HSA with [poor] insurance or ROTH IRA?

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HSA with [poor] insurance or ROTH IRA?

Postby winkleweizen » Thu May 09, 2013 10:43 pm

So I am a recent graduate of medical school and will be starting my residency in California. I made a budget for myself and figured I can put in roughly 5000 dollars of investments each year. As my employer doesn't offer a 401k match, I was thinking of either funding a Roth IRA fully or funding an HSA and part of a ROTH IRA.

The only reservation I have is in order to be eligible for an HSA I would have to pick a health insurance with a 1700 deductible as opposed to one with no deductible. Im a relatively healthy 26 year old and dont envision meeting that deductible so that would be my reservation. Also the fact that I will be in California and that an HSA wont help with my state taxes.

So what do you guys think? What would be the best route for me to take?
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Re: HSA with [poor] insurance or ROTH IRA?

Postby neurosphere » Fri May 10, 2013 7:18 am

How much do you save in premiums with the HSA vs a non-HSA insurance, if you have both options?

Do the HSA funds come out of your paycheck such that you do not have to pay FICA taxes on the HSA contributions?
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Re: HSA with [poor] insurance or ROTH IRA?

Postby robebibb » Fri May 10, 2013 7:52 am

It all depends on premium difference and incentives. In my case my wife’s employer deposits $1,000 into her HSA annually, we get about $1,800 in tax breaks by maxing out HSA contributions, and the premium is $1,500 less than the non-HSA plan. As a trade-off we go from a $600 individual deductible to $2,700 family deductible. Choosing the HSA for us is a no brainer.
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Re: HSA with [poor] insurance or ROTH IRA?

Postby winkleweizen » Fri May 10, 2013 8:29 am

neurosphere wrote:How much do you save in premiums with the HSA vs a non-HSA insurance, if you have both options?

Do the HSA funds come out of your paycheck such that you do not have to pay FICA taxes on the HSA contributions?


1) The HSA premium would be 1700. The premium for the one I would get for Non-HSA would be 0.
2) Im not actually sure if they would come directly out of my paycheck. I guess they probably would?
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Re: HSA with [poor] insurance or ROTH IRA?

Postby Rob5TCP » Fri May 10, 2013 8:46 am

My trade offs were easier. I went from Oxford at over $1000 per month (single individual) to Freelancers HSA at $360 per month with a 6250 max out of pocket. I can deposit up to to $3,250 (plus $1,000 because I am over 50). In the 3 years I have this I have only used $1,100 from my HSA. I now have about $13,000 (rest came from increases in my account) in my HSA. When I retire I expect to have $30,000 - $50,000 in there.

Someone with lots of serious problems, this would not work. The big downside is the limited number of physicians that take this plan.
However, since the deductible is so high, I just use my physician of choice and it costs me a few hundred a year (I almost never will reach my deductible).
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Re: HSA with [poor] insurance or ROTH IRA?

Postby G-Money » Fri May 10, 2013 9:07 am

winkleweizen wrote:1) The HSA premium would be 1700. The premium for the one I would get for Non-HSA would be 0.

From your earlier post, I think you mean "deductible" here, not "premium." The premium is the monthly cost you pay directly to the insurance company for health insurance. A deductible is the out-of-pocket expenses you pay before any insurance coverage is triggered.

Almost always, HSAs have lower premiums than more comprehensive health insurance plans because the costs of insurance are lower for the insurance company (because there is a higher deducible, co-insurance, etc.). I presume neurosphere was asking about the premiums because it may be that the lower cost of the premiums will allow you to fund both the HSA and a Roth.

If your employer provides health insurance, see if the employee contribution for health insurance premiums is lower for an HSA than for a more comprehensive plan. If there is no premium cost savings for the employee to choose an HSA, then you don't have much reason to choose the HSA. If you need to buy your own health insurance, then you will see that HSAs have significantly cheaper premiums than other plans.
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Re: HSA with [poor] insurance or ROTH IRA?

Postby winkleweizen » Fri May 10, 2013 12:37 pm

G-Money wrote:
winkleweizen wrote:1) The HSA premium would be 1700. The premium for the one I would get for Non-HSA would be 0.

