Should I contribute to my HSA?

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Met Income
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Should I contribute to my HSA?

Post by Met Income » Fri Jan 11, 2008 11:35 pm

My company has HSA for the first time this year. We have a $1,500 deductible until I am fully covered, however, my company is contributing the $1,500 for me. I am also eligible to contribute up to $1,200 to it this year.

My situation:

25 years old
Live in a state with high income taxes
65K income with solid raises
Roth IRA maxed out
Roth 401K maxed out (15% of salary)
Money Market ~25K (hope to buy house in 2-3 years with ~40K)

It's basically contribute to my HSA or to my down payment fund in my money market acct. Also, I will have > $1,500 in medical bills this year due to Invisalign, however should I not touch it so it can grow tax free? Thanks in advance.
Last edited by Met Income on Sat Jan 12, 2008 12:15 pm, edited 1 time in total.

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wlpotts
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Post by wlpotts » Sat Jan 12, 2008 2:58 am

Hello Met,

Firstly I do not know your financial state other than what you have indicated, but you should be able to contribute up to a total of $2850.00 if you are single. This means $1500.00 employer + $1350.00 your contribution= maximum 2008 HSA contribution.

You should be able to contribute through your employer with a pre-tax deduction rather than after tax dollars. This voluntary deduction directed to your HSA account will immediately save you Fed tax and I believe in many states, state tax on the $1350.00.
I will have > $1,500 in medical bills this year due to Invisalign, however should I not touch it so it can grow tax free?
If you want to pay the expected health expense of $1500.00 from your HSA, the remaining balance will still grow and compound tax-free.

If, on the other hand, you max the HSA account and do not touch the account and decide to pay the $ 1500.00 from your after tax income it will allow your HSA account grow/compound, but remember that your real world cost will be your elective contribution to the HSA $1350.00 plus $1875.00 of your gross salary before taxes (Estimated at 25% Tax rate). It's jump in commitment.

On a aside, even though the deducible for the company health plan may indicate you are fully covered, I would revisit the details of your coverage as most plans will still have co-pay arrangements with tiered deductibles for the various services rendered. The ZERO DOLLAR out-of-pocket coverage usually begins after you've paid 10K to 15K in a calendar year.

If I were in your situation, ( which I am not) I would bite the bullet and max the HSA to the limit, pay the $1500 in after tax dollars, save the reciepts, so at any given time of REAL need I could cash in on the HSA balance when needed or apply it to potential cash needs in the future housing purchase.

That's my perspective.

Yours,
Warren P.
Some have it. Some don't. Either way, here I am!

ataloss
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Post by ataloss » Sat Jan 12, 2008 6:46 am

It would make sense to me to contribute and then use that money for invisalign so that you are using tax free money. The invisalign isn't covered by medical insurance is it? I am thinking that you will still have a deductible to cover if you have medical expenses.

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tadamsmar
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Post by tadamsmar » Sat Jan 12, 2008 8:13 am

I notice that you are maxing out everything but your HSA. But the HSA is totally tax-free. Assuming you don't max out everything, It might make more sense give the HSA a higer priority, since it allows more tax avoidance than a Roth. Also, it's withdrawls are more flexible than a Roth since you can make tax-free withdrawls to cover qualified expenses.

You do need to keep the medical records in case you get audited. And, currently, the fees are higher and investments more limited for the HSA than a Roth. But I guess Vanguard may eventually support HSAs so things may improve.

Why do you say you can contribute only 1200? That's not the limit for a joint filling. Either you are single or you have not had the HDHP for a full year?

madcow
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Should I Contribute to My HSA ?

Post by madcow » Sat Jan 12, 2008 9:55 am

tadamsmar wrote :
"But I guess Vanguard may eventually support HSAs so things may improve"
At the Vanguard home page, there is a link to HSA accounts. On the
sidebar of that page, Health Savings Administrator lists VG funds for
available for the banking options of their savings program

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Met Income
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Post by Met Income » Sat Jan 12, 2008 5:50 pm

wlpotts wrote:Hello Met,

Firstly I do not know your financial state other than what you have indicated, but you should be able to contribute up to a total of $2850.00 if you are single. This means $1500.00 employer + $1350.00 your contribution= maximum 2008 HSA contribution.

You should be able to contribute through your employer with a pre-tax deduction rather than after tax dollars. This voluntary deduction directed to your HSA account will immediately save you Fed tax and I believe in many states, state tax on the $1350.00.
I will have > $1,500 in medical bills this year due to Invisalign, however should I not touch it so it can grow tax free?
If you want to pay the expected health expense of $1500.00 from your HSA, the remaining balance will still grow and compound tax-free.

If, on the other hand, you max the HSA account and do not touch the account and decide to pay the $ 1500.00 from your after tax income it will allow your HSA account grow/compound, but remember that your real world cost will be your elective contribution to the HSA $1350.00 plus $1875.00 of your gross salary before taxes (Estimated at 25% Tax rate). It's jump in commitment.

On a aside, even though the deducible for the company health plan may indicate you are fully covered, I would revisit the details of your coverage as most plans will still have co-pay arrangements with tiered deductibles for the various services rendered. The ZERO DOLLAR out-of-pocket coverage usually begins after you've paid 10K to 15K in a calendar year.

If I were in your situation, ( which I am not) I would bite the bullet and max the HSA to the limit, pay the $1500 in after tax dollars, save the reciepts, so at any given time of REAL need I could cash in on the HSA balance when needed or apply it to potential cash needs in the future housing purchase.

That's my perspective.

Yours,
Warren P.
Ok, it's probably $1,350. I talked to someone who didn't feel sure of themselves (I couldn't make the HSA meeting) and they said $1,200.

I'm thinking paying for medical costs out of pocket and letting my HSA grow is the best for the long-term.

I'm sure that after the $1,500, I don't have co-pays. I'm pleased with the plan. Thanks for the heads up, though.

Joseph4
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Post by Joseph4 » Sun Jan 13, 2008 2:22 am

Met Income wrote:I'm thinking paying for medical costs out of pocket and letting my HSA grow is the best for the long-term.
If I was you I'd do the same thing. And I'm young like you. As a previous poster said, if you really really need the cash at a later date you could just submit the claim (that you had already paid out of pocket) as long as you keep the receipt.

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tadamsmar
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Post by tadamsmar » Sun Jan 13, 2008 7:36 am

Joseph4 wrote:
Met Income wrote:I'm thinking paying for medical costs out of pocket and letting my HSA grow is the best for the long-term.
If I was you I'd do the same thing. And I'm young like you. As a previous poster said, if you really really need the cash at a later date you could just submit the claim (that you had already paid out of pocket) as long as you keep the receipt.
To be exact, you can use a qualifying claim to make a tax-free withdrawl even if you don't have the receipt.

If you are audited by the IRS, then you will need proof to avoid have the tax reinstated, possibly with an additional percentage penalty.

ataloss
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Post by ataloss » Sun Jan 13, 2008 8:07 am

Seems unusual to me that a cosmetic dental procedure will count against your deductible for medical insurance. But maybe I misunderstood your situation. We had some confusion over this when we went to a HSA. Had to explain to folks that although stuff may be eligible for payment from the HSA it didn't count toward their medical deductible. (glasses dental, non prescription drugs)

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