HSA account

[ziggy29]

The IRS agrees with pb4uski.

From the IRS here Questions and Answers on the Premium Tax Credit

Wow, I'm having a bad day on this if it's indeed the case. But it's also a case where I would be thrilled to be wrong.

I noticed I looked at something from the IRS dated 2004, and it related to passive losses, so maybe this isn't the case any more. But it said:

http://www.irs.gov/Businesses/Small...:-Modified--Adjusted-Gross-Income-Computation

Exhibit 2.2: Modified Adjusted Gross Income Computation
Modified adjusted gross income (MAGI) for FORM 8582 line 7 is determined by computing:
AGI without:
Any passive loss or passive income, or
Any rental losses (whether or not allowed by IRC § 469(c)(7)), or
IRA, taxable social security or
One-half of self-employment tax (IRC § 469(i)(3)(E)) or ...

OR you can do the following alternative computation.
If there are capital gains/losses from passive activities, use method above.

Adjusted Gross Income Per Return _______________
+ Audit Adjustments Affecting AGI +/-_______________
Except passive activities (rentals and passive businesses)
- Taxable Social Security IRC § 86 - ________________
+ IRA Deductions IRC § 219 + ________________
+ Deduction for 1/2 Self Employment Tax + ________________
+ Passive Losses IRC § 469(i)(E)(iv) + ________________
Passive loss=Net rental loss and

Looks to me like they are telling you that IRA deductions need to be added back in. But maybe this is outdated (and I hope it is, since it would make managing MAGI fairly trivial for us). Or maybe it's telling me that this is a deduction that is added back in, and I need a remedial reading course.

Anyway, I really hope I'm wrong, as this means a quick IRA contribution in December 2014 could assure us of being on the right side of the cliff...

 

[47]

Wow, I'm having a bad day on this if it's indeed the case. But it's also a case where I would be thrilled to be wrong.

I noticed I looked at something from the IRS dated 2004, and it related to passive losses, so maybe this isn't the case any more. But it said:

I have read repeatedly that MAGI is not the same as MAGI is not the same as MAGI.

You have to see how MAGI is defined as related to a specific provision. For example, I have seen references where they mention that MAGI calculation is different for Medicare and ACA.

This doesn't resolve the issue at hand, but worth noting.

I am at a point where I won't even rely on the IRS site at this time. Remember as recently as three weeks ago there was a push to delay and defund. The law technically goes into effect only Jan 1st. So IRS can easily do an oopsie.

If I can find it in the text of the law okay.
http://www.hhs.gov/healthcare/rights/law/patient-protection.pdf
But I drew blank as it seems to refer to sections 911, 931, and 933 and I haven't found them yet.

 

[ziggy29]

I have read repeatedly that MAGI is not the same as MAGI is not the same as MAGI.

If -- IF -- that's the case, then I'm heartened by MichaelB's link to the IRS determination with specific reference to ACA and the premium subsidy, since that seems to imply TIRA contributions *do* reduce MAGI, since that's $11K we could easily jettison. Would love to see something absolutely unambiguous, though. Because a lot of the stuff I've found, from what I think are usually reliable sources, suggest that IRA contributions have to be added back into MAGI after being deducted from AGI. I'm not sure I've ever wanted to be wrong this much. I assumed MAGI always meant the same thing -- maybe that's where I've been getting tripped up today.

 

[MichaelB]

If -- IF -- that's the case, then I'm heartened by MichaelB's link to the IRS determination with specific reference to ACA and the premium subsidy, since that seems to imply TIRA contributions *do* reduce MAGI, since that's $11K we could easily jettison. Would love to see something absolutely unambiguous, though. Because a lot of the stuff I've found, from what I think are usually reliable sources, suggest that IRA contributions have to be added back into MAGI after being deducted from AGI. I'm not sure I've ever wanted to be wrong this much. I assumed MAGI always meant the same thing -- maybe that's where I've been getting tripped up today.

Absolutely unambiguous. That's a challenge. Here's the actual wording of the ACA (here)

amended to read as follows:
‘‘(C) MODIFIED ADJUSTED GROSS INCOME.—The term
‘modified adjusted gross income’ means adjusted gross
income increased by—
‘‘(i) any amount excluded from gross income under
section 911, and
‘‘(ii) any amount of interest received or accrued
by the taxpayer during the taxable year which is
exempt from tax.’’

From the 1040 tax return, contributions to IRA's are subtracted from income to determine adjusted gross income.

