Please Confirm - No HSA is better for us?

[Fishingmn]

Situation - DW (52) retiring in November. I (53) am semi-retired.

For 2016 we will be buying ACA policy. Expected income is $55-60k from rental properties (after depreciation), $5-10k in capital gains and $10-15k in real estate commissions. Therefore, no subsidy. So estimating $70-85k in MAGI.

Option 1 - Choose ACA plan that qualifies for HSA and $6,650 shielded from tax

Option 2 - Full pay ACA but we then can write off the amount over 10% of earnings on itemized taxes (mortgage deduction and property tax alone will exceed standard deduction amount)

So is the decision based on my estimate of income and how much our medical expenses will be? Right now I was planning on $16-18k/year but that's just a SWAG from the average cost of healthcare I see online.

Also, does our choice change if we want to do something like a Roth Conversion?

Thanks

 

[pb4uski]

I think I would go with the HSA plan as it will allow you to do bigger Roth conversions by the amount of your HSA contributions and the HSA is like a Roth as long as you spend withdrawals on qualified health care expenses. You can also keep a running list of qualified health care expenses incurred since you have your HSA and later take a tax-free withdrawal if you want the money.

I would think the tax benefit of health insurance would be minimal. Say you pay $15k a year in premiums, only $7k will be deductible after the 10% threshold and 15% of $7k is a $1k tax benefit. Whereas all else equal the HSA policy allows you to contribute $6,650 and get ~$1k benefit plus get the future benefit of tax-free growth.

 

[Ian S]

If you have enough self employment income (maybe real estate commissions?), you may be able to deduct all of your HI premiums before AGI i.e. wouldn't be subject to the 10% exclusion.

 

[Fishingmn]

If you have enough self employment income (maybe real estate commissions?), you may be able to deduct all of your HI premiums before AGI i.e. wouldn't be subject to the 10% exclusion.

Hmm.. Hadn't thought about that. Have to talk to my tax guy. That definitely could be a good option. The whole time I've been self employed I've been covered by DW's plan. Thanks.

 

[gauss]

Are you looking to pay the same in premiums/deductible in both cases (ie purely a tax question), or are you considering non-HSA compliant plans in option 2?

-gauss

 

[Fishingmn]

I was considering the non-HSA plans - haven't even really looked to see if the price is that different. Just assumed it might give more options and maybe a lower price but don't know that for certain.

 

[gauss]

I was considering the non-HSA plans - haven't even really looked to see if the price is that different. Just assumed it might give more options and maybe a lower price but don't know that for certain.

Typically an HSA plan will have a lower monthly premium than a non-HSA plan due to the high-deductible that is required for an HSA plan.

ValuePengin has quite a good site IMHO to compare individual health plans in all 50 states.

-gauss