HSA Contribution Timing

[TromboneAl]

I started my HSA plan in September. This means that I'm eligible to contribute $833 for 2005 ($2650*4/12). For 2006 I'll be able to contribute $2700.

My plan is that on Jan 2 I'll contribute $3583, thus avoiding any low balance fees.

My understanding is that it is OK to contribute "in advance" like that. Does that sound right?

I wonder what would happen if I made a contribution, then switched to a non-HSA approved plan?

 

[Martha]

Here is the IRS most recent HSA info: www.treas.gov/offices/public-affairs/hsa/pdf/hsa-basics.pdf

I believe you can contribute in advance, but the total contributions to an HSA for a year are based on the number of months you are covered by an eligible plan, so you will have to prorate your contributions. If you front-end load your contributions and then drop the insurance, you will have to withdraw any excess contributions.

 

[TromboneAl]

That's an excellent summary -- Thanks, M!

 

[lazyday]

so you will have to prorate your contributions.

Yuck! I was hoping to get in a full 2005 contribution, if set up a plan this month.
No rush for me.

I was much quicker to take advantage of the Roth: When the law was passed, I made nondeductable traditional IRA contributions for the year (or two years? don't recall) before anyone could contribute to Roth, and then converted the little traditional IRA to a Roth ASAP. Since then I maxed out my Roth in every year I was eligible.
In a way, the HSA seems even better than a Roth, but I'm taking my time... maybe wasting a good opportunity. Not excited about buying more expensive insurance and paying the fees to custodian.

 

[TromboneAl]

Right. The high fees have dampened my HSA enthusiasm, but it still seems worthwhile.

 

[lazyday]

I used to feel that if I could waste $1 to save $2 in taxes, I wouldn't do it. Because I thought society would be worse off by about $1.
Lately I'm not sure I like how some of my tax dollars are being spent, so I'm less sure of this philosophy.

Still, if to save $2 in taxes with HSA, I wasted $1 buying more expensive insurance (net of increased value to me) and giving fees to a financial institution, it feels like my money is having people do nonproductive "busy work" for me, that I don't need.
Plus, I have to spend time setting up the plan and thinking about it, managing it, and filling out forms.

 

[TromboneAl]

For Blue Cross, the HSA compatible plan is less expensive than similar non-HSAs. Of course, it depends on how much health care it turns out that you need. But if you are generally healthy, and don't have any accidents, the HSA plan would be cheaper even if I didn't put any money in the HSA.

The other thing is that the fees are independent of the money in the account. So $70 per year is bad if there are only a few thousand dollars in the account, it won't be quite as bad when it has $15,000.

 

[lazyday]

Arkansas Blue Cross teaming up with Health Savings Administrators to provide Vanguard funds