Self funded HSA tax questions

[elliott1234]

Hi I've never had an HSA before and I'm thinking about switching to a plan with one. I did the math and with the amount of healthcare I've been using I could be paying for it out of pocket and still have money left over so I am considering whether I should switch to an HSA high deductible plan to take advantage of the HSA while I am still young-ish and don't have too many health problems.

The plan would be a self funded HSA. I see from employer sponsored plans money is put in the plan even before payroll taxes are taken out so I am wondering how that works if you using your own after tax money, when you file your taxes are you getting back your payroll taxes as a credit? Or are those gone?

Does it reduce your income for the purposes of calculating your future social security benefit?

For income taxes is is the same as an IRA, you subtract the amount from your taxable income when you file?

Thank you!

[ehh]

if you using your own after tax money, when you file your taxes are you getting back your payroll taxes as a credit?

Not a tax credit. Your contributions reduce your AGI.

Does it reduce your income for the purposes of calculating your future social security benefit?

No.

For income taxes is is the same as an IRA, you subtract the amount from your taxable income when you file?

Yes. In the year you contribute, similar to a tIRA. Advantages over a tIRA include being able to use the funds (for health care expenses) prior to age 59.5 without penalty and no RMDs.

Please see the wiki: https://www.bogleheads.org/wiki/Health_savings_account

[elliott1234]

Thanks -

"Unlike many other tax deductions, there are no income restrictions to contribute to an HSA. Contributions to an HSA reduce your federal adjusted gross income (AGI) dollar for dollar, possibly making you eligible for income-based credits or Roth IRA contributions you would not otherwise be eligible for without the HSA deduction.

If your employer allows it, you can make your own contributions through pre-tax payroll deduction; this has the potential advantage that these contributions, like pre-tax insurance premiums, are not subject to Social Security and Medicare taxes (collectively known as payroll or FICA taxes), so long as the plan is classified as a Section 125 or "cafeteria" plan. If you are below the Social Security Wage Base, the reduction in Social Security taxes may reduce your future Social Security benefits. The benefit or drawback of saving Social Security tax depends on your lifetime earning record. Generally, high earners come out ahead by avoiding FICA taxes, low earners come out behind, and middle earners come close to breaking even. See: Social Security as an investment and below."

So since I would be funding it myself then I would be paying my FICA taxes and getting credit for that income for the purposes of calculating future social security? I would just be getting the AGI reduction like in the case of an Trad IRA?

[ehh]

So since I would be funding it myself then I would be paying my FICA taxes and getting credit for that income for the purposes of calculating future social security? I would just be getting the AGI reduction like in the case of an Trad IRA?

Correct.

[elliott1234]

One other question... the company that runs the HSA for my health care provider is very crappy, lots of fees, etc. My plan is to max it out early in the year and then roll it over into a Fidelity HSA rollover account and then invest it there. It looks like you are allowed one rollover a year from an HSA to an HSA. Then I figure as long as I have it I can just make my contribution then roll it over once a year. Any reason you can't do that?

[BD w/ Kung-Fu Grip]

One other question... the company that runs the HSA for my health care provider is very crappy, lots of fees, etc. My plan is to max it out early in the year and then roll it over into a Fidelity HSA rollover account and then invest it there. It looks like you are allowed one rollover a year from an HSA to an HSA. Then I figure as long as I have it I can just make my contribution then roll it over once a year. Any reason you can't do that?

If you're self funding the HSA, there seems to be no reason to use the "company that runs the HSA for [your] health care provider" at all. Open the account at Fidelity and contribute directly there.

[Eager for FIRE]

Unless your employer matches or funds some of your company HSA. That was my situation. So I took the free $ but did not invest it in their expensive options. I rolled it several times during the year to my own personal Fidelity HSA. It was painfully slow to move it. But then I invested it there. Like you I pay cash for most medical bills, keeping receipts for future tax free distributions or Medicare premiums

And last year when I semi-retired I did the same for the first half 2023. Then topped off the res,t directly funding my FIDO HSA albeit, after FICA Tax $. But not a huge loss to FICA.

