Any reason to contribute to HSA?

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Topic Author
CarolusP
Posts: 10
Joined: Wed Jul 08, 2020 7:40 pm

Any reason to contribute to HSA?

Post by CarolusP »

Hello,

I'm married and have four children. Because our family rarely takes trips to the hospital, we've been on a high deductible healthcare plan for the last several years, which has worked out well. I've been contributing to the HSA up to this point for any medical expenses we do incur. However, because of the recent child tax credit changes, my federal income tax liability next year will be zero. It doesn't appear that my state (MN) offers a deduction for HSA's from what I can tell.

Am I missing something, or does it make sense for me to stop contributing to my HSA at this point? Since my federal tax obligation is zero, I don't get the benefit of that deduction anymore, correct?
sailaway
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Joined: Fri May 12, 2017 1:11 pm

Re: Any reason to contribute to HSA?

Post by sailaway »

It depends on the actual numbers. Since your child tax credits are refundable, you may get more money back by making contributions that lower your liability even more.
czaj
Posts: 135
Joined: Sun Oct 04, 2015 4:01 pm

Re: Any reason to contribute to HSA?

Post by czaj »

Isn’t the tax credit refundable? So you would just get a higher refund.

If it’s not refundable or if your tax liability is still $0, some scenarios where it could make sense:

- HSA investments could grow tax free, and you would still be able to withdraw tax-free as long as they’re used for eligible expenses (similar to a Roth IRA)
- is there opportunity for you to perform Roth conversions or tax gain harvest? In other words, contribute to an HSA, take the deduction, and perform Roth conversions in the amount of the deduction
Madbull
Posts: 111
Joined: Thu Sep 26, 2013 11:01 am

Re: Any reason to contribute to HSA?

Post by Madbull »

Assuming you're already maxing a 401k/IRA, the HSA can serve as an auxiliary savings vehicle. It's 'triple tax advantaged', (pre-tax contributions, no taxes on the earnings, and withdrawal of the money tax free at anytime in the future for reimbursement of previous medical expenses). If you never incur much in medical costs, you can still withdraw the money with no penalty post-65 with standard taxes. (Pre-65 there's a 20% penalty if it's not reimbursing yourself for prior medical expenses).

We pay for all of our out of pocket, happily take the 1k my employer throws in, and plan to use it as a post-65 account. Never hurts to have another spot to stash money, provided your investment options/fees in your HSA are good of course).
Topic Author
CarolusP
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Joined: Wed Jul 08, 2020 7:40 pm

Re: Any reason to contribute to HSA?

Post by CarolusP »

sailaway wrote: Thu Jun 10, 2021 1:05 pm It depends on the actual numbers. Since your child tax credits are refundable, you may get more money back by making contributions that lower your liability even more.
I hadn't considered the refundable piece.

So we actually have a fifth child due later this summer, and all five of our children will be under the age of 6 at the end of the year (we're crazy, I know). My gross income is about $105k, which will put my taxable income at around $80k (married filing jointly). Doing rough math, that means my federal income tax liability is around $9k, minus the child tax credit (5 x $3600) $18,000. I believe the CTC is still refundable up to $1400, but is that per child? I'm not entirely sure how to do the math on that piece of it.

As far as what my HSA is invested in, unfortunately our company doesn't give us any options there. It earns a meager %0.15 annually.
N10sive
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Re: Any reason to contribute to HSA?

Post by N10sive »

CarolusP wrote: Thu Jun 10, 2021 1:46 pm
sailaway wrote: Thu Jun 10, 2021 1:05 pm It depends on the actual numbers. Since your child tax credits are refundable, you may get more money back by making contributions that lower your liability even more.
I hadn't considered the refundable piece.

So we actually have a fifth child due later this summer, and all five of our children will be under the age of 6 at the end of the year (we're crazy, I know). My gross income is about $105k, which will put my taxable income at around $80k (married filing jointly). Doing rough math, that means my federal income tax liability is around $9k, minus the child tax credit (5 x $3600) $18,000. I believe the CTC is still refundable up to $1400, but is that per child? I'm not entirely sure how to do the math on that piece of it.

As far as what my HSA is invested in, unfortunately our company doesn't give us any options there. It earns a meager %0.15 annually.
You could do a transfer at the end of each year into say a fidelity HSA if allowed and invest there.
rhubarbpie
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Joined: Mon May 03, 2021 9:18 am

Re: Any reason to contribute to HSA?

