HSA Questions!

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
heybro
Posts: 140
Joined: Thu May 12, 2016 9:17 pm

HSA Questions!

Post by heybro » Thu Oct 26, 2017 1:55 am

Hey!

I just heard a rumor that my employer will be offering an HSA next year! (as part of a HDHP of course). This will be the first time they have offered it! I am excited!

I was looking at the wiki and can someone clarify what this means (emphasis mine)?

"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, so long as the plan is classified as a Section 125 or "cafeteria" plan. Often, if you are below the Social Security wage base, it is only break-even or worse to use the payroll deduction because the reduced Social Security benefits cost more than the tax savings."

Other than that, any general advice on them?
I love the idea of earning money TAX FREE when used for a medical expense.
I love that it is your money for a long time and not necessarily connected to your employer.
I don't like the idea of having a 'middle man' to have to jump through hoops for who also may charge fees and not offer me a good Total Stock Index Fund.
I don't like the idea of needing to use it for medical expenses (and sort of almost hoping I have a medical expense in a perverse way so that I can spend it tax free).

Let me know your thoughts and experiences please!
Thank you!

aristotelian
Posts: 4599
Joined: Wed Jan 11, 2017 8:05 pm

Re: HSA Questions!

Post by aristotelian » Thu Oct 26, 2017 6:14 am

Regarding your last concern, you are not locked into your employer HSA as you are with 401k. You can transfer to a third party like an IRA. Current consensus favorites are Lively, Selectaccount, HSA Authority, HSA Bank, and Saturna.

cas
Posts: 310
Joined: Wed Apr 26, 2017 8:41 am

Re: HSA Questions!

Post by cas » Thu Oct 26, 2017 7:00 am

heybro wrote:
Thu Oct 26, 2017 1:55 am

I was looking at the wiki and can someone clarify what this means (emphasis mine)?

"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, so long as the plan is classified as a Section 125 or "cafeteria" plan. Often, if you are below the Social Security wage base, it is only break-even or worse to use the payroll deduction because the reduced Social Security benefits cost more than the tax savings."
David Grabiner writes about the concept in the underlined sentence a bit more in a different wiki article ("Payroll Deduction"):
https://www.bogleheads.org/wiki/Payroll ... gs_Account
then make sure you click the link in that section and jump back up to this section
https://www.bogleheads.org/wiki/Payroll ... l_Security

The essence of what the sentence you underlined in your post is getting at is this sentence from the Payroll Deduction wiki article:
Most benefits are also exempt from Social Security and Medicare tax. Exemption from Social Security tax is not necessarily a benefit; if you pay less in Social Security tax, you will have lower Social Security benefits.
Beyond that general statement, an explanation about whether the trade-off is/is-not beneficial for any particular person starts getting into the concept of social security "bend points" which starts making the whole thing a bit complicated (or at least long) to explain. (And David Grabiner's Payroll Deduction article kind of assumes that you know about bend points in order to follow his math.)

So ... If you need a primer on social security bend points, this article gives a nice explanation. (This article is on early retirement, not HSAs, so initially it won't seem relevant to you and your HSA question. But if you keep reading until you get down to where it discusses social security bendpoints, I think it does a nice job explaining that concept.)
Michael Kitces "The Impact Of Early Retirement On Projected Social Security Benefits" https://www.kitces.com/blog/calculating ... etirement/ August 2017

Here's another forum post that discussed the topic of HSA payroll deductions (as opposed to deducting using your annual IRS 1040), SS bendpoints, FICA, and ultimate social security benefit: viewtopic.php?t=210839

Sorry - I'm sure that all ended up clear as mud. Maybe other people can explain it better than my attempt or can point you to a more direct explanation of the whole thing in some different forum post or wiki article.

exigent
Posts: 740
Joined: Fri May 07, 2010 8:49 am

Re: HSA Questions!

Post by exigent » Thu Oct 26, 2017 7:09 am

In very general terms: Social Security is deducted up to a certain total earnings level (the so-called “wage base”), and Social Security benefits are based on what you’ve contributed. If you are below the wage base and you reduce your income (via, say, pre-tax HSA contributions), then you will end up reducing your Social Security contributions, too. This can impact your eventual Social Security benefits. If you are above the wage base, you’re already contributing the max, so having those contributions withheld pre-tax has no effect on Social Security.

Post Reply