Why Do I Need an HSA?, Ep #47

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One of the most asked questions we hear centers around the HSA. It’s also one of the largest missed opportunities for tax savings we see people are missing, if they are eligible. Health Savings Accounts, known also as HSA, are gaining more and more popularity. But there is still a lot of confusion on how this account is different.

Join us this week, as we break down the ins and outs of all you need to know about how an HSA can benefit you and your family. We address why so many are still not using these accounts to their full capacity. Also, we break down how the HSA provides triple tax savings, or the hat trick as Mike likes to call it.

What You’ll Learn in This Episode

• What is an HSA and why do I need one?
• How do you know if you are eligible for one?
• Why people confuse the HSA and the FSA?
• The incredible benefit within an HSA that only 4% of people are taking advantage of.
• Why the beneficiary matters on your Health Savings Account.
• 4 out of 5 HSA accounts have been opened since 2011.
• 7.3 million people who are enrolled in HSA-eligible plans haven’t opened an HSA.
• Only 48% of those with an HSA contributed to it.

Links Mentioned In the Show

• Why a Health Savings Account May Be Your Best Retirement Account
• Vanguard – HSA’s: An off-label prescription for retirement saving
• Episode 42 – How to Navigate Open Enrollment
• Morningstar – Guide to Health Savings Accounts
• HSA vs. FSA Know the Difference
• IRAHelp.com – What You Should Know Before You Name an HSA Beneficiary
• Employee Benefit Research Institue – Stats on Health Savings Accounts
• Connect with Chad:
  • csmith@financialsymmetry.com
  • @CSmithRaleigh on Twitter
• Connect with Mike:
  • meklund@financialsymmetry.com
  • LinkedIn

Detailed Show Notes

• What is a Healthcare Savings Accounts?
  • A tax advantaged medical savings account.
  • Available to taxpayers in the U.S. who have enrolled in a high-deductible healthcare plan.
  • This is a relatively new type of account – since 2003.
  • If you have typical health insurance, you’re not eligible. It’s only available to people with high-deductible plans.
  • The contributions you make are tax deductible, growth is tax deferred, medical withdrawals are tax deferred.
  • Employers are offering a lot more high deductible options because the premiums are cheaper.
  • People with limited or minimal health expenses often choose this type of plan.
• Study from the Employee Benefits Research Institute uncovered:
  • 20-22 million policy holders have HSA eligible plans.
    • Of these people, only 48% have contributed to an HSA.
      • Of these people, only 4% hold assets other than cash.
    • 3 million people who are enrolled in an HSA eligible plan haven’t opened an HSA.
    • 4 out of 5 HSA’s have been opened since the beginning of 2011.
• How do you know if you’re eligible for an HSA?
  • You have to be enrolled in a high-deductible insurance policy.
  • Often, when you’re choosing your benefits, it will say if it’s HSA eligible.
  • The deductible must be $1,300 for an individual. It must be $2,600 for a family.
• What can you do if you’re eligible?
  • If you have a healthcare savings accounts for just you (individual), you can contribute $3,450 (in 2018) either through your employer, or yourself.
  • If it’s a family plan, you can contribute $6,900 (in 2018) to the account.
  • If you’re 55 and over you can contribute $1,000 extra per year as a catch-up.
  • Is there an income limit? NO! This is tax friendly and open at income level.

Pros of an HSA

• You get a tax deduction.
• You don’t have to withdraw the contributions for the medical expenses in the same year.
  • Need to keep record of your expenses.
  • You can pay out of your bank account and let your HSA contributions consider to grow.
• You have until April 15^th of the following year to fully fund your account.
• Some employers offer HSA’s through the company, but you can open your own separately.
• A lot of employers provide a contribution.
• Great long-term retirement account:
  • You get a tax deduction up front.
  • You can invest the deposits and they grow tax-deferred.
  • If you withdraw the money in the future for medical expenses, the withdrawals are tax free.
• It’s portable. If you leave the company, the money is yours.
• If it’s an employer contribution, it can avoid FICA and payroll tax.

Cons of an HSA

• Keeping up with the receipts.
  • Many doctors have electronic medical records, so getting a printout could be best.
• You’re not eligible to contribute if you’re on Medicare.
  • If you’ve saved up to this point, you can use it to pay for Medicare premiums (not medigap).
• The administrative costs and investment options are a bit limited.
  • There can be fees if the amount dips below a certain amount.
• Understanding Beneficiary Payouts
  • It’s best if it goes to a spouse who can use it the same way you did.
  • If you leave it to a child, there’s a 20% penalty.
    • You need to do special planning, if they’re in a high tax bracket you need to consider other options.
      • Leaving this to an estate or charity.
• Difference between HSA and FSA:
  • With an FSA, you can only contribute $2,600 for the year for a family, you have a higher contribution limit with an HSA.
  • You have to decide the amount you’re going to fund for an FSA at the beginning of the year.
  • For the FSA, the withdrawals have to match the year that the procedure was done.
  • The Roth IRA, you don’t get any tax benefit up front.