[TropikThunder]

Then I figure as long as I have it I can just make my contribution then roll it over once a year. Any reason you can't do that?

If you're self funding the HSA, there seems to be no reason to use the "company that runs the HSA for [your] health care provider" at all. Open the account at Fidelity and contribute directly there.

+1. The only reason to use the employer-preferred custodian is if you’re making contributions via payroll deduction (or getting employer contributions). Just make them straight to your preferred custodian.

[elliott1234]

I should have been more specific, this HSA would be through an Anthem health insurance marketplace (ACA) plan not through an employer so my assumption was I would have to use Anthem's financial instituion (NY Bank Mellon) and then roll over from there. I don't think I can just put it anywhere? Will have to call them and see...

[MP123]

I should have been more specific, this HSA would be through an Anthem health insurance marketplace (ACA) plan not through an employer so my assumption was I would have to use Anthem's financial instituion (NY Bank Mellon) and then roll over from there. I don't think I can just put it anywhere? Will have to call them and see...

Assuming the plan is a qualifying HDHP you can put your HSA anywhere. Generally the health insurer doesn't have anything to do with the actual HSA.

[TropikThunder]

I should have been more specific, this HSA would be through an Anthem health insurance marketplace (ACA) plan not through an employer so my assumption was I would have to use Anthem's financial instituion (NY Bank Mellon) and then roll over from there. I don't think I can just put it anywhere? Will have to call them and see...

It doesn’t matter if your insurance is through your employer or through the marketplace. If you are making the contribution yourself, then you can use whichever HSA custodian you want.

The only time your custodian choice is restricted is when you are making contributions via payroll deduction into your employer’s chosen custodian.

[RyeBourbon]

I should have been more specific, this HSA would be through an Anthem health insurance marketplace (ACA) plan not through an employer so my assumption was I would have to use Anthem's financial instituion (NY Bank Mellon) and then roll over from there. I don't think I can just put it anywhere? Will have to call them and see...

Just open an HSA at Fidelity and make your contributions there. I'm on ACA and that's what I did. I still get notices from my insurance company reminding me that I have access to an HSA (I don't remember who the custodian is), but I ignore them.

[PaunchyPirate]

I should have been more specific, this HSA would be through an Anthem health insurance marketplace (ACA) plan not through an employer so my assumption was I would have to use Anthem's financial instituion (NY Bank Mellon) and then roll over from there. I don't think I can just put it anywhere? Will have to call them and see...

I am retired. I buy my HSA-compliant ACA health plan from my local Blue Cross/Blue Shield company. They provide me the capability to use their service for the HSA. I ignore their option and maintain my HSA at Fidelity.

[elliott1234]

Ok I think I got it, if I have an ACA plan with HSA option I can just bypass the insurer's financial provider, open up an account at Fidelity and put money directly in there, and that's that?

[MP123]

Ok I think I got it, if I have an ACA plan with HSA option I can just bypass the insurer's financial provider, open up an account at Fidelity and put money directly in there, and that's that?

Yes, it's that simple.

[OrangeKiwi]

One other question... the company that runs the HSA for my health care provider is very crappy, lots of fees, etc. My plan is to max it out early in the year and then roll it over into a Fidelity HSA rollover account and then invest it there. It looks like you are allowed one rollover a year from an HSA to an HSA. Then I figure as long as I have it I can just make my contribution then roll it over once a year. Any reason you can't do that?

If you're self funding the HSA, there seems to be no reason to use the "company that runs the HSA for [your] health care provider" at all. Open the account at Fidelity and contribute directly there.

Even if your employer is contributing to your HSA, there is no reason to use anyone other than Fidelity. Just do a rollover at least once a year leaving at least $25 at your employer's chosen HSA custodian so they don't close your account, and it is as simple as filling out the form on Fidelity's Transfer of Assets website and letting them do all the paperwork.