Gyroscopic Investing

I am entering the wonderful world of full time employment (graduating from undergrad in 1.5 months) and I am hoping to glean some wisdom from the board if y'all don't mind.

For my health care benefits I am thinking of going with the HSA option. It appears that it is the right choice for someone who is young with no current health issues. I would probably go for the 401k match, then max out HSA, then roth, and then finally max 401k (if I am really frugal that is!).

Who here has an HSA? Do you like it? Do you feel that you save money with it?

I currently have an HSA thorugh HSABank and you can move funds over into a TD Ameritrade account to do investment trades in it rather than just a savings account through HSABank.

I rather enjoy it, especially since for HSA's, it kind of acts like a super ROTH in the sense that the money going in isn't taxed and if you use it on qualified medical expenses, it isn't taxes when it comes out. The nice thing is that you can use taxable money to pay for your medical expenses while the money in the HSA grows tax free and just save your receipts for all of your medical items. As long as you save the receipts, you can redeem them for HSA funding after you turn 65 and you can't contribute to it anymore. A nice little tax-savings indeed.

We (wife and I) have been doing HSAs for several years.  Greg is right, it is like a super Roth for tax-free medical dollars, or, if you are old enough, like a regular IRA if you need it for non-medical spending.  I've been fortunate and only had minor medical outlays since having the HSA and paid those out of cash so the HSA accounts haven't been touched.

I've lamented elsewhere about California's tax policy regarding HSAs (no tax break) but it is still worth it, I think.

ACA is supposed to make this a tougher choice, but I haven't really read up on all the ACA ramifications for HSAs (I was counting on the Supremes to make that a non-issue).

melveyr wrote: I am entering the wonderful world of full time employment (graduating from undergrad in 1.5 months) and I am hoping to glean some wisdom from the board if y'all don't mind.

melveyr, I was doing some research over at the Bogleheads site, and came across a post of yours from years ago. Did you start posting in Junior High? Good luck and work hard. The HSA sounds perfect for you as long as you are not a heavy utiliser of health care.

Even more nicely, you get a FICA/Medicare tax deduction on the contribution (unlike 401(k)), and if you use the account to pay for Medicare and long-term care premiums completely tax free.

moda0306 wrote: Even more nicely, you get a FICA/Medicare tax deduction on the contribution

Wait, what?  How does that work?  I don't see it on Schedule SE.

Xan,

Sorry, only for w-2 employees with employer-sponsored HSA's. 

Huh.  Thanks for the good (but frustrating) info!  And at least I didn't miss something when doing my taxes.  :-)

1NV35T0R (Greg) wrote: The nice thing is that you can use taxable money to pay for your medical expenses while the money in the HSA grows tax free and just save your receipts for all of your medical items. As long as you save the receipts, you can redeem them for HSA funding after you turn 65 and you can't contribute to it anymore. A nice little tax-savings indeed.

I like HSA's as a major medical alternative but its relatively useless for true preventive care, i.e. it won't cover dietary supplements or other anti-aging expenses.  Maybe in 42+ years those would finally be covered, but do you honestly believe that HSA's will still exist or you will still have all your receipts after all that time?  I have some great swampland in Florida to sell you...

WildAboutHarry wrote: ACA is supposed to make this a tougher choice, but I haven't really read up on all the ACA ramifications for HSAs (I was counting on the Supremes to make that a non-issue).

HSA's are still around, though not without a lot of lobbying involved to save them.  They almost make too much sense...  but it will be up to the providers on the exchanges as to whether or not they will still offer HSA plans.  While I don't believe you have to buy on the exchange to get insurance, you won't get any tax subsidies if you don't.

MG brings up a really good point about HSAs.  Let's hope Dropbox is still around 40 years from now - among other things.  For the time being, though, they are the best deal going for minimizing tax burdens.  Yes, the FICA/Medicare tax exemption only applies if contributions are deducted from your paycheck as part of your employer's cafeteria plan, but read the fine print.  In my case, my employer went with an HSA (Chase) with ridiculous fees and no investment options, unless you count the 0.01% interest they pay.

One more point:  you can consider the HSA as part of your emergency fund.  If you save your medical payment records, you can "cash them in" at any time.

I've never had an HSA until this year, when I went onto my wife's health care plan at her work (she had the HSA last year, but I was still on my company's health plan).  So far we like it, because we're both relatively healthy so we don't dip into it too much.  We already max out our 401K and Roth IRA, so we don't have the money left over to heavily fund the HSA, but her company pays into it in exchange for us taking the high-deductible health plan.  So right now we make more on it than we spend. 

I haven't gotten into the investing aspect of it yet, since we don't have enough funds to make it worthwhile and my wife wants to keep everything in cash in case we need it.  Once we've accumulated enough to cover the maximum out-of-pocket expenses, I'll start dabbling into investing our HSA funds. 

I am sure that you have the financial aspects well in hand.  However, the biggest change is the amount of paper work and time that it takes to work with the HSA and medical providers.  For example, under a traditional healthcare plan one might show the health care card, pay a deductible, and leave the health care provider's office and hopefully that would be it (no additional paper work).

With an HSA, my experience is that the paper work never seems to end.  If your experience is like mine, you will be learning (against your will) new information about medical billing codes and the seemingly arcane and inefficient world of medical billing.  It is not a fun experience.  Even with the increased administrative burden, we still have the HSA.

FYI, I have been pretty unhappy with HSA Bank's service. I changed jobs, and my new employer offers a Discovery Benefits HSA. I'm going to give that one a try, and roll my money tax-free out of HSA Bank.

Ochotona, what in particular didn't you like?  I have an account at HSA Bank and I've got my own beefs with them, but as yet no reason to want to pull out (or better alternative).

Before you accept the HSA card with the idea of using it to pay copays and such, read the fine print:  most HSA plans charge a steep fee with every use of the card.  HSA Bank also has minimum balances that go up (with no notice) every year.

I haven't tried to cash in any medical receipts, so I hope the process isn't that hard, but I'd request a reimbursement straight from HSA bank and rely on my record keeping to protect me in case of an IRS audit.

WiseOne, it's was just a summation of small customer service errors, nothing worth elaborating individually, I was willing to put up with it while I had no alternative, but that ends on 1/1/2016. Death by a dozen cuts.

If you had a hard time with HSA Bank's phone jockeys, I can only imagine what you think of your cable company!

We don't have cable!