Here's a nice chart from UC Berkeley http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

 

[kaneohe]

Yes , there are multiple MAGIs so you have to know which one you're fighting about. I often wish that IRS would number them to make ID more specific but I suppose it they did, folks would transpose digits, misquote them,etc so perhaps it is better left alone and ID's by context like ACA, etc.

 

[ziggy29]

From the 1040 tax return, contributions to IRA's are subtracted from income to determine adjusted gross income.

See, this I knew. But most of what I saw about the definition of MAGI seemed to imply that TIRA contributions were added back in from the AGI. I never knew MAGI had multiple definitions. I'm very glad that this definition seems to exclude deductible TIRA contributions. That makes managing this a lot easier. Now I can cut a check in early 2015 instead of increasing my wife's 403B contributions and driving our poor church treasurer crazy. I'm sure she has better things to do than deal with our brinksmanship of the cliff.

 

[pb4uski]

I don't know what the O stands for in your formula.

But Ziggy is right. I had known this -- then forgot about it -- remembered it -- then forgot about it again -- now I will etch this in my memory.

Deductible IRA's are ADDED BACK to AGI to get MAGI for ACA purposes.

=================================

Edited as below:

I think it is time to forget about it again. Deductible IRA does seem to reduce MAGI.

There is so much misinformation about this I don't know what to believe at this time. I'd seen the link provided by Cedar and it is a reputable one. But there are countless others which are clearly telling otherwise. So I am filing this under 99% confirmed.

O-MAGI = Obamacare MAGI (our own made up acronym for differentiating Obamacare MAGI from other MAGIs). As you are finding out there are a number of different MAGIs that are used for different purposes and making things even more screwed up, they are all similar but each have nuances of differences. The MAGI used for determining whether one can contribute to a Roth and the MAGI for Obamacare subsidies being examples of similar but different.

 

[ziggy29]

O-MAGI = Obamacare MAGI. As you are finding out there are a number of different MAGIs that are used for different purposes and making things even more screwed up, they are all similar but each have nuances of differences. The MAGI used for determining whether on can contribute to a Roth and the MAGI for Obamacare subsidies being examples of similar but different.

This needs to be etched into the FAQ with a definitive source: not all MAGI are created equal. I never knew that until today. I don't feel as stupid now as I did a few hours ago when I was being proven wrong. I have a good reason now!

 

[Cedar]

http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

Ziggy, I to am getting more confused by the minute. My link above showed that ACA calculations allowed Traditional IRA contributions to reduce your MAGI for ObamaCare. Now I find this link that says the opposite:

ObamaCare Calculator: Subsidies, Tax Credits, Cost Assistance

How to Calculate Your Modified Adjusted Gross Income (MAGI)

Once you have adjusted gross income, you "modify" it to calculate your MAGI.12 THE EMPLOYEE’S GUIDE TO HEALTH CARE REFORM’S TAX CREDITSS specifically, Modified Adjusted Gross Income (MAGI) is calculated by adding back certain items to your Adjusted Gross Income including:

• Deductions for IRA contributions.
• Deductions for student loan interest or tuition.
• Excluded foreign income.
• Interest from EE (employee) savings bonds used to pay higher education expenses.
• Employer-paid adoption expenses.
• For most people, MAGI is the same as AGI

This is very important for so many people that I think we should try and find out the correct answer. Thanks for everyone's impute.

 

[pb4uski]

This needs to be etched into the FAQ with a definitive source: not all MAGI are created equal. I never knew that until today. I don't feel as stupid now as I did a few hours ago when I was being proven wrong. I have a good reason now!

You're the moderator. As Captain Picard would say - "Make it so."

 

[Elbata]

Name one other plan that has the triple threat of contribution deductible, earnings tax deferred, and withdrawals tax free.

So let me get this right:

1. Let's say I show income of $88K and put $8K in HSA. I then only pay taxes on $80K?

2. The HSA makes $2K in a year. I pay no taxes on that?

3. When I do go to use the money, I pay no tax?

This sounds almost too good to be true.

 

[MichaelB]

So let me get this right:

1. Let's say I show income of $88K and put $8K in HSA. I then only pay taxes on $80K?

2. The HSA makes $2K in a year. I pay no taxes on that?

3. When I do go to use the money, I pay no tax?

This sounds almost too good to be true.

A few qualifiers. Your limit for an HSA contribution for 2014 is $3300 individual / $6350 family. if you are over 55, an additional $1K. You pay no taxes when you withdraw the funds and use them to pay eligible medical expenses. Otherwise, yes, it's a pretty good deal.