From your earlier post, I think you mean "deductible" here, not "premium." The premium is the monthly cost you pay directly to the insurance company for health insurance. A deductible is the out-of-pocket expenses you pay before any insurance coverage is triggered.

Almost always, HSAs have lower premiums than more comprehensive health insurance plans because the costs of insurance are lower for the insurance company (because there is a higher deducible, co-insurance, etc.). I presume neurosphere was asking about the premiums because it may be that the lower cost of the premiums will allow you to fund both the HSA and a Roth.

If your employer provides health insurance, see if the employee contribution for health insurance premiums is lower for an HSA than for a more comprehensive plan. If there is no premium cost savings for the employee to choose an HSA, then you don't have much reason to choose the HSA. If you need to buy your own health insurance, then you will see that HSAs have significantly cheaper premiums than other plans.

O sorry, yeah brain fart. Yeah so the premiums are basically a wash like roughly 45 versus 55 dollars a month
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Re: HSA with [poor] insurance or ROTH IRA?

Postby G-Money » Fri May 10, 2013 12:56 pm

winkleweizen wrote:O sorry, yeah brain fart.

Happens to all of us. :happy

winkleweizen wrote:Yeah so the premiums are basically a wash like roughly 45 versus 55 dollars a month

That's a surprisingly small difference. Usually, HSA premiums are several hundred dollars per month cheaper than plans with no deductible. Perhaps check to see that the plans provide the same coverage, etc. For only $120/year in premium savings, I would definitely get the more comprehensive plan and use the Roth.
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Re: HSA with [poor] insurance or ROTH IRA?

Postby robebibb » Fri May 10, 2013 1:01 pm

Also check to see if your employer is going to contribute to your HSA. It is common to have a significant employer contribution which could impact your decision.
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Re: HSA with [poor] insurance or ROTH IRA?

Postby mjsmithz » Fri May 10, 2013 3:42 pm

off topic but had to comment. it always astounds me that a $1,250(single $2500 family) deductible is considered a high deductible plan.
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Re: HSA with [poor] insurance or ROTH IRA?

Postby rjc32000 » Fri May 10, 2013 4:29 pm

HSAs are pretty attractive options. Unlike a Roth, your HSA contributions will reduce your AGI (and your taxes!). Some HSA providers are fairly low cost, and have good passive investment options (HSAdminstrators, for one). Any contributions grow tax-deferred, and can be withdrawn at at time tax free for qualified medical expenses. Plus, you can take out the money at retirement for any purpose, although the withdrawals are taxable (like a traditional IRA). Unlike an IRA, there are no required minimum distributions on HSAs, so the money can potentially grow tax free for the next 50 years. Many bogleheads utilize HSAs for retirement savings rather than their intended purpose of health savings accounts because the tax benefits are just too good to pass up: the money you invest isn't taxed, it grows tax free, and is tax free at any time for qualified medical expenses. That is as good as it gets from a tax standpoint.
You are relatively healthy and have a long and lucrative career ahead of you. I think many bogleheads would advise you to self-insure as much as possible (i.e., carry insurance with a high premium). I max out my HSA and carry health insurance with a $2k deductible. My monthly premiums are considerably lower than they'd be with a lower deductible, and the difference funds my HSA. Many bogleheads (myself included) pay their medical expenses out of pocket rather than through their HSAs because the tax benefits of leaving the money where it is are so attractive. But it is nice to know that, in a pinch, the money is there for a true medical emergency.
I think your second option is the better option: I'd split the $5000/year between a HSA and a Roth (I'm assuming that as a resident, your current tax rate is substantially lower than it will be in the future).

So I am a recent graduate of medical school and will be starting my residency in California. I made a budget for myself and figured I can put in roughly 5000 dollars of investments each year. As my employer doesn't offer a 401k match, I was thinking of either funding a Roth IRA fully or funding an HSA and part of a ROTH IRA.

The only reservation I have is in order to be eligible for an HSA I would have to pick a health insurance with a 1700 deductible as opposed to one with no deductible. Im a relatively healthy 26 year old and dont envision meeting that deductible so that would be my reservation. Also the fact that I will be in California and that an HSA wont help with my state taxes.
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