Post by rhubarbpie »

Can you roll over your HSA money to somewhere like Fidelity? I believe I've read that you can request a distribution once a year. Depending on your company's policies you may have to leave a little bit in there to keep making contributions, but at least you could get some of it out to invest properly.
AnEngineer
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Re: Any reason to contribute to HSA?

Post by AnEngineer »

CarolusP wrote: Thu Jun 10, 2021 1:46 pm
sailaway wrote: Thu Jun 10, 2021 1:05 pm It depends on the actual numbers. Since your child tax credits are refundable, you may get more money back by making contributions that lower your liability even more.
I hadn't considered the refundable piece.

So we actually have a fifth child due later this summer, and all five of our children will be under the age of 6 at the end of the year (we're crazy, I know). My gross income is about $105k, which will put my taxable income at around $80k (married filing jointly). Doing rough math, that means my federal income tax liability is around $9k, minus the child tax credit (5 x $3600) $18,000. I believe the CTC is still refundable up to $1400, but is that per child? I'm not entirely sure how to do the math on that piece of it.

As far as what my HSA is invested in, unfortunately our company doesn't give us any options there. It earns a meager %0.15 annually.
I believe the extra $1600 CTC is fully refundable, so $3000/kid for you total.
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teen persuasion
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Re: Any reason to contribute to HSA?

Post by teen persuasion »

CarolusP wrote: Thu Jun 10, 2021 1:46 pm
sailaway wrote: Thu Jun 10, 2021 1:05 pm It depends on the actual numbers. Since your child tax credits are refundable, you may get more money back by making contributions that lower your liability even more.
I hadn't considered the refundable piece.

So we actually have a fifth child due later this summer, and all five of our children will be under the age of 6 at the end of the year (we're crazy, I know). My gross income is about $105k, which will put my taxable income at around $80k (married filing jointly). Doing rough math, that means my federal income tax liability is around $9k, minus the child tax credit (5 x $3600) $18,000. I believe the CTC is still refundable up to $1400, but is that per child? I'm not entirely sure how to do the math on that piece of it.

As far as what my HSA is invested in, unfortunately our company doesn't give us any options there. It earns a meager %0.15 annually.
Congrats on #5! Won't you have labor and delivery charges, and more for the infant?

I believe the CTC is fully refundable at the moment, $3600 for each of your little ones. It does phaseout at higher AGI, each section (old and new add-on) at different AGI. But I thought that started at $150k - please check the details, I'm not in that range, so not as firm on cutoffs.
Topic Author
CarolusP
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Joined: Wed Jul 08, 2020 7:40 pm

Re: Any reason to contribute to HSA?

Post by CarolusP »

teen persuasion wrote: Thu Jun 10, 2021 7:51 pm
Congrats on #5! Won't you have labor and delivery charges, and more for the infant?

Yes, I will. I currently have $10k in the HSA, so that'll be more than enough to cover those expenses.
aristotelian
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Re: Any reason to contribute to HSA?

Post by aristotelian »

HSA contributions through your employer are exempt from FICA tax and grow tax free if invested.
Topic Author
CarolusP
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Joined: Wed Jul 08, 2020 7:40 pm

Re: Any reason to contribute to HSA?

Post by CarolusP »

aristotelian wrote: Fri Jun 11, 2021 9:37 am HSA contributions through your employer are exempt from FICA tax and grow tax free if invested.
I didn't realize that. Thank you for that clarification. Deducting from the FICA calculation definitely still makes it worth it then.
aristotelian
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Re: Any reason to contribute to HSA?

Post by aristotelian »

CarolusP wrote: Fri Jun 11, 2021 9:53 am
aristotelian wrote: Fri Jun 11, 2021 9:37 am HSA contributions through your employer are exempt from FICA tax and grow tax free if invested.
I didn't realize that. Thank you for that clarification. Deducting from the FICA calculation definitely still makes it worth it then.
Correct. Also, if MN bases state taxable income off Federal AGI, you would not need an additional "HSA deduction" in order for HSA contributions to bring down your state taxes.

If you do the HSA, the additional $7K for family limit might give you additional room to do things like harvest capital gains in your brokerage account or switch 401k contributions to Roth which would otherwise raise your federal tax.
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