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Dump HSA funds and start over

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  • spiritrider
    replied




    The way I read this is, if one elects HSA-eligible HDHP coverage on or before Dec 1 2019, and keep it through Dec 2020, you can contribute the full amount for 2019 ($7000) and then also the full amount for 2020 ($7100).


    You are correct.

    Leave a comment:


  • spiritrider
    replied
    You are correct.

    Leave a comment:


  • Lithium
    replied



     




    The wrap fee I calculated
    Click to expand…


    What is the wrap fee at Health Equity you are referencing?
    Click to expand...


    Unless it has changed or gone away, they charge a minimum of 0.4% a year to invest in all the low-cost mutual funds, assessed monthly (0.033%)

    Leave a comment:


  • CFEonline
    replied


    Correct. But be careful with contributions and when you are no longer eligible. If you contribute under the last month rule (see Pub 969 I believe) and you switch the next year your previous contributions under that rule will be deemed ineligible.
    Click to expand...


    That is good to know and particularly salient for those transitioning jobs mid year or leaving residency. I looked up the wording in Pub 969 and am pasting it below for reference

    Last-month rule. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month, if you didn’t otherwise have coverage.


    Testing period. If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2018, through December 31, 2019).


    If you fail to remain an eligible individual during the testing period, for reasons other than death or becoming disabled, you will have to include in income the total contributions made to your HSA that wouldn’t have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are calculated on Form 8889, Part III.


     

    The way I read this is, if one elects HSA-eligible HDHP coverage on or before Dec 1 2019, and keep it through Dec 2020, you can contribute the full amount for 2019 ($7000) and then also the full amount for 2020 ($7100).

    Leave a comment:


  • CFEonline
    replied


    I asked a similar question last month: https://www.whitecoatinvestor.com/forums/topic/future-hsa-disbursement-question/ @spiritrider clarifies the issue, but essentially once the HSA is established, you can continue to use it to invest and pay for any qualified expenses for you/spouse/dependents in the future.
    Click to expand...


    Thanks that has a lot of helpful detail.

    Leave a comment:


  • ENT Doc
    replied
    “On a separate note, what happens if you switch to a non-eligible, non-high deductible health plan in the future. Obviously you can’t keep contributing to the HSA during those years.”

    Correct. But be careful with contributions and when you are no longer eligible. If you contribute under the last month rule (see Pub 969 I believe) and you switch the next year your previous contributions under that rule will be deemed ineligible.

    “Presumably you can keep the HSA open and investing?”

    Yes.

    “Can you still withdraw the funds tax free for health care expenses, even if you now have a more traditional health plan that is not HSA eligible?“

    Yes. You can pay for old qualifying expenses, as long as they occurred after you funded the HSA. Or new qualifying expenses.

    Leave a comment:


  • GasFIRE
    replied





    On a separate note, what happens if you switch to a non-eligible, non-high deductible health plan in the future. Obviously you can’t keep contributing to the HSA during those years. Presumably you can keep the HSA open and investing? Can you still withdraw the funds tax free for health care expenses, even if you now have a more traditional health plan that is not HSA eligible?
    Click to expand...


    I asked a similar question last month:

    https://www.whitecoatinvestor.com/forums/topic/future-hsa-disbursement-question/

    @spiritrider clarifies the issue, but essentially once the HSA is established, you can continue to use it to invest and pay for any qualified expenses for you/spouse/dependents in the future.

    Leave a comment:


  • CFEonline
    replied







    My wife employer also goes through Health Equity. Does it mean we have to use them or can I transfer the money from HE to a different brokerage every month as it comes into the account?
    Click to expand…


    She can make trustee-to-trustee transfers as often as she wants. I’d recommend Lively or Fido. I do not know if this will save you the wrap fee of $300/yr (ouch!)
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    Is an HSA a feature of an employer, or the health plan? You need a high deductible plan to be eligible for contributing to one. Some employers or plans seem to offer additional contributions to the HSA as a benefit. However, can the employer or your health plan actually dictate which company you keep your HSA at? Reading between the lines here it seems possible, as that would really be the only reason you would want to have two HSA open and be doing these trustee to trustee transfers, or am I missing something?

