Health Savings Accounts (HSAs)
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By In Do the Math, Health Savings Accounts (HSAs), Savings and Budgets

An HSA Really Can Be a ‘Dream-Vacation’ Reserve Account…If You’re Smart About It

We’ve written extensively about how much you might end up spending on your own health care in retirement and, as a result, why it’s important to build up your HSA funds so that you can have that reserve of tax-free dollars for such expenses.

But, as a former co-worker of mine used to say, here’s a “super-secret hack” about HSAs that may change the way you spend both in retirement and beforehand: there is no time limit on when you can reimburse yourself from your HSA for medical expenses.

What does this SSH (ahem, super-secret hack!) mean for your retirement savings? It’s simple. Keep reading…

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By In Health Savings Accounts (HSAs), Retirement Investment Accounts

Investing Your HSA Funds

In spite of being the fabled “triple-tax advantage” and therefore an ideal account for investing for your retirement, only a fraction of those with HSA’s actually invest the money.

Having worked on the business side of HSAs for a good number of years, I can tell you that there are three main reasons for these low investment rates:

  1. People are actively spending their HSA funds. They have medical expenses, or think they might, and are using their HSA debit card as the name would imply — to pay those expenses if and when they arise.
  2. People think they’ll need to actively spend their HSA funds. They don’t have medical expenses but think there might be a need to have the funds close at hand, just in case.
  3. People have no idea how to invest their HSA funds, or if they even can.

No. 1 is understandable. If you’re sick and/or you’re living paycheck to paycheck, that tax-preferred account will stretch your health care dollar.

No. 2 also makes sense to a point. It’s good to have an “emergency HSA fund” available on demand, in case you need it quickly. But in most cases, you can access invested HSA funds before you have to pay your medical bill(s), so maybe keep a smaller emergency fund than you need in order to maximize your investing potential.

No. 3 is sad but true. In some cases, your HSA trustee or custodian (just fancy words for the company that manages your HSA) hasn’t made it easy for you to invest your funds, or they haven’t given you options at all.

In this case, here’s all you need to know: Your HSA funds follow almost identical investing rules to traditional IRAs. You can invest funds from your HSA into an investment account that handles “normal” investments, like stocks, bonds, annuities, etc. You can’t invest in real property, like real estate or cars and boats. If you have returns on your investments and simply reinvest them, like an IRA, then you don’t pay taxes. Plus, if you do need to withdraw the funds from your HSA to pay for qualifying medical expenses, you don’t pay taxes then, either.

That’s about it. We’ll give you more investing tips but just wanted to put that one, simple piece of knowledge in your brain: yes, you can invest your HSA funds even if your current HSA provider has made it less than easy…just think about how you do it with your IRA. In fact, if you want to invest it the same place you currently have your IRA, go for it!

TMYK.

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By In Around the Web, Do the Math, General Benefits Knowledge, Health Insurance Utilization, Health Savings Accounts (HSAs), High-Deductible Health Plan (HDHP), Participating Provider Organization (PPO) Insurance

How to Make the Most of How Much It Sucks to Make the Most of Health Insurance

Tanja Hester at Our Next Life wrote a fantastic, comprehensive piece on the limitations and downsides of health savings accounts (HSAs) and high-deductible health plans (HDHPs). Before you dig deeper into this post, you should head over there and read it, because it’s chock full of awesomely useful information.

OK, see you back here when you’re finished…

Welcome back!

The Bottom Line

Now that you’ve read her post, you know that HSAs aren’t the magical “triple-tax-advantage” savior some might claim. Yes, there are definite benefits to HSAs if your circumstances are right (more on that in just a moment). But as we’ve said many times, HSAs are a contextually good idea attached to a pretty bad one — HDHPs — and you have to really lean in to avoid letting that bad idea drive your future more than the contextually good one.

Here’s the bottom line: Our “best in the world” health care system puts a great deal of pressure on us as individuals to make the right decisions about our health without giving us much to go on. It’s a system wrought with tradeoffs, and no one type of plan or solution it right for everyone. While HDHPs aren’t doing what they were meant to do, which is to make us better healthcare consumers, older plan designs like PPOs and HMOs aren’t doing that at all, and in fact could end up costing you more than an HDHP, with no added tax benefits and without drastically improving your health and longevity.

The TL;DR message is this: if you’re young and invincible or old and rich already, you can get an HDHP without much further consideration. For the other 99%, read on about some of the challenges we face as “consumers” of healthcare, with an HDHP and without one.

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By In Health Insurance Utilization, Health Savings Accounts (HSAs), High-Deductible Health Plan (HDHP)

Know Your HDHP’s Preventive-Care Benefits

If you have an HDHP, you may be working from the assumption that your insurance won’t cover anything before you meet your deductible. While the insurance company may wish that was the case, HDHPs are able to (and, in some cases, must) cover certain kinds of preventive care. These services can add up to hundreds or even thousands of dollars in essential services every year, so be sure to read the fine print on your plan before and after you choose it, and also to ask your company’s benefits administrator for these details if you can’t find them on your own.

