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Newbie trying to understand HSA

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  • Newbie trying to understand HSA

    Hi WCI forum,


    I am 23, and have been fortunate to receive tons of great advice over at SDN. I decided I'd work on my financial literacy before I begin M1.

    I've done some work these past few days on learning Traditional/Roth IRAs and why physicians typically need to do a backdoor Roth in order to bypass the high income limit to contribute.

    Now I have come across the HSA - health savings account and wonder if more experienced folks can shed some light. Is it usually viable for the average physician to qualify for HSA/be in a HDHP whle in practice? If so, when do most people begin to contribute to an HSA post residency? Do people ever use their HSAs like a traditional IRA since you can withdraw from an HSA for any reason (even non-medical) at age 65 as long as you pay tax on it?


    Sorry for being such an amateur...I am an uninformed traditional medical student so I want to make sure I don't screw myself later on.  :P


    Many thanks,


  • #2
    Hi, Dr. Tony, First, let's dispense with the apologies. You've got to start somewhere. What you see on the forum is a microcosm of the readers who are lurking and hoping to find an answer to their particular question without having to stick their necks out and post. I admire you for doing so and you'll serve as an example to others to dive in.

    HSAs are fabulous. They are treated like a TIRA (traditional Ira) at contribution and like a Roth at distribution - triple tax-free, if used for approved medical expenses. Of course, you have to have a qualifying HDHP plan and, if you are employed, that might not be available. If you are considering, however, run the numbers to see if it makes sense, given your family situation. There is a great example by Tex somewhere on this forum but you'll have to search for it (I'm on an iPad keyboard and it's just too much trouble at the moment to do so myself).

    Yes, people use them after 65 as an extra IRA. If that is your plan, you'll need to find a service provider that offers mutual funds - most don't but several do.

    When to start? As soon as you qualify, imo. Feel free to ask followup questions and I'm sure you'll get lots of helpful advice.


    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      In the past, HSAs basically allowed me to not have to pay taxes on the contributions that were needed to cover medical expenses.  Whereas without it, my income is too high to get much of a deduction on them.  We have a smaller deductible now, so I am actually hoping the account will grow a little.

      I do wish they had higher contribution limits as 1 critical event can quickly swallow up the amounts.

      Sadly, the State of CA doesn't recognize HSAs so I do end up paying State taxes on the contributions.
      Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31


      • #4
        I have an HSA and started as soon as it became available to me.  My employer contributes a percentage of what I put in.

        One consideration:  Some people (like me so far) will use the HSA to pay for medical expenses as they arise.  Others want to allow the HSA to grow tax free as much as possible before accessing it.  In this scenario, you pay for all medical expenses with cash / CC / not-the-HSA but SAVE RECEIPTS.  Keep the receipts in a folder.  Years later, you can add up all the receipts and withdraw what it cost you from the HSA after it has grown a bunch. Doing this allows you to keep money in the HSA, growing tax free, but you can still take out enough to cover the medical expenses you incurred over the years.

        I may start to do the latter with big expenses (surgery, orthodontics, those pesky anesthesia bills), while covering the small stuff with the HSA.  I don't know if it's worth the hassle to save receipts on nickel and dime stuff.  Perhaps others who have done this can shed some light.


        • #5
          I have been fortunate enough to have all my medical expenses covered  through a zero deductible, zero co-pay plan provided by my employer, so I have no experience with a HSA.  However, my situation makes me wonder about someone faced with a variety of health plan options, and how they should decide between a plan that covers everything vs one that allows an HSA.  Does anyone have data comparing typical out of pocket costs with various types of plans to help someone choose the best one?  In other words, what are the actual long term financial benefits of an HSA vs a more comprehensive low deductible insurance plan?  How do the costs compare?


          • #6

            Here is the thread with Tex's example.

            Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF