HSA Question

[Deleted]

I started a thread over on YM a couple of weeks ago asking about the pros and cons of an HSA.

Now I'm trying to figure out if it makes sense for DH me to open one for either one of us. I'm stuck because we've been really lucky so far <Bonny knocks on her wooden head> and our greatest medical expense so far this year is our insurance premiums despite having a HDHP. I've read through pub 969 and my question is if we can get reimbursed from the HSA for part of our premiums for next year.

Here's the quote from Pub 962 "Insurance premiums. You cannot treat insurance premiums as qualified medical expenses unless the premiums
are for:
1. Long-term care insurance.

2. Health care continuation coverage (such as coverage
under COBRA)."

Background: DH "retired" on 7/31/12 and was on salary continuation and paid medical through 2/28/13. Technically he was part of a company RIF and was eligible for COBRA. We didn't go that route because buying our own individual plan was cheaper. He did apply for unemployment benefits through the state of AZ but we moved back to an old home we had in CA. He gave up trying to get unemployment benefits because it was a bureaucratic nightmare. He turns 55 next month and is not actively looking for work anymore.  

As always, thanks for your help!

ETA: I am not employed either

[mwcpa]

"We didn't go that route because buying our own individual plan was cheaper"

That is not continuation of coverage or COBRA... therefore not an allowable expense for an HSA.

"He gave up trying to get unemployment benefits "
"DH "retired""
"is not actively looking for work anymore."

In most, if not all states, one needs to be actively looking for work in order to qualify for unemployment benefits.

Some pros of an HSA...
Immediate tax deduction for contributions to the plan
You can pay expenses in future years (unlike a spend it or lose if FSA)
Tax deferral (and possible elimination) on growth
If you do not need the money for health costs you can use the money as an additional source of retirement income (subject to certain rules)

Some cons of an HSA...
possible 10% penalty for using it for non medical purposes
administration costs

[Deleted]

Hi mwcpa and thanks for your response.

I guess I was doing a bit of wishful thinking that "continuation of coverage" could be translated as "eligible for COBRA".

Foiled again!


And we're fully aware that one must be actively looking for work to be eligible for unemployment assistance. Given that most of the leads DH was receiving were for minimum wage jobs (fast food etc) he decided he would forego the UA benefits. He certainly wasn't too proud to take part time employment with our local hardware stores but they wouldn't take him seriously when they saw his resume. I think they thought he would take off as soon as he could find another tech job. The truth is that after doing that for 30 years he would be happy to consult for a few projects but he's done with the more than full-time jobs. He's in a happy spot right now as 1x week marshal at our local public golf course and making monthly trips to see his mother (who lives 600 miles away) who has dementia and to help her with her various issues. We're very blessed that we have options and can spend the time with her.

Your following statement intrigues me; could you elaborate?

If you do not need the money for health costs you can use the money as an additional source of retirement income (subject to certain rules)

Thanks!

[Deleted]

mwcpa - how do you get around the fees for holding your HSA savings long term.  I loaded my account up for the year I was eligible, planning on holding the account long term to use in retirement years.  Now that I left the company, they are charging me $4 per month to "manage" the account I am not using.  I was thinking I should burn it down on COBRA payments for my DD's insurance continuation (dental) and some dental work she needs.

I'm also going to look at rolling it into my Vanguard account portfolio, but they seem to manage it through another company that also charges a fee because they issue you a spending card.

I thought I was being smart building that account up, but new company doesn't have HDHP so I can't continue to fund HSA.  Now I feel like it was a dumb move.  Dumb because I knew I didn't want to stay at that company long term, so I should have thought it through a little more.

[Deleted]

@rockit,

Your situation is exactly a concern I have and is part of my decision matrix.

I looked up the fees at the Vanguard suggested administrator.
$45 annual fee
+ $.80 per quarter per thousand ($3.20 annual)

and $25 transfer/close fee

If I do the math for a 1x max deposit of $3,100 I get about $55 in annual fees or 1.8% that needs to be deducted from any return. If I assume a 4% return that's almost half going to fees. The value of the tax deduction is probably around 20% for me or $620.

Without any growth or change in fee structure, it will take about 11 years for the fees to offset the tax deduction. Obviously the fee structure goes up with the increased balances.

DH is going to check with his locally based Fidelity investment advisor to see if they offer or recommend another HSA custodian.

[mwcpa]

"If you do not need the money for health costs you can use the money as an additional source of retirement income (subject to certain rules)"

some articles on the internet

www.marketwatch.com/story/using-hsas-to-boost-your-retirement-2012-11-28
money.cnn.com/2013/09/01/retirement/hsas.moneymag/
retireplan.about.com/od/iras/a/HSA.htm
www.kiplinger.com/article/insurance/T027-C000-S002-health-savings-accounts.html

From IRS.gov

"There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. "

Additional tax in this sentence refers to the 10/20% penalty for not using the moneys for "qualified medical expenses" (defined in the law).

Using the HSA to supplement retirement is an option for those who funded an HSA and did not incur medical expenses that could be reimbursed.  The best use of an HSA is for qualified medical costs, but some get lucky, have the right genes and do not get sick or have the need for medical assistance, for those the HSA can become an "extra" IRA type account.

[mwcpa]

rock it...

that has been one of the biggest issues of the HSA.... fees.....
You put the money away on a safe vehicle, like a money market, you earn 0.1% and pay 4%.....

The best thing to do is to shop around for a lower cost vehicle.