HSA's & Early Retirement

[T-Minus]

Can somebody please help me understand whether or not I can use an individual HSA while in Early Retirement? Here's what I'd like to do:

- Retire at age 56 and use COBRA for medical coverage for the next 18 months (taking me to Jan 2019). My plan qualifies as a High-deductible Health Plan.
- Starting in Jan of 2018, fund an individual HSA to the maximum amount for my family (wife and I) of $6,750, plus $1,000 Catch-up for me because I am 55 and over (making my total contribution for 2018 = $7,750). DW is a spring chicken and is only 50...
- Use the money in the HSA account to pay my COBRA premiums
- When completing my taxes for 2018, deduct the $7,750 amount above against my AGI

Am I understanding how this works correctly? If yes, how would I determine who would be the best individual HSA custodian?

I thought I understood this clearly, but now am not so sure. Thanks for educating me on this.

 

[erkevin]

Question: You did not specify, is your wife also covered under a HDHP?

 

[audreyh1]

Why can't you open an HSA now and start contributing? Your plan must be HSA compatible if the COBRA will be. Or do you already have an employer HSA account and are looking for what do to when you no longer can contribute through your employer?

 

[T-Minus]

My wife will be covered under the HDHP, but is only 50 years of age.

I have an employer HSA right now, which is funded through payroll contributions. I've just found out that they charge $3.95/mo. for an individual account, so am starting research looking for a cheaper way to do this. I'm trying to figure out what happens after I FIRE and no longer have a paycheck, and only interest, dividends, royalties, and other investment income coming in.

 

[Gotadimple]

But you can fund an HSA and take the deduction until you start Medicare. In the year you start Medicare you can make a partial deposit to your HSA and take the deduction.

- Rita

 

[RunningBum]

You can pay COBRA from an HSA, from what I saw in a google search.

 

[erkevin]

You can pay COBRA from an HSA, from what I saw in a google search.

+1

 

[audreyh1]

My wife will be covered under the HDHP, but is only 50 years of age.

I have an employer HSA right now, which is funded through payroll contributions. I've just found out that they charge $3.95/mo. for an individual account, so am starting research looking for a cheaper way to do this. I'm trying to figure out what happens after I FIRE and no longer have a paycheck, and only interest, dividends, royalties, and other investment income coming in.

You wil be looking at anywhere from $3 to $5 a month for individual accounts elsewhere. Some charge monthly, some annually. Unless you have $5000 sitting in cash at some of them like HSA bank, then the fee is waived. HSA administrators charges $45 annually. Your employer HSA provider monthly fees aren't out of line.

 

[sengsational]

Here's a "gotcha" that may or may not "getcha". Not having read your OP really closely WRT dates and employer payments, you need to reduce the $7,750 by any amount that your employer pays in that year. I didn't realize it, but my employer paid $700, and I maxed-out, so later-on, I had to fiddle around with a refund transaction ($700 plus gains). At the time, they (Elements Financial) didn't have a fee for this refund process...now they do charge you (as they should...to defray costs).

Also, what you are talking about is creating an HSA account for yourself. That does allow you to spend that money on both you and your wife, if she's also has compliant health insurance. An alternative, which allows a little bit more to be set-aside ($3,450*2 + $1000 = $7,900), is to create and HSA for yourself, and another HSA for your wife. I didn't go that route because it was simpler and the "little bit more" wasn't worth it to me.

As to finding somewhere to house your HSA, Elements Financial is a credit union, which anyone can join (you just need to donate $5 to a specific charity). The price of having the HSA there is cheaper than anywhere else I found (no monthly or annual fee if >$2,500 balance). You earn 0.5% APR on deposits. You can move money to TDAmeritrade brokerage, but they nick you with a $30 wire fee if you do that. But I'm treating my HSA as a super-Roth, so spending out of pocket on medical and not spending HSA funds until the distant future (if I make it that long, hehe!).

 

[MBSC]

An alternative, which allows a little bit more to be set-aside ($3,450*2 + $1000 = $7,900), is to create and HSA for yourself, and another HSA for your wife. I didn't go that route because it was simpler and the "little bit more" wasn't worth it to me.

If the COBRA plan is a family plan, the OP cannot stack the individual HSA contribution limits if they are more favorable. The base HSA family contribution can be split between two accounts. When each spouse has their own self-only HDHP, they can each contribute the individual HSA limit. The point is moot for 2018 since two individual or one family base contribution limit is $6900.

2018 HSA Contribution Limits: https://www.shrm.org/resourcesandto...es/irs-sets-2018-hsa-contribution-limits.aspx

Instructions for IRS Form 8889

Part I—HSA Contributions and Deductions

The maximum amount that can be contributed to your HSA depends on the type of HDHP coverage you have. If you have self-only coverage, your maximum contribution is $3,350 (2016). If you have family coverage, your maximum contribution is $6,750 (2016).

Reference: https://www.irs.gov/instructions/i8889/ch02.html

Both spouses select an HDHP and self-only coverage, then they each will have a single HSA contribution limit of $3,400 for 2017.

