HSA questions. Using funds when no longer on a HSA plan?

[LD1]

Google didn't help. Maybe I didn't ask the right question.:mur:

Question is kinds two fold. Currently, I carry the insurance. It's what they call a HDHP (high deductible helth plan). Which are the only ones qualified for a HSA.

Well, the HSA money rolls over. And my employer puts in $2k per year as well as me contributing some.

Well now the wife is interviewing for a different job. This job is old school low deductible plan with co-pays, and even cheaper premiums than I have. So if she gets the job....we will be carrying insurance through her. So I will no longer be enrolled in a HDHP and no longer contributing.

So what happens to the money on my HSA card? Am I still allowed to use it for medical expenses? And co-pays/deductibles from HER plan? And if not...what happens to the money that I am not eligible to use any more? Wait til retirement to be able to use it?

One of the things they always say is a benefit to HSA is you can build up quite a nest egg of tax free money to use on healthcare in retirement. Am I gonna have to wait til then?

These questions never crossed my mind when I decided to put in near the max ($6500ish), for the last few years. And am now wondering what the proper penalty free way of using the money is?

 

[wjmst]

Yes, you can still use the money for qualified medical (including dental and vision) expenses. However, as you stated you can no longer contribute to the account if you don't have a HDHP. If you decide not to use the money now, you can withdraw it penalty free but not tax free at 65 for any expenses.

One loop hole (advantage) is there is currently no time frame on when you need to use the money. So, say for the next 20 years you pay cash for your medical expenses. Let's say that cost is $20,000. In 20 years from now, you can withdraw $20,000 to pay yourself back for those medical expenses tax and penalty free! However, you need to keep receipts and proof of payments to reimburse yourself.

It is a very powerful savings tool when used to its maximum capabilities.

Wes

 

[murphy1244]

We have the same HSA account stuff as you and IMO Wes just gave you a excellent answer. Could not do better than that.

 

[TheMan419]

Interestingly my HSA is paying a higher interest rate than my regular savings. So I am paying my out of pocket from regular savings and letting the HSA accumulate as my emergency fund. As suggested above I keep a copy of the bills I COULD have paid from the HSA. Then if I need the money from the HSA for some reason I reimburse myself for those bills.

One thing to do the math on is the premium for you and the wife. It might be cheaper to have her on her own plan and you on yours (unless there are kids). Do not forget to factor in the tax savings you get for putting money in the HSA. Might still be cheaper on your plan or might not. Just have to do the math.

 

[LD1]

Thanks guys. Got the same sorts of confirmation this morning with our HR manager.

Not to shift gears and risk this turning political, but never understood the need for a penalty on the HSA or a 401k?

Sure, I understand its pre-tax money that goes in, destined for a specific use and if used as designed will result in the tax break, ........but if on hard times, or just wanna pay off a loan/mortgage......shouldnt the tax be all thats owed? Cause if you DIDNT put money away in HSA or 401k, paying income tax is the only additional expense you would have.

But trying to do the right thing by saving/contributing, then maybe needing some, not only do you owe taxes, but get penalized as well? Just dont see the logic behind it?

 

[mddorange]

LD1, as explained to me, the penalty on early withdrawal from a 401K is to discourage withdrawing it early so that it will be there when you retire.

 

[buckeyefarmer]

Timely for me, i was about to call my HSA company today to ask the same question.
You will probably have to pay maintenance fees on the HSA account.

 

[LD1]

LD1, as explained to me, the penalty on early withdrawal from a 401K is to discourage withdrawing it early so that it will be there when you retire.

Thats what I have always heard to, but think its total BS. Its my freaking money. So I didnt pay you taxes when I "set it aside", I'll pay you the taxes now that I need it.....but why tack a penalty onto MY money.

Maybe the reason fewer people put money into a 401k is this very reason?

Maybe my 401k is being stagnant and the market is stale, and have sufficient funds, and maybe I would rather go into retirement with no mortgage at the cost of a smaller 401k ........vs.............going into retirement with a mortgage, plenty of funds in 401k (that I cant have without steep penalty) and then the market tanks?

401k is isnt like a savings acct. You can loose money just a quickly as you can make money. But one things for sure.....if you have a car payment or mortgage.....you can bet your interest rate aint going down.

 

[ustmd]

Thats what I have always heard to, but think its total BS. Its my freaking money. So I didnt pay you taxes when I "set it aside", I'll pay you the taxes now that I need it.....but why tack a penalty onto MY money.

