The best retirement account you don't know about

[StormRichards]

Good article on the benefits of a HSA

http://money.cnn.com/2017/02/16/pf/hsa-retirement-account/index.html?iid=SF_LN

[disneysteve]

We currently have an HSA. We've only had it since September and will be getting rid of it April 1st hopefully because I'll be getting coverage through the urgent care job.

I've loved having the HSA as it has allowed us to put away thousands of dollars pre-tax and use that money to pay our medical expenses. Just in a few months, it has saved us a nice amount of money. We won't be using it for retirement since I won't be keeping it and we spend the money almost as fast as we put it in.

The downside is you have to have a high deductible plan. Our deductible is $4,700. Thankfully, we haven't had any medical issues since we got that plan but we have both been delaying some things until we get the new coverage. That's the problem with this system. It really encourages patients to not get needed care to avoid having to pay that big deductible.

[~bs]

If you generally don't have much in the way of medical expenses, it's not very useful. But I guess if you're nearing retirement age (as you mentioned), it will be more useful since the older you get, the more things tend to crop up.

[cornfieldj]

Anecdotally, HSAs (always paired w/ high-deductible health plans) seem to be a great benefit for people who already have high salaries and pretty decent finances.

I remember some benefits consultant/advisor for a big investment firm (Fidelity or something similar) telling me in a really offhand way that he'd already accumulated something like $75k in his and had no idea when he'd be using it. But he was sure it would be great in retirement.

At the time, it was more than my salary. I'm sure he was also maxing out his retirement savings levels -- something I haven't done yet.

[disneysteve]

If you generally don't have much in the way of medical expenses, it's not very useful.

Just the opposite is true, which is the point of the article. The HSA can serve as a supplemental retirement plan. You can put money in pre-tax and it grows tax-free. If you don't need it for medical expenses, it essentially becomes another tax-sheltered retirement account.

It's only useful for folks who are already maxing out their employer plan and Roth, though, which speaks to cornfieldj's point about higher income people.

[moneybags]

I've been doing this for years. It provides a tax benefit when you make the contribution, and when you take the money out, it is tax free. It is actually better than a Roth or a 401K in terms of tax benefit, since the contributions are never taxed.

[AJ444]

Been maxing for years, the best part IMO is no FICA is taken out if you contribute through your employer. That is part of the triple tax advantaged they mention but don't go into much detail on.

[~bs]

Just the opposite is true, which is the point of the article. The HSA can serve as a supplemental retirement plan. You can put money in pre-tax and it grows tax-free. If you don't need it for medical expenses, it essentially becomes another tax-sheltered retirement account.

It's only useful for folks who are already maxing out their employer plan and Roth, though, which speaks to cornfieldj's point about higher income people.

Thanks, I think I got confused between this and the FSA, which is a use it or lose it type of deal.

[disneysteve]

Thanks, I think I got confused between this and the FSA, which is a use it or lose it type of deal.

Yes, they are very different despite the similar acronyms. I will be getting an FSA with my new plan. I'm trying to figure out how much to put in to get the benefit but not risk losing money. HSAs are much better.

[StormRichards]

Yes, they are very different despite the similar acronyms. I will be getting an FSA with my new plan. I'm trying to figure out how much to put in to get the benefit but not risk losing money. HSAs are much better.

The option of a FSA is a lot better now that you can carry over up to $500 into the next plan year.

[disneysteve]

The option of a FSA is a lot better now that you can carry over up to $500 into the next plan year.

Not in this plan.

"Plan appropriately, as you must utilize all the funds you contribute by the end of the plan year."

[Outdoorsygal]

Not to be a downer but here are a few things to keep in mind-
For a Senior, you can only use the HSA to pay for your medicare premiums, not the supplemental medigap policies which are pricey. So a couple has $268 to spend per mo which isn't much allotted as a qualified medical expense if you are really healthy thus have no expenses otherwise except dental care. Because your medigap policy you pay for out of pocket. At 65 you cannot contribute anymore to HSA because Medicare kicks in.

If you are over age 65, they drop the 20% withdraw penalty fee but you still owe taxes on non-qualified (non-medical expense) withdraws.
And if someone other than a spouse inherits your HSA, like a son or daughter, it is taxable to them.

My employers HSA offers really bad investment choices unlike the 401k & Roth401k

[StormRichards]

Not in this plan.

"Plan appropriately, as you must utilize all the funds you contribute by the end of the plan year."

That stinks.

The $500 carryover was a factor when I decided how much to contribute this year.

[disneysteve]

That stinks.

The $500 carryover was a factor when I decided how much to contribute this year.

One thing complicating my decision is that I still have funds in the HSA - about $3,000 at the moment - so I need to figure out if that will carry us through the year or if I need to put anything in the FSA. I might just skip it for this year and not risk losing anything. But I need to review our deductible and copays for the new plan to estimate what we'll spend.

[scfr]

The option of a FSA is a lot better now that you can carry over up to $500 into the next plan year.

This depends on the employer and FSA provider. The IRS started allowing carryovers a few years ago, but not all plans allow for it. I know because I don't contribute to my company's FSA. When I read that carryovers were going to be allowed by the IRS I got excited and asked the benefits department about it, but sadly it's still not an option where I work so I still don't contribute.

Regarding HSAs, we were fairly early adopters (no longer have a HDHP so no longer contribute but still have a HSA balance). I was even interviewed by a reporter from a financial publication who reached out to me after I blogged about our decision to get a HSA. That was kind of cool.