     




    The wrap fee I calculated
    Click to expand...


    What is the wrap fee at Health Equity you are referencing?

     

    On a separate note, what happens if you switch to a non-eligible, non-high deductible health plan in the future. Obviously you can't keep contributing to the HSA during those years. Presumably you can keep the HSA open and investing? Can you still withdraw the funds tax free for health care expenses, even if you now have a more traditional health plan that is not HSA eligible?

    Leave a comment:


  • jfoxcpacfp
    replied


    The wrap fee I calculated was based on the prior poster’s balance of $81k.
    Click to expand...


    Got it, thx!

    Leave a comment:


  • Lithium
    replied





    My wife employer also goes through Health Equity. Does it mean we have to use them or can I transfer the money from HE to a different brokerage every month as it comes into the account? 
    Click to expand…


    She can make trustee-to-trustee transfers as often as she wants. I’d recommend Lively or Fido. I do not know if this will save you the wrap fee of $300/yr (ouch!)
    Click to expand...


    The wrap fee I calculated was based on the prior poster's balance of $81k.

    Leave a comment:


  • jfoxcpacfp
    replied


    My wife employer also goes through Health Equity. Does it mean we have to use them or can I transfer the money from HE to a different brokerage every month as it comes into the account?
    Click to expand...


    She can make trustee-to-trustee transfers as often as she wants. I'd recommend Lively or Fido. I do not know if this will save you the wrap fee of $300/yr (ouch!)

    Leave a comment:


  • Dreamgiver
    replied




    My employer uses Health Equity.  I moved it a couple of years ago, first to Saturna and now Fidelity.  Not only does their wrap fee cost you over $300 a year, but you are required to keep $2,000 in cash.  Add the wrap fee and the cost of cash drag, and on an average year that costs you around $500.

    I have read from other posters here that the average couple in retirement has $250k in retirement medical expenses.  So I would move it to Fidelity and go aggressive.  First I would change the investments in Health Equity to securities that are commission-free to exchange at Fidelity.  If you need to leave the Health Equity account open because it is the custodian designated by your employer, I would keep $25 in cash (the closing fee) there so it is not closed.
    Click to expand...


    My wife employer also goes through Health Equity. Does it mean we have to use them or can I transfer the money from HE to a different brokerage every month as it comes into the account?

    Leave a comment:


  • One Wet Bandit
    replied
    You should also take into consideration where you live before deciding your allocation in the HSA.  If you live in NJ or California the HSA gets taxed- so you dont want to get too aggressive there- I switched my funds to Fidelity for reasons stated above but basically keep my fixed income/bond allocation in it (treasury funds) to avoid paying state taxes since I live in NJ.

    Leave a comment:


  • Lithium
    replied
    My employer uses Health Equity.  I moved it a couple of years ago, first to Saturna and now Fidelity.  Not only does their wrap fee cost you over $300 a year, but you are required to keep $2,000 in cash.  Add the wrap fee and the cost of cash drag, and on an average year that costs you around $500.

    I have read from other posters here that the average couple in retirement has $250k in retirement medical expenses.  So I would move it to Fidelity and go aggressive.  First I would change the investments in Health Equity to securities that are commission-free to exchange at Fidelity.  If you need to leave the Health Equity account open because it is the custodian designated by your employer, I would keep $25 in cash (the closing fee) there so it is not closed.

    Leave a comment:


  • pulpsnatcher
    replied
    Great point.  In my case, I am in fact married.  Should my wife die at age 90 that is some 38 years away.  So we have time to grow this a bit.  It provokes some thought as to when it would become prudent to engage this resource as it presently just an investment tool, but poorly managed on my part.

    Leave a comment:

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