Maybe the reason fewer people put money into a 401k is this very reason?

Maybe my 401k is being stagnant and the market is stale, and have sufficient funds, and maybe I would rather go into retirement with no mortgage at the cost of a smaller 401k ........vs.............going into retirement with a mortgage, plenty of funds in 401k (that I cant have without steep penalty) and then the market tanks?

401k is isnt like a savings acct. You can loose money just a quickly as you can make money. But one things for sure.....if you have a car payment or mortgage.....you can bet your interest rate aint going down.

The penalties have two purposes:

1. To encourage people to use the money for the intended purpose
2. To prevent the accounts from becoming a tax dodge for the wealthy.

#2 is the main goal. Without the penalty, if I have a banner year in income (earning over $500K), so on Dec 31st, I max out all the contributions and avoid the marginal tax rate of 39.6% on that money. The next year, is not as great--I only earn $200K, so I decide to pull the money out from the previous year. But now my marginal tax rate is only 33%. I have just made 6.6% on that money by avoiding a tax.

If you want easy access to your money, put it in a saving account.

 

[fordmantpw]

If you want easy access to your money, put it in a saving account.

Or a ROTH IRA or 401(k).

 

[SSdoxie]

Each company may have different rules but check out possibility of taking a loan form 401k. I had this option and used it some 10 years ago to clear out all credit card debit and couple large hospital bills, and car loan. Loan was @ 5% with stipulations I could not contribute to the 401k until loan was paid off so no company match during this time. The monthly loan payment was deducted from my paycheck, the 5% interest went into my 401k, loan could be paid off at anytime in one lump sum. Working off the same budget I was on, I took the money I had been paying monthly on cards and dumped in a savings escrow until I had enough to pay off loan completely then restarted 401k contribution at double the original rate. I did this starting in 2009 when markets were down and company had reduced matching funds 50%. Took me 3 years to bring 401k balance back up to equal original balance at that time company went back to full 6% matching funds.

401k may not be doing much with investment growth but I sure liked getting that extra 6% income to use now that I took retirement April 1st.

 

[Snobdds]

I would not get out of the HDHP with HSA plan. I'm an Actuary for BCBS and the old low deductible plans are quickly going away, at least for the Blues. The cost is quickly overcoming the benefit. Then you will have an opportunity cost of forgoing the contributions by your employer when you were on the other plan.

Now think about it, are you going to recoup enough in lower premiums and "your" cost share to overcome the tax advantage and employer contribution of the HDHP?

 

[LD1]

Each company may have different rules but check out possibility of taking a loan form 401k. I had this option and used it some 10 years ago to clear out all credit card debit and couple large hospital bills, and car loan. Loan was @ 5% with stipulations I could not contribute to the 401k until loan was paid off so no company match during this time. The monthly loan payment was deducted from my paycheck, the 5% interest went into my 401k, loan could be paid off at anytime in one lump sum. Working off the same budget I was on, I took the money I had been paying monthly on cards and dumped in a savings escrow until I had enough to pay off loan completely then restarted 401k contribution at double the original rate. I did this starting in 2009 when markets were down and company had reduced matching funds 50%. Took me 3 years to bring 401k balance back up to equal original balance at that time company went back to full 6% matching funds.

401k may not be doing much with investment growth but I sure liked getting that extra 6% income to use now that I took retirement April 1st.

Just to be clear, I am not looking to take any money out of either my 401k or HSA. Just think its not right to be penalized IF one needs to take some of THEIR money to put to better uses.

At least with your loan, you get your interest payments. B eats giving them to the bank. But sucks loosing a company match though. Have to weigh those numbers carefully to see what is the best option I guess.

 

[LD1]

I would not get out of the HDHP with HSA plan.

So you would advise that I continue to pay more for healthcare? Where is the logic in that?

Then you will have an opportunity cost of forgoing the contributions by your employer when you were on the other plan.

The contributions dont come close to offsetting the cost difference in the plans

Now think about it, are you going to recoup enough in lower premiums and "your" cost share to overcome the tax advantage and employer contribution of the HDHP?

Not much tax savings When option a requires a lot of out of pocket (but on an HSA that I dont pay tax on), and option b i pay for with taxed money but is a whole lot less.

Currently I have the better of our health plans. It cost me $385/mo for a family. Covers 100% of the preventative stuff, and 80% on other stuff. Company puts in $2000. So..........385/mo is $4620 per year.
So my plan basically cost me $4620 per year, and dont really have any expenses that add up to more than the $2k the company gives. So look at it like no cost through out the year other than premiums.

