HSA- is it worth it?

[scurry]

Hello All,

I have yet to contribute to my HSA for 2016. Is it worth it to contribute to an HSA, if I pay about $5000-$6000 per year in out-of-pocket expenses? I essentially meet my deductible each year and anticipate doing this for the next 5 years or more.  Should I contribute to an HSA no matter what, if I can afford it?

Thanks for your help!

[G]

https://thefinancebuff.com/hmo-ppo-vs-high-deductible-hdhp-hsa.html just today.

If you're spending that much money, you should probably try to get a better insurance plan.  But based on the limited info you provided, yeah, contribute so you can get the tax deduction.  One could argue that if your other finances allow, still save the HSA for later to allow it to grow tax free.  Many articles on the web about this.

[spiritrider]

If you have an HDHP that qualifies for an HSA, why would you not contribute to an HSA?

Contributions reduce your tax liability and if made by payroll deduction are also not subject to FICA. Qualified distributions are then tax free.

However, if this is a question about whether an HDHP/HSA is cost effective vs. a lower out-out-pocket cost PPO or HMO plan, that is an entirely different and more complex question.

[scurry]

Thank you for your replies. Unfortunately, my current group only offers the HSA plan and no other PPO plan. I'll contribute the max to the HSA and will have to live with the high deductible expenses.

[jfoxcpacfp]

scurry wrote:

Hello All,

I have yet to contribute to my HSA for 2016. Is it worth it to contribute to an HSA, if I pay about $5000-$6000 per year in out-of-pocket expenses? I essentially meet my deductible each year and anticipate doing this for the next 5 years or more.  Should I contribute to an HSA no matter what, if I can afford it?

Thanks for your help!

Click to expand...

If an HSA is all you have to choose from then, of course, you should contribute. If cash flow makes it a problem to both contribute and also pay OOP expenses in addition, just run the money through the HSA and take out whatever amount you need to pay medical costs.

[kvpauley]

Absolutely...it's "free money" essentially...here are a few other useful tidbits on the account.  We have some clients that use their HSA account essentially like another 401(k) accruing tax free savings for health care costs later in life. This is particularly helpful if they anticipate being in the same or higher tax bracket during their financial freedom years (a nice problem to have)...

• HSA accounts can be used to pay medicare premiums if you are 65 or older.


• HSA accounts can be used to pay for long term care insurance premiums (amount is limited and should be confirmed).


• Funds can be withdrawn from an HSA at any time after age 65 and are only subject to ordinary income tax (there is no penalty);


• You can continue to contribute to an HSA as long as you are not on medicare (even if you are over 65).


• Health Savings accounts can be used to pay expenses for up to a year after one’s passing. After that, funds are passed per your designated beneficiaries or they become a part of your estate (this raises the importance of making beneficiary designations).


• You can transfer IRA dollars into your HSA (one-time). You may not transfer HSA dollars into an IRA

[DMFA]

The only argument (which unfortunately you don't have) is whether to have a high-deductible health plan (HDHP) or not.  That can be a complicated decision if you or family members have chronic illnesses or you like a high level of insurance.

If you have an HDHP, then an HSA should be a must - tax-deductible at contribution, grows tax-free, and is drawn tax-free for health expenditures (triple tax-advantage).  If you don't use it for healthcare, it can function similar to a traditional IRA at age 65 (taxed as income).  WCI calls HSAs a "Stealth IRA" for this reason; even if you don't plan on using it for healthcare (which is its best use), it should be thought of as an additional tax-advantaged retirement account.

Only drawback is if you draw it prior to age 65 for non-health expenditures, it's both taxed and subject to 20% penalty.