The Best Tax-Free Health Insurance Savings Account
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A quick question that I received today (10/9/19):
What company do you have your Health Savings Account (HSA) through? And how did you set it up? I was waiting for the new employee orientation to sign up for my benefits. It was useless. Poorly put together. And it was a waste of time. A total cluster.
He goes on to say, “Even worse, the official that handles benefits, and they didn’t even show up for the orientation. Total cluster. I called once I got back to the office only to find out they knew absolutely NOTHING. It was clear that I was speaking to a woman who set up her benefits decades ago and hasn’t dealt with it (for herself or anyone else) since. She had no idea about HSA, TSP, Dental… couldn’t even navigate her own website.
My response:
Most HR departments are going away from giving any definitive advice to limit the instance of potential lawsuits. Unfortunately, by doing so, it limits the necessary assistance that first-generation job/career holders need in order to succeed.
I have my health savings account through Aetna. They provided the Payflex account. Because my HR didn’t know about HSAs, I went to the open enrollment fair and asked. Most presenters weren’t knowledgeable about HSAs either. It was that bad. It was clear that most people were just holding their jobs and their posts but didn’t really know about the newer segments. Often they will steer you towards brochures, or single person vs family’s insurance basic plans.
An HSA can be open through just about anyone offering a High Deductible Health Plan. The minimum deductible changes over time like all things IRS, but for now it’s $1,350 for single people and $2,700 for family coverage. Always double-check with the IRS for any given year.
Once the HSA is set up, you can make additional contributions directly through your paychecks’ financial allotment system.
Note that as of July 2019, the IRS expanded the list of preventive care for HSA participants to include certain care for chronic conditions (see Notice 2019-45 PDF). A welcome boost for those suffering from Congestive heart failure, diabetes, and/or coronary artery disease, osteoporosis and/or osteopenia, Hypertension, Asthma, Liver disease and/or bleeding disorders, and even Depression.
- IRS requirement for HSA for 2019 = High Deductible Health Plan (HDHP) + Health Savings Account (HSA)
- Maximum annual contribution of $3,500 for self-coverage and $7,000 for family coverage. Roll-Overs continuously.
- Minimum annual Deductible of $1,350 for self-coverage and $2,700 for family coverage.
- Maximum annual deductible limitation is $6,750 for self-coverage and $13,500 for family coverage.
Benefits that HR doesn’t know about
1. Per pay period tax decreases. At max contribution for about $134 per paycheck (of which a portion is contributed through your HDHP automatically), it’s a tax saving of $10 or $20 through your FICA reduction.
2. Tax deduction at year-end. At 12%, annual tax savings of $420 or $840 respectively. At 22%, annual tax savings of $770 or $1,540 respectively.
3. You can invest through your HSA in stocks/bonds. Growing at 5-8% annually or 6.5%, that’s an additional $227.50+ or $455.00+ respectively. An obvious increase over time.
4. HSAs convert into a retirement savings account, if you save all medical receipts until the end, the withdrawal is Tax-Free. ie $50k of medical expenses is now a $50k distribution when you are 65 for nothing.
5. Level up Points Bonus: You can pay your health expenses with your credit card for those sweet points, and get your reimbursement so you don’t miss out.
Calculations using Calculator.net
Even from 30-60, if nothing changes, invested at 6.5% would equal… (For self at $3,500 and Family at $7,000 – 2019)
Not understanding what an HSA is all about, can be an easy $200,000-$400,000 mistake (respectively).
Resources
For more resources follow, The Money Guy Show. They know a great deal about it and have a blast explaining it: Health Savings Account Benefits: Triple Tax Advantage
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