SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hi all.
Background
Next month all of my three kids will be off my health insurance, so I will be able to switch to an HSA plan if I choose to. I am eligible to switch next month because my youngest going off to college qualifies me for a special enrollment period per my state marketplace customer service representative.
By way of background, I am 51 and basically healthy. I probably won't use much health insurance the rest of this year, but I do want catastrophic coverage, so I am likely to choose a bronze plan. The difference in monthly premium between bronze and silver doesn't seem to make the lower deductible and OOP worth it.
There is a bronze HSA-eligible policy that is offered by my current health insurer. I like the policy itself and I like the insurer.
I have a taxable account, a traditional IRA, a Roth IRA which are in a 11:64:25 ratio. I also have a paid off home, paid off car, and enough money set aside to get my kids through college debt free. I have a WR of 2.23%. I also have some non-portfolio income - meaning income that doesn't come from my portfolio - equal to about 1.47%, which means I have a net WR of 0.76%.
Every year I do Roth conversions, which according to my spreadsheet will be to the top of the 12% bracket for the next 10 years or so, and then up to the 22% bracket. I plan to start SS at 70 and RMDs at 72.
HSA thoughts
The status quo is that I and my dependents do have some qualifying expenses every year (dental checkups, etc.), which I just pay for out of checking, which eventually gets refilled from my taxable account.
Even better, it seems that if instead of doing that, I open an HSA, contribute $X, then immediately withdraw $X and pay for the qualifying expense, that is obviously better than the status quo, because I get to reduce my AGI and taxable income by $X.
Even better, I can simultaneously convert $X from my traditional to my Roth IRA, which leaves my AGI the same, and pays for the expense. So every $X I route through an HSA gives me a tax-free $X Roth conversion.
Even better, if I leave that $X in there for, say 15 years, and lets say it doubles, then I get a $X tax free Roth conversion as before, and I also get $X of taxable income in 15 years (using the non-qualified after-65 path).
The above is true if I have $X in expenses. What about if I contribute $Y to an HSA but don't have any qualifying expenses? Well, I still can do $Y in tax-free Roth conversions as above, and the $Y which ends up in the HSA looks approximately like a traditional IRA but with an age 65 withdrawal age instead of 59.5. I don't think I mind the 5.5 year age difference. So for every $Y I do this with, it's basically a $Y transfer from taxable to Roth.
Drawbacks
1. It's another account, with another tax form, username, password, custodian, account number, etc. Hassle factor, basically.
2. The HSA-eligible plan is about $21 more per month in premiums than a similar non-HSA-eligible plan.
3. If I die with a balance in my HSA, the amount in there becomes taxable income to my beneficiaries. If I don't do an HSA, they'll get a bigger taxable account with a step up in basis, a larger traditional IRA, and a smaller Roth IRA.
Conclusions
Since I can do this up to ~$3550 per year, and I have enough in my taxable, and I think I'd rather have money in my Roth, I think my conclusions are as follows:
1. Open an HSA, get the HSA-eligible Bronze plan with my current insurer, and start maxing it out monthly.
2. Do Roth conversions of the same amount as my contributions.
3. Collect receipts for qualified expenses for me and my dependents and don't reimburse right away.
4. Drain the HSA probably around age 65 or so, hopefully with enough receipts to make the withdrawal completely tax free. This step would be to avoid dying with an HSA.
Does anyone know if I happen to die unexpectedly with a large HSA and a folder full of HSA eligible expense receipts, can my executor do a post-death reimbursement for those expenses before passing the remainder of the HSA to my beneficiaries? Basically do step 4 of my plan above so as to avoid drawback number 3?
Also, I think I'll either open an account with HSA Administrators or Fidelity. I'd probably just invest in VTI or a similar Vanguard or Fidelity fund. I basically want a minimal expense decent quality company where I can invest my money into a low-cost, low-turnover, high-quality broadly diversified US equity index fund.
Am I thinking about this stuff accurately? Advice? Comments?