If wife gets new job with county benefits, its $165/month or $1980 per year. Most are $15 and $25 copays. $100/$200 deductible. And lots lower annual out-of pocket max. of 1250/2500, whereas the HDHP I am on now is 3500/7000.

Would take ALOT of trips and ALOT of copays to offset the difference in premiums of $4620 and $1980.

And even in a year where something MAJOR happens, I'd much rather be on a plan that had a MAX annual out of pocket of 2500 vs 7000.

 

[LD1]

Forgot to mention dental. Seems those plans are super expensive.

I have always worked union jobs normally. And our dental ins. was always just a few bucks a check. And maybe $8 for a family.

Where I am at now isnt union, dental is crazy expensive. Same with the wifes. Not sure it even makes sense to have dental anymore and considering just dropping it and paying our of pocket whenever we go.

Wheres the logic in paying ~$95/month for family dental on a plan, that only has a $1000 annual max? Pay ~$1200 to have them cut you off at $1000????

Right now with a $1200 premium, then having to pay my co-pays/co-insurance for fillings, x-rays, whatever, I probably spend $1600/yr on dental.

And honestly, for routine care and cleanings and an occasional filling, I dont think I would come close to spending $1600 without insurance????

 

[k0ua]

Forgot to mention dental. Seems those plans are super expensive.

I have always worked union jobs normally. And our dental ins. was always just a few bucks a check. And maybe $8 for a family.

Where I am at now isnt union, dental is crazy expensive. Same with the wifes. Not sure it even makes sense to have dental anymore and considering just dropping it and paying our of pocket whenever we go.

Wheres the logic in paying ~$95/month for family dental on a plan, that only has a $1000 annual max? Pay ~$1200 to have them cut you off at $1000????

Right now with a $1200 premium, then having to pay my co-pays/co-insurance for fillings, x-rays, whatever, I probably spend $1600/yr on dental.

And honestly, for routine care and cleanings and an occasional filling, I dont think I would come close to spending $1600 without insurance????

The dental policy I sell, there is no annual or lifetime maximum.

 

[LD1]

I have access to a few different plans. And at a few different price points.

More expensive plan covers orthodontistry for the kids. Pretty normal coverage seems to be 100% preventative, 80% minor, 70% major, and 50% ortho.

So still quite a bit of co-insurancs above preventative. Given that and the $800 to $1200 premiums, I think having insurance is COSTING me money.

Seeing the bills, and what the dentist bills vs "negotiated rate" , etc. (And the billed rate is likely a higher rate than someone without ins would pay)....I think if I didn't have insurance I would only pay maybe $500-$600 a year.

I'd be paying 80% more (the insurance part) for filling etc. And the visit/cleaning would be on me. But it would take a pretty huge family and lots of cavities to cover a $1000 premium I think

 

[k0ua]

I have access to a few different plans. And at a few different price points.

More expensive plan covers orthodontistry for the kids. Pretty normal coverage seems to be 100% preventative, 80% minor, 70% major, and 50% ortho.

So still quite a bit of co-insurancs above preventative. Given that and the $800 to $1200 premiums, I think having insurance is COSTING me money.

Seeing the bills, and what the dentist bills vs "negotiated rate" , etc. (And the billed rate is likely a higher rate than someone without ins would pay)....I think if I didn't have insurance I would only pay maybe $500-$600 a year.

I'd be paying 80% more (the insurance part) for filling etc. And the visit/cleaning would be on me. But it would take a pretty huge family and lots of cavities to cover a $1000 premium I think

The plan I sell is an indemnity plan. It pays up to a set amount for each dental procedure. No maximums, no percentages. Easy to understand what you are getting and what you are paying for. Call you local Physicians Mutual agent and ask about dental. I cannot sell in your state.

 

[buckeyefarmer]

Called my hsa company today. Once you stop having the high deductible plan, you can't contribute to an hsa, but you can still use it for qualified expenses.
In my case, i will have to pay the monthly maintenance fee that my soon to be previous employer was paying.
If i close the hsa i have to pay tax and a 20% penalty.

At first i was against the high deductible plans, but now think they are better.

 

[LD1]

I agree, HSA plans aren't as bad as they appear on the surface. Especially if your employer contributes.

But in my case, if the wife gets the new job with the low deductible county benefits, it's better than my HSA