#19 – The trifecta of HSA’s (Health Savings Accounts) by Peeling Back Money and Life

This week on Peeling Back Money and Life, we discuss the benefits of owning and contributing to an HSA (Health Savings Account). The triple tax savings you could have by owning an HSA. Many of us are use to an FSA (Flexible Spending Account) so we will discuss the FSA vs HSA.

In this weeks episode:

  • The trifecta of owning and contributing to an HSA
  • FSA (Flexible Spending Account) vs HSA (Health Savings Account)
  • Traditional vs High Deductible Health Plan
  • Real-Life Example choosing FSA vs HSA

Show Notes:

  • Traditional
    • Eligible for FSA (Flexible Spending Account) 
    • Use it or lose it.  No investment options
  • HDHP (High Deductible Health Plan)
    • Eligible for FSA or HSA (Health Savings Account)
    • Rolls over each year.  Investment opportunity

Flexible Spending Account

  • Eligible with Traditional or HDHP
  • 2020 contribution – $2,750
  • Unused funds – depends on the employer
    • Forfeiture
    • Grace Period – 2.5 month
    • Carryover – $500
  • Pre-tax for qualified medical expenses

High Deductible Health Plan

  • A higher deductible than your traditional plan
  • Lower premiums 
  • 2020 Minimum deductible $1,400 (single) or $2,800 (family)
  • Eligible for HSA (Health Savings Account) 

HSA

Self-Only Coverage – Multiple by 2 for family in each area

    • Maximum annual contribution – $3,550
    • The minimum annual deductible for HDHP – $1,400
    • Maximum annual out-of-pocket expense limit for HDHP – $6,900 (includes the deductible, copays, coinsurance, not premiums)
    • 55+ add $1,000 to annual contribution

Triple tax benefit for federal taxes

    • Contributions are pre-tax
    • Tax-free earnings
    • Tax-free withdrawals for qualified medical expenses

Other HSA benefits

  • Penalty-free withdrawals for non-qualified expenses 65+
  • Combination of Traditional and Roth benefits
  • Annual rollover of funds
  • Portability of HSA on job change or retire
  • High deductible with a lower premium than a traditional plan
  • Record-Keeping – Receipts
  • 20% early withdrawal penalty + taxes before 65 for non-qualified expenses
  • 65+ for non-health expenses treated like IRA
  • No RMD rules

Record-Keeping – Receipts –  Yes, as long as the IRS-qualified medical expenses were incurred after your HSA was established, you can pay them or reimburse yourself with HSA funds at any time.  Just be sure to keep sufficient records to show that these expenses were not previously paid for by another source or taken as an itemized deduction in any prior tax year.

Insurance Premiums

You can’t treat insurance premiums as qualified medical expenses unless the premiums are for:

  • Long-term care insurance.
  • Health care continuation coverage (such as coverage under COBRA).
  • Health care coverage while receiving unemployment compensation under federal or state law.
  • Medicare and other health care coverage (i.e. Parts A, B, D & HMO) if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

Traditional or HDHP

  • Total cost on both includes: insurance premium, deductible and coinsurance (% you pay after meeting deductible) 
  • HDHP has lower premiums vs traditional plan, but a higher deductible, and often higher coinsurance.
  • HSA benefits with HDHP – look long-term
  • Higher expected medical expenses, consider traditional
  • Can change year to year

Other Considerations

  • Difference in premiums + traditional plan deductible. 
  • The difference in coinsurance, prescription cost structures, out-of-network provider rules
  • HSA contributions made by your employer. 
  • Plans’ out-of-pocket maximums
  • HSA Triple Tax Benefits

Comparison of Reimbursement Accounts

Annual Contribution Limits (FSA / HSA) Single Spouse + Employee Spouse + Children Family
FSA (paid by you) 2,750 2,750 2,750 2,750
HSA (paid by you and employer match) 3,550 7,100 7,100 7,100

 

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