Funding HSA for 2010 Financial Question not in anyway a political statement

[fisherman]

I am really struggling on this one. We have funded our HSA up to the max allowed for the last several years and have also enjoyed good health so that account has grown some. The balance now would almost exactly cover our full out of pocket deductible through 2013. Our current policy is suppose to pay 100% after we meet the deductible.

If and it is a big if I understand some of the new health care law, HSAs will not be used with the new policies. We also plan to move to one of the new policies when the become available. Given this is there any reason to fund our HSA this year? Also does anyone know how we will be able to get any money left in the HSA out once we switch to the new policies?

Just looking for the best tax advantaged way to handle this.


Thank you in advance for your help!

 

[jebmke]

I am really struggling on this one. We have funded our HSA up to the max allowed for the last several years and have also enjoyed good health so that account has grown some. The balance now would almost exactly cover our full out of pocket deductible through 2013. Our current policy is suppose to pay 100% after we meet the deductible.

If and it is a big if I understand some of the new health care law, HSAs will not be used with the new policies. We also plan to move to one of the new policies when the become available. Given this is there any reason to fund our HSA this year? Also does anyone know how we will be able to get any money left in the HSA out once we switch to the new policies?

Just looking for the best tax advantaged way to handle this.


Thank you in advance for your help!

If you have not already done so I recommend that you read IRS Pub 969 which goes into quite a bit of details about HSA distributions. You can continue to make qualified distributions from your HSA even if you change to a non-qualified plan in the future. Also, after age 64 you can make distributions from the HSA for non-medical reasons but you pay the normal tax like and IRA distribution -- but no penalty tax. Before age 65, these non-qualified distributions would trigger a 10% penalty.

Also keep in mind that there are some expenses that can be reimbursed that are not normally covered by health insurance (e.g. dental, eye glasses etc)

To me, for most people, HSAs are a no brainer. I fund ours to the maximum each year.

 

[ziggy29]

To *fund* an HSA you need to *currently* have a qualifying high deductible health plan (HDHP). But you don't need to be in such a plan to withdraw tax-free from the HSA -- it just has to be on qualifying medical expenses (or withdrawn after age 65 for other purposes subject only to ordinary income taxes).

Whether HSAs and HDHPs go the way of the dodo or not I think it's a pretty safe bet that existing deposits will continue to be treated more or less as they currently are. In other words, expecting to not be in an HDHP with HSA in the future should not be a reason to not fund them now while you are.

 

[KM]

The one thing I will add is that when we changed our medical plan and stopped contributing to the HSA - the "maintenence fee" kicked in and was ridiculous. We were actually losing money every month.... I looked into moving the account to another HSA provider with less/no fees - but it simply didnt seem worth the hassle for $6000. We had more than enough medical expenses (paid out of our own pocket for DD) the previous year to justify taking eveything and closing out the account.

This fee issue may or may not hold true for others' HSA accounts and is likely only an issue if you are dealing with an employer based plan. Otherwise, you probably aren't with a high-maintenence fee plan to begin with.....

 

[frayne]

My understanding is that money put into an HSA account during the time a person had a high deductible plan, can still be taken out for qualified medical expenses even if you no longer have a high deductible plan. It goes without saying, you can't fund your HSA if you change from a high deductible plan.

Some other key changes for 2011 are OTC items or non prescription items will no longer qualify and there is a 20% penalty for non qualified distributions.