Background
Next month all of my three kids will be off my health insurance, so I will be able to switch to an HSA plan if I choose to. I am eligible to switch next month because my youngest going off to college qualifies me for a special enrollment period per my state marketplace customer service representative.
By way of background, I am 51 and basically healthy. I probably won't use much health insurance the rest of this year, but I do want catastrophic coverage, so I am likely to choose a bronze plan. The difference in monthly premium between bronze and silver doesn't seem to make the lower deductible and OOP worth it.
There is a bronze HSA-eligible policy that is offered by my current health insurer. I like the policy itself and I like the insurer.
I have a taxable account, a traditional IRA, a Roth IRA which are in a 11:64:25 ratio. I also have a paid off home, paid off car, and enough money set aside to get my kids through college debt free. I have a WR of 2.23%. I also have some non-portfolio income - meaning income that doesn't come from my portfolio - equal to about 1.47%, which means I have a net WR of 0.76%.
Every year I do Roth conversions, which according to my spreadsheet will be to the top of the 12% bracket for the next 10 years or so, and then up to the 22% bracket. I plan to start SS at 70 and RMDs at 72.
HSA thoughts
The status quo is that I and my dependents do have some qualifying expenses every year (dental checkups, etc.), which I just pay for out of checking, which eventually gets refilled from my taxable account.
Even better, it seems that if instead of doing that, I open an HSA, contribute $X, then immediately withdraw $X and pay for the qualifying expense, that is obviously better than the status quo, because I get to reduce my AGI and taxable income by $X.
Even better, I can simultaneously convert $X from my traditional to my Roth IRA, which leaves my AGI the same, and pays for the expense. So every $X I route through an HSA gives me a tax-free $X Roth conversion.
Even better, if I leave that $X in there for, say 15 years, and lets say it doubles, then I get a $X tax free Roth conversion as before, and I also get $X of taxable income in 15 years (using the non-qualified after-65 path).
The above is true if I have $X in expenses. What about if I contribute $Y to an HSA but don't have any qualifying expenses? Well, I still can do $Y in tax-free Roth conversions as above, and the $Y which ends up in the HSA looks approximately like a traditional IRA but with an age 65 withdrawal age instead of 59.5. I don't think I mind the 5.5 year age difference. So for every $Y I do this with, it's basically a $Y transfer from taxable to Roth.
Drawbacks
1. It's another account, with another tax form, username, password, custodian, account number, etc. Hassle factor, basically.
2. The HSA-eligible plan is about $21 more per month in premiums than a similar non-HSA-eligible plan.
3. If I die with a balance in my HSA, the amount in there becomes taxable income to my beneficiaries. If I don't do an HSA, they'll get a bigger taxable account with a step up in basis, a larger traditional IRA, and a smaller Roth IRA.
Conclusions
Since I can do this up to ~$3550 per year, and I have enough in my taxable, and I think I'd rather have money in my Roth, I think my conclusions are as follows:
1. Open an HSA, get the HSA-eligible Bronze plan with my current insurer, and start maxing it out monthly.
2. Do Roth conversions of the same amount as my contributions.
3. Collect receipts for qualified expenses for me and my dependents and don't reimburse right away.
4. Drain the HSA probably around age 65 or so, hopefully with enough receipts to make the withdrawal completely tax free. This step would be to avoid dying with an HSA.
Does anyone know if I happen to die unexpectedly with a large HSA and a folder full of HSA eligible expense receipts, can my executor do a post-death reimbursement for those expenses before passing the remainder of the HSA to my beneficiaries? Basically do step 4 of my plan above so as to avoid drawback number 3?
Also, I think I'll either open an account with HSA Administrators or Fidelity. I'd probably just invest in VTI or a similar Vanguard or Fidelity fund. I basically want a minimal expense decent quality company where I can invest my money into a low-cost, low-turnover, high-quality broadly diversified US equity index fund.
Am I thinking about this stuff accurately? Advice? Comments?