Reference: https://support.tangohealth.com/hc/...-Practices-when-Spouses-are-Both-HSA-Eligible

The applicable maximum contribution limit depends on whether the individual has self-only HDHP coverage or family HDHP coverage.
http://www.shdr.com/shdr/assets/shdr/pdf/resources/articles/hsa-contribution-rules-article.pdf

 

[rodi]

I started my first HSA account *after* I retired... but did not use it to pay cobra - because my cobra plan was not high deductible (but was cheaper than the HDHP I replaced it with when I switched after cobra.

I use the money in two ways.... 1) letting it grow like a Roth, 2) paying some of the OOP expenses. Most of my OOP/Deductible expenses I pay out of my regular (non HSA) funds - and save the receipts... so I can withdraw that amount, tax free, at *any* time in the future.

 

[Cobra9777]

I have the same HDHP post-retirement as I had when working, and I'm still maxing out the HSA contributions. I haven't taken a distribution yet. It's just growing and will be used like Roth money in the withdrawal plan. So far, the account balance is roughly 3X my accumulated medical receipts. But I suppose that's a "good" problem. That gap will probably get bigger if the GOP raises the contribution limit as currently proposed. I won't be able to resist that.

Mine is housed at Fidelity, which is where it's been since my working days. After retirement, they charge a maintenance fee but it is waived if you maintain a certain level of assets in other accounts, which I do. This provides full access to the entire universe of investment alternatives. There is a website called hsasearch.com which seems to be a very detailed and comprehensive search tool for HSA custodians.

 

[T-Minus]

Thank you for the excellent information - including the gotchas. In searching the web, I found a web site called hsasearch.com that compares and has reviews for various HSA plans (both private and employer-sponsored). The highest rated one (SelectAcount.com) has four types ranging from free with 0% interest to one that costs $4/mo but pays interest (all with FDIC insurance). Anybody here use them?

 

[RunningBum]

We've had a few threads about the best HSAs to use. Search for "HSA" in thread titles using advanced search. Some are geared towards using the funds for current expenses (no fees) and some are geared towards longer term investmenting (best choices with minimal fees).

 

[sengsational]

You've got to decide how you want to use the account, then pick a place. Are you going to leave it to get interest, or are you going to put it in investments?

SelectAccount has a complicated set of interest and fee choices (as they increase the interest rate you get, they taketh away in the form of fees). Also, they charge $18/yr for brokerage access, and you can't get into brokerage the first year (because you need $10,000 to do that).

 

[T-Minus]

I am thinking of using the HSA as a simple way of reducing my taxable income. The way I'm planning to use it will be to deposit the full $7,750 near the beginning of Jan, and then pay our medical insurance, LTC premiums and misc. medical copays out of this account until exhausted. Then, repeat the next year. Seems like an ideal way to reduce taxable income...right?

 

[sengsational]

Yep, T-Minus, that sounds about like what quite a few people are doing. But some of us don't plan on spending it right away. It's a "super-Roth" since it's quacks like a Roth account; the longer you leave it, the better, since the growth is tax-free. And the "super" part is that write-off that you talked about. On the down-side, it might require book keeping, if you want to maintain the maximum flexibility. In other words, you need to keep track of your medical spending so that the money can come out without penalty. But even if you don't keep track of spending, you can always spend it on Medicare premiums without penalty.

 

[CaptTom]

Just a word of caution: I carried an HSA I contributed to for a few years at w*rk, figuring it would help with unexpected medical bills in retirement.

It took them 11 months to figure out I was retired, and start charging me an exorbitant monthly fee for the privilege of keeping my money. I immediately closed the account.

Fortunately, I had an old hospital bill that I'd negotiated a significant discount on (about 50%) if I made automatic monthly payments. The money from the HSA just about paid that off.

But even if I didn't have that, I'd have found a way to pull my money from those greedy buggers administering the HSA.

 

[erkevin]

This really got me thinking ahead and I could use some advice. I am retired on HDHP (Cobra) and have an HSA with $4k (non-invested, just collecting about.05%) in it. My COBRA runs out December 31. At that time, I will likely be going with the state retirement's insurance (not a HDHP). At that time, i assume I will get hit with a monthly HSA fee since I am no longer with the plan sponsor. The fee is going to be $3.95/month. I can spend the 4k between now and the end of the year (COBRA premiums, eye glasses, contacts, etc). At that time, I would probably just close the account since I can no longer take advantage of the tax deduction.
Does it make sense to make my 2017 contribution (for tax purposes) and then spend it down as quickly as possible to avoid monthly fees? Then close the account. Any thoughts/insights would be appreciated.

Edit: further research taught me this; my future plan is actually a HDHP, but is HSA-ineligible due to offering co-pays.

 

[sengsational]

If, during 2017, you're covered by HSA compatible health insurance, making the HSA contribution would probably make sense. $6K times your marginal tax rate should pay for quite a few $4/month fees.

Nothing stopping you from using hsasearch.com and finding a better HSA place. You can transfer the balance, no problemo. There are plenty of options for free or at least less than $48/yr.