 

[bamsphd]

Many (or at least some) credit unions do it for free......Alliant, for one.

Turns out my credit union does offer an HSA. On the one hand they do not seem to charge an explicit fee, except for unusual services. On the other hand, the annual interest rate yield would be 0.1% on balances from $1000 to $9,999.

 

[RunningBum]

Turns out my credit union does offer an HSA. On the one hand they do not seem to charge an explicit fee, except for unusual services. On the other hand, the annual interest rate yield would be 0.1% on balances from $1000 to $9,999.

On low balances, not having a fee is a good deal. $45 on $1000 is 4.5%. Mine is at my credit union getting 1.5%, no fees. At some point I may move it where I can earn more but most of my tax-protected money is in bonds and this is doing better right now anyway, with no fees.

 

[Dwhit]

Didn't read the whole thread, so I don't know if its been mentioned yet, but if you have an HSA with your employer, you can use the HSA funds to pay for your COBRA if you choose to do this option when you retire. Not sure if you could use the HSA to pay for an independent policy thru ACA, but it might be possible.

 

[MichaelB]

Ziggy, I to am getting more confused by the minute. My link above showed that ACA calculations allowed Traditional IRA contributions to reduce your MAGI for ObamaCare. Now I find this link that says the opposite:

ObamaCare Calculator: Subsidies, Tax Credits, Cost Assistance

Cedar, there's no doubt the second link you provided is incorrect on this, the IRS language clearly defines O-MAGI as starting from adjusted gross income, which excludes retirement plan contributions.

The second website you linked does not disclose ownership or affiliations, so it is not possible to determine if they have an agenda or even if their error is unintentional or not. There are enough sources of high quality analysis, such as KFF and Health Reform GPS, and we also can access ACA research topics from organizations such as Congressional Research Services. You can find many of these in the FAQ section of E-R Forum

 

[ziggy29]

Didn't read the whole thread, so I don't know if its been mentioned yet, but if you have an HSA with your employer, you can use the HSA funds to pay for your COBRA if you choose to do this option when you retire. Not sure if you could use the HSA to pay for an independent policy thru ACA, but it might be possible.

Yes, HSAs aren't usually allowed to be tapped to pay health care premiums, but they are allowed to pay COBRA premiums or other health insurance premiums while one is collecting unemployment.

HSAs that are funded directly through payroll deductions have other advantages, too -- the money used to fund them directly from a qualified cafeteria benefits plan is also exempt from Social Security and Medicare taxes, while funding outside of payroll deductions is not. Even 401K contributions aren't exempt from SS/Medicare taxes, but HSA contributions done the right way are.

 

[audreyh1]

Thanks so much for the HSA info.

The plans I am considering are HSA compatible. I didn't really have this option before.

Wow - no income limitations? - that's so unusual for a tax deductible benefit. And lowering AGI and MAGI - even better! This might really help us.

Looks like you can use it to pay medical bills in the near future, or use it for long-term tax free savings/investment to cover medical bills in retirement. I suspect many of you are doing the latter.

Now the severe limitations on deducting medical expenses on Schedule A don't hurt so much. You can save pre-tax dollars to pay them when you need to.

Downside - lots of record keeping, and for a long period; extra forms to file with the 1040; and HSA fees are a bit stiffer than regular accounts.

Some HSA accounts are not available except through an employer - for example Fidelity Investments.

But still quite a few options and flavors. Which HSA custodians are people using?

Can I open an HSA account at any time during the year when my health plan is HSA qualified? There is no timing link to signing up for the health insurance plan, right?

Audrey

 

[ziggy29]

Downside - lots of record keeping, and for a long period; extra forms to file with the 1040; and HSA fees are a bit stiffer than regular accounts.

Some HSA accounts are not available except through an employer - for example Fidelity Investments.

But still quite a few options and flavors. Which HSA custodians are people using?

Can I open an HSA account at any time during the year when my health plan is HSA qualified? There is no timing link to signing up for the health insurance plan, right?

Yeah, you have to keep a file with all the medical bills you've paid with the HSA in case the IRS comes knocking.

Most HSAs I've seen waive fees once you reach a certain minimum balance (often $5-10K). A $5K minimum balance isn't a problem if you have a family HDHP since you can open it with a single contribution over $5K but a higher minimum to avoid fees may require two years or more. My HSA is with UMB, only because that's what Megacorp used, I have a large enough balance to avoid monthly fees and it hasn't been worth moving it. (It has a balance of about $25K and only generates about $10 per month in interest.)

