HSA question

[68bucks]

I have an HSA with a small balance, about $20K. I retired in October and have picked up the COBRA option from my employer that I will use through 2019. So as I have started paying the premiums I have been using the HSA. So what will happen is the outflow for the premiums alone will be far greater than the amount I can contribute. So over time the balance will fall to $0. It seems to me that from then on the only advantage of the HSA is the tax shelter for the $7900 max contribution as there will never be a balance to really have any growth that is tax sheltered. Now once off COBRA our premium may be lower and that would allow a possibility, barring any high medical costs, of some balance accumulation and possible growth.

I have been wondering if I would be better to pay the premiums from my regular funds and preserve the balance in the HSA and max out the contributions to it and only use it for stuff like doctor visits, scripts, etc.. I can't figure out if I'm just robbing peter to pay Paul or if there is a real advantage to be gained with the HSA over time.

 

[Aerides]

You can pay your premiums with taxable dollars, and save the expense of the cobra to reimburse yourself at any point in the future (save the "receipts"). Yes, I think the primary benefit of the HSA is the initial tax savings on contributions, less so the growth in the account. Depends on your account and the investment options, fees, etc.

I used it to pay my time on Cobra, but now that I'm going with a lower priced ACA plan I'm keeping the rest in the account to cover times when we have a high unplanned expenses. And will continue to contribute the max to minimize taxable income. I figure any HSA savings will get spent on actual healthcare expenses, eventually.

 

[Spock]

I'm in a similar boat. I chose to preserve the HSA as pulling from it complicates state taxes and the HSA can be treated like an IRA later... but with the small balance it will get used "eventually".
Keep in mind you can only make HSA contributions if you are on a high deductible med plan and not on medicare.
Compare your COBRA costs to what ACA would cost you. The first 12 months of my COBRA were competitive, but the last 6 months were not, so I moved to ACA when COBRA increased.

 

[bada bing]

I have an HSA with a small balance, about $20K. I retired in October and have picked up the COBRA option from my employer that I will use through 2019. So as I have started paying the premiums I have been using the HSA. So what will happen is the outflow for the premiums alone will be far greater than the amount I can contribute. So over time the balance will fall to $0. It seems to me that from then on the only advantage of the HSA is the tax shelter for the $7900 max contribution as there will never be a balance to really have any growth that is tax sheltered. Now once off COBRA our premium may be lower and that would allow a possibility, barring any high medical costs, of some balance accumulation and possible growth.

I have been wondering if I would be better to pay the premiums from my regular funds and preserve the balance in the HSA and max out the contributions to it and only use it for stuff like doctor visits, scripts, etc.. I can't figure out if I'm just robbing peter to pay Paul or if there is a real advantage to be gained with the HSA over time.

One attribute that makes the HSA a very good retirement vehicle is the ability to bank deductible health expenses to later write off against HSA withdrawals. Just because you have a qualified health expense doesn't mean you have to withdraw the money for it when it is incurred. By paying health expenses from other sources now, you can leave the HSA balance growing tax deferred/tax free. The HSA is tied with Roth money for the accounts that should be spent from last.

Just remember to save receipts for qualified health expenses. You can use them against withdrawals years or decades later.

 

[68bucks]

Thanks for the feedback. I wasn't aware that the claim to the HSA could be made any time later. I think I'm going to start paying the premium out of regular funds from here forward and preserve the HSA balance for now at least. I am aware that to have an HSA post COBRA the plan must be a HDHP. I'll decide all that at the end of 2019. For what I looked at for similar policies I'm a lot better off with the COBRA for now at least. Thanks again for the help.

 

[pb4uski]

Just keep in mind that while you can pay COBRA premiums with your HSA, you generally can't pay health insurance premiums unless they meet certain criteria.

No, according to the IRS, funds from your Health Savings Account (HSA) may not be used to pay insurance premiums unless they meet the qualifications shown below:

Insurance premiums.***You can’t treat insurance premiums as qualified medical expenses unless the premiums are for:
1.*******Long-term care insurance.
2.*******Health care continuation coverage (such as coverage under COBRA).
3.*******Health care coverage while receiving unemployment compensation under federal or state law.
4.*******Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

*
Here is the link to the IRS document:
https://www.irs.gov/publications/p969/ar02.html#en_US_2016_publink1000204081

 

[Stashu]

Learned something here, as I thought I could use my HSA to pay for health care coverage while bridging the gap between ER and Medicare. Another thing I learned today is that you can do a once-in-a-lifetime transfer from an IRA to an HSA. Now I need to learn when it would make most sense to do that. Hmm.

 

[zinger1457]

Learned something here, as I thought I could use my HSA to pay for health care coverage while bridging the gap between ER and Medicare. Another thing I learned today is that you can do a once-in-a-lifetime transfer from an IRA to an HSA. Now I need to learn when it would make most sense to do that. Hmm.

Unless I'm missing something the only benefit I can see is doing it before you reach 59.5 since it allows you to pull money out of your IRA penalty free. Once you reach 59.5 you can effectively do the same thing by doing an IRA withdrawal of say $4500 and then making a HSA contribution of $4500, it's a wash as far as taxes go and you can do it every year that you have an HSA health plan. You'll have to determine if you're better off funding your HSA from your IRA or with regular income, I do mine with regular income.

 

[mn54]

Unless I'm missing something the only benefit I can see is doing it before you reach 59.5 since it allows you to pull money out of your IRA penalty free. Once you reach 59.5 you can effectively do the same thing by doing an IRA withdrawal of say $4500 and then making a HSA contribution of $4500, it's a wash as far as taxes go and you can do it every year that you have an HSA health plan. You'll have to determine if you're better off funding your HSA from your IRA or with regular income, I do mine with regular income.

remember if you fund your hsa with an ira withdrawl it is not tax deductible.

 

[zinger1457]

remember if you fund your hsa with an ira withdrawl it is not tax deductible.

If you're over 59.5 I don't believe it matters where the income used to fund your HSA contribution comes from. Earned income isn't required to fund an HSA. If I withdraw $4k from my IRA it just gets added to my other income and I pay taxes on it. If I also make an $4k HSA contribution it gets deducted from my total income. I've never had to specify where the income used to make my HSA contribution/deduction came from. Does the IRS know or care if that $4k IRA withdrawal is used to buy groceries or fund my HSA contribution?

 

[Stashu]

Unless I'm missing something the only benefit I can see is doing it before you reach 59.5 since it allows you to pull money out of your IRA penalty free. Once you reach 59.5 you can effectively do the same thing by doing an IRA withdrawal of say $4500 and then making a HSA contribution of $4500, it's a wash as far as taxes go and you can do it every year that you have an HSA health plan. You'll have to determine if you're better off funding your HSA from your IRA or with regular income, I do mine with regular income.

From what I read so far, it sounds as though I can transfer $7,000 next year (will be 55 ) from my traditional IRA to my HSA and not pay penalty or taxes on it, if used for qualified medical expense. If left in IRA, I would pay taxes when withdrawn. Sounds like the drawback is not getting the tripLe tax benefit on the $7,000 from payroll deduction (employer contributes $1,000 to HSA). Still not sure if/when to do it, but thanks for OP's post for motivating me to look into it and for your comments.

 

[Rianne]

Uh Oh. Can I back out premium payments before 12/31? They're $8.61/month.