracket. The HSA is part of what gets us there.

If you get a $5000 medical bill (happened to us this winter in Jan-Feb) and the HSA is not used, I'd love to hear what people suggest in that case.

jIMOh 03-12-2009 12:25 PM

Quote:

Originally Posted by ziggy29 (Post 794652)
For wealth building, the best thing to do is not tap the HSA. Still, I'd fund the 401K and Roth before the HSA if that's the goal. For cash flow management, there's nothing wrong with tapping the HSA for your ongoing expenses. It depends on your goals.

I'm basically "saving" the HSA and paying routine costs out of pocket in case I get laid off and need to tap into it for COBRA.

I'd use the opposite logic.

401k to match
max HSA
then Roth
401k to max

it is easier to get money out of HSA early than the 401k early, and the HSA will be tax free.

This maximizes current tax deductions and tax free withdraws. My employer contributes $1500 to my HSA, so funding it before the 401k max makes sense for me.

I don't think generalizations should be made about prioritizing... this is a tax situation, medical expense situation and retirement plan all rolled into 1.

ziggy29 03-12-2009 12:27 PM

Quote:

Originally Posted by jIMOh (Post 794695)
If you get a $5000 medical bill (happened to us this winter in Jan-Feb) and the HSA is not used, I'd love to hear what people suggest in that case.

Well, speaking only for myself, yes, I'd use it for a $5000 medical bill (well, $4000 since the annual out-of-pocket maximum in my plan is $4000), but for a routine $100 visit, I just pay it with other funds and keep the receipt in case I want reimbursement later.

Basically, if the expense is small enough that it doesn't significantly impact our cash flow, I tend to put it on a credit card that gets me 2% cash back. If it's large enough to totally hose our budget for the month, I'd use the HSA funds.

jIMOh 03-12-2009 12:31 PM

If you have an HDHP, I'd like to hear when the bills at the doctor are small. Our cheapest visit has been around $110 which we paid 20%.

My wife did get a perscription that cost her $.80...

But if you are under your deductable, a $110 hit to our budget (with two kids) is noticeable every month. If I had to choose between Roth contribution and tap HSA or pay cash for doctor and lower Roth contribution, I am tapping the HSA 10 times out of 10.

porcelain 03-12-2009 09:15 PM

Quote:

Originally Posted by TromboneAl (Post 794666)
Actually, my plan is to not touch the funds for, say, 10 years, keep track of medical expenses, and reimburse myself then for those expenses with HSA money. I'll also use the funds for medicare premiums and medical expenses after age 65. This way the money will never be taxed.

@TromboneAl & @REWahoo
What is special about 10 years?

My intuition is telling me that the ideal strategy is to reimburse yourself right away and re-invest those funds somewhere, or leave the HSA alone until age 65. What is the rationale for wanting to reimburse yourself somewhere in between these two extremes?

REWahoo 03-12-2009 09:20 PM

Sorry, nothing special about 10 years. I plan on contributing and leaving my HSA untouched until age 65.

No need to reimburse and reinvest if your custodian provides investing options meeting your needs. Mine allows me to invest in Vanguard funds.

jdw_fire 03-14-2009 12:52 AM

Quote:

Originally Posted by REWahoo (Post 794909)
Sorry, nothing special about 10 years. I plan on contributing and leaving my HSA untouched until age 65.

No need to reimburse and reinvest if your custodian provides investing options meeting your needs. Mine allows me to invest in Vanguard funds.

which 1 do u use? and r u happy with them?

REWahoo 03-14-2009 05:14 AM

Quote:

Originally Posted by jdw_fire (Post 795421)
which 1 do u use? and r u happy with them?

I use HSA Administrators and have had no problems in the 2 1/2 years I've had the account.

mark500 03-14-2009 08:24 AM

Our HSA offers a passbook savings rate of return and no other investment options. If I leave money in it, it looses purchasing power every year. Thus, I spend all of it each year.

TromboneAl 03-16-2009 10:18 AM

Quote:

What is the rationale for wanting to reimburse yourself somewhere in between these two extremes?
Well, I want to reimburse myself at some point, because if I just take it out after age 65, I have to pay tax on it.

If I reimburse myself right away, I lose 10 or more years of tax-free compounding. If I were in the 20% tax bracket, it could mean getting 10% annual return on my money instead of 8%.

ziggy29 03-16-2009 10:21 AM

Quote:

Originally Posted by mark500 (Post 795440)
Our HSA offers a passbook savings rate of return and no other investment options. If I leave money in it, it looses purchasing power every year. Thus, I spend all of it each year.

Right now mine pays 0.25% (it was paying 1.5% a year ago). I do have investment options, but I won't use those until I have at least a couple years of out of pocket maximums in cash (that would be $8000 total). Above that I probably will invest some, but I don't want a significant illness or injury to cause us to withdraw $4,000 a year by being forced to sell stocks low.

TromboneAl 03-16-2009 10:25 AM

Quote:

Originally Posted by ziggy29 (Post 796190)
Right now mine pays 0.25% (it was paying 1.5% a year ago). I do have investment options, but I won't use those until I have at least a couple years of out of pocket maximums in cash (that would be $8000 total). Above that I probably will invest some, but I don't want a significant illness or injury to cause us to withdraw $4,000 a year by being forced to sell stocks low.

That's not a problem. If you need the money you can use the patented TromboneAl Switcheroo. Take out the $4K, but switch $4K from MM to stock fund somewhere else.

KB 03-16-2009 11:08 AM

Patelco Credit union is paying 5.12% at this time. I opened my account a year ago and have had no problems.

https://www.patelco.org/accounts/hsa.aspx


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