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By In Around the Web, Flexible Spending Accounts (FSAs), Health Financial Accounts, Health Savings Accounts (HSAs)

Yep, Amazon Has an HSA Store

Last week, I wrote about the best places to buy things with your HSA/FSA funds if you want/need to use that money rather than just maxing out your account and investing the money — or, alternately, you don’t have access to an HSA but do have an FSA and want to ensure you use all of the funds as wisely as you can. Welp, I found out today that Amazon now has an HSA/FSA store, which means they have a place where you can enter your debit card number and then shop exclusively for items that are account-eligible and still apply your Prime account for free delivery.

Giddyup!

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By In Around the Web, Health Savings Accounts (HSAs), Taxes

Advice on Handling HSAs on your Tax Return

Here’s a thorough article from the New York Times “Your Money Adviser” column on how to handle health financial accounts like HSAs and FSAs on your income tax return. It includes details about annual limits and what you need to claim expenses. My one criticism is the “But Beware the Paperwork” in the headline. If you are paying for medical expenses on your HSA card, your HSA sponsor bank will mail you a ready-to-submit form, just like a W2 or 1099. If you are tracking your expenses yourself, it is more work but not too cumbersome if you create a manila folder and just make sure to save your receipts. Either way, definitely don’t leave money on the table for medical expenses come tax time!

From the New York Times: “Health Saving Accounts Can Reduce Tax Bills. But Beware the Paperwork.”

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By In Do the Math, Health Financial Accounts, Health Savings Accounts (HSAs), Retirement Income, Retirement Investment Accounts, Savings

Doing the Math on Why You Should Max Out Your HSA Contribution

Here are The Benefits of FI, we talk about HSAs as a savings vehicle for retirement in the same vein as a 401(k) or IRA. That’s because it has the same basic features of enabling pre-tax savings to be invested and thereby grow at a significantly higher rate than post-tax dollars in a standard checking or savings account.

What some of you, especially those who have just started you FI journey and have neither started a family of your own nor seen your own parents get to standard retirement age, may be thinking is that since you’re saving the money for retirement, it’s retirement income that you’ll get to spend on fun stuff. Hopefully that will be true (although you’ll get taxed on it), but odds are that you’ll use it for medical expenses, which are never as fun but almost always a factor.

Research by Fidelity Investments, reported by Money, shows that the average couple currently reaching retirement age will incur $280,000 in medical-related expenses in retirement. As homer Simpson would say:

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By In Health Financial Accounts, Health Savings Accounts (HSAs), High-Deductible Health Plan (HDHP), Individual Health Insurance

High Deductible ≠ HSA-Eligible

I saw an interesting question posted on Twitter this weekend that got me thinking about HSA eligibility. The question was about whether the new short-term, limited duration health plans being offered under a new expansion by the Trump Administration qualify as high-deductible health plans (HDHPs) and, as such, also qualify for health savings accounts (HSAs). I didn’t see that an answer was tracked down yet but the gist of the argument is that since HSAs are governed by the IRS and not Health and Human Services, which approves health insurance plan designs, then an STLD plan could also be an HDHP.

Why should this wonky distinction matter to you? Two reasons:

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By In Health Financial Accounts, Health Insurance Utilization, Health Savings Accounts (HSAs)

What Expenses Can I Pay with My HSA?

While we at The Benefits of FI see great benefit, no pun intended, in treating your health savings account (HSA) like a second retirement account and not making any withdrawals until you’re in retirement — in the case of HSAs, that’s IRS-standard retirement age. But we know that there may be occasions that arise in which you need to use your HSA funds, or where it’s simply prudent to use those funds because they’ll help you pay more in a shorter period. One such example is the birth of a new child, which is a scenario I’ve spoken about before that originally got my family into an HSA.

Also, if you’re reading this just to get information about how to best manage your money and aren’t on the FIRE path, it’s valuable to know what does and does not qualify as an HSA-eligible expense.

Long story short, there are quite a few things for which you can pay with HSA funds — things like eyeglasses and breast pumps. There are more things that may qualify under special circumstances — things like massages if prescribed by a doctor for pain relief and a wig if due to hair loss from a medical condition or treatment (chemotherapy, for example). And, of course, there are plenty of things you cannot pay for with HSA funds, such as hair removal or hair replacement. Also, uh, veterinary services. Sorry, Fido.

Here is the full list and, for more information on each, here is Publication 502 from the IRS that goes into greater detail on qualifiers and regulations for use.

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By In Health Financial Accounts, Health Savings Accounts (HSAs)

Morningstar’s Retail HSA Rankings Provides Good Insights for Evaluating the Best Fit for FI

Did you know you can pick your health savings account (HSA) provider? If you get your health insurance through your employer, they will likely have a preferred “vendor” for this purpose, which will ensure you have payroll deduction for pre-tax contributions to your HSA (and hopefully an employer contribution as well). It’s almost always a decent option for the convenience.

But in case your employer’s default is only focused on the spending side of your HSA and not the investing side, you might want to look for your own provider. Or if you’re shopping for your own health insurance as an individual and you get a qualified high-deductible health plan (HDHP), you’ll likely have to shop for your own HSA provider as well.

This research from Morningstar outlines some of the key criteria they use to evaluate vendors — things like transparency, transaction and investment fees, and other services. You can read through what they say regarding the evaluation on their blog, and you can go over to this BenefitsPro article to see a bit more on their “top 10” list of providers.

The research is a good reminder that, just like your investment and savings options, it can pay to shop around.

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