 

[audreyh1]

That is how I have always understood it that Traditional IRA will reduce the MAGI. Here is a graph that I think explains the deduction:
ttp://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

Great chart, thanks for the link.

Note that this is also different from the MAGI for the new Medicare surtax on Net Investment Income (NII). That does not include tax exempt bond interest income.

 

[47]

Cedar's link is one of those I'd mentioned as sowing confusion. Although it ts splashed with red-white-and-blue all over, it is not "official" in any sense. Not sure who is behind that "Obamacarefacts" site and what their agenda is. Being the skeptic I am I wouldn't rule out some nefarious motive. There are many more links which give the same wrong information. It's possible that this was one of the proposals that was being hashed out while the law was still being cooked.

From all the available info currently, it seems reasonable to conclude IRA deduction brings your MAGI down for ACA purposes. This is really great in being able to control MAGI for a smooth landing in the spot you want. But what this allows is to do it well after all your 1099's. dividend statements, cap gains etc. that form your tax-inputs arrive. You have until April 15th to add as necessary, provided you have headroom left.

While we are talking about HSA.. (in reply to mikefixac's comment), I would like to note this following.

There is a max contribution limit -- around $3250 adjusted for inflation.

Unlike an inherited IRA which offers gradual withdrawal by your heirs, only your spouse can inherit it as an HSA with the tax benefits continuing. For all others it will be treated as immediate cash out with taxes due at the year end of transfer.

No more withdrawals for OTC medication and supplies. They tightened it up in 2010. Allowed uses are only for prescription drugs, and other things controlled by the healthcare Mafia.

I have had very good experience with hsabank as the custodian of my HSA. (hsabank.com); In the past 10 years I've been with them, I have not found anyone comparable in service/cost.
They are an online only outfit, at least for most of us who don't live in WI. Their fees are reasonable. After a minimum balance, they allow TDAmeritrade brokerage investing. With some Vanguard ETF's in there you can do wonders to your account. Withdrawal is through a debit visa card.

 

[ziggy29]

Cedar's link is one of those I'd mentioned as sowing confusion. Although it ts splashed with red-white-and-blue all over, it is not "official" in any sense. Not sure who is behind that "Obamacarefacts" site and what their agenda is. Being the skeptic I am I wouldn't rule out some nefarious motive. There are many more links which give the same wrong information. It's possible that this was one of the proposals that was being hashed out while the law was still being cooked.

From all the available info currently, it seems reasonable to conclude IRA deduction brings your MAGI down for ACA purposes. This is really great in being able to control MAGI for a smooth landing in the spot you want. But what this allows is to do it well after all your 1099's. dividend statements, cap gains etc. that form your tax-inputs arrive. You have until April 15th to add as necessary, provided you have headroom left.

I wouldn't necessarily assume nefarious motives. But at minimum I do agree that the multiple IRS definitions of MAGI are causing extreme confusion here.

If deductible IRAs do indeed reduce MAGI for ACA purposes, that's even better than using a 401K since you can run the numbers in January and see how much you need to contribute to "step away from a cliff" when filing your taxes (assuming you can contribute to a deductible IRA).

 

[audreyh1]

I have had very good experience with hsabank as the custodian of my HSA. (hsabank.com); In the past 10 years I've been with them, I have not found anyone comparable in service/cost.
They are an online only outfit, at least for most of us who don't live in WI. Their fees are reasonable. After a minimum balance, they allow TDAmeritrade brokerage investing. With some Vanguard ETF's in there you can do wonders to your account. Withdrawal is through a debit visa card.

Thanks!

Anyone use HSA Administrators which provides access to 22 Vanguard funds (mostly Admiral)? They use HSA Bank, but only for HSA management. Health Savings Account - HSA Administrators

 

[Gotadimple]

+1 on HSA Bank.
Audrey, their site is very easy to work with, and you can link your checking/savings account to your HSA for the annual movement of $ to fund the HSA. Lots of good info on their site, as well as good support by email or phone.

They are a division of Webster Bank.

Edited to add: when I did my research 3 years ago to set up this account, HSA Bank turned out to be the winner in terms of fees. You may want to use that as a comparison to the other administrators you are considering.

Rita

 

[ziggy29]

Thanks!

Anyone use HSA Administrators which provides access to 22 Vanguard funds (mostly Admiral)? They use HSA Bank, but only for HSA management.

I've looked at them, but their $45 annual fee turned me off. There seems to be no way to avoid it, either, whether with a minimum balance or online statements.