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By the way, just called the benefits department and learned a couple of new things I thought i'd pass on to others who may not know.
1. The current IRS HSA MAX limit is $6850 for a family
2. My company puts $1200 a year free money into the HSA account annually
3. Can't have both a HSA and a regular FSA (can have a limited FSA that goes towards dental/vision deductibles, until the health deductibles are reached). Bummer....thought I could have both FSA and HSA
4. MAX deductible for the plan is $4,000 for a family, and another $8,000 max for prescriptions. after $4k limit is reached, all things non-prescription is covered at 100%.
5. difference between the regular and High deductible plans is $5000 vs. $2600 (difference of $2400)
So, assuming me, my wife, and our 3 kids under 6 years old are healthy and not issues currently, I just need to estimate the number of times we'd be going to the doc during the year.....if i'll have about $3,000 worth of out of pocket doctors visits with the high deductible plan, the two plans will be a wash (accounting for the co-pays with the expensive plan).
Everyone's situation is different, but I'll tell you my experience. For us it's a no-brainer since our high deductible plan is cheaper than the copay plan even after paying the full deductible. It's a shock to me why so many of my co-workers are on the traditional co-pay plans, but I can see a lot of people might be squeamish about paying that first thousand dollar ER visit out of pocket.
Secondly, we use the HSA as an investment vehicle rather than to fund our healthcare costs. This requires you to have good recordkeeping (I scan every single healthcare related payment). You can claim every single one of these expenses in the future from your HSA with no penalty. So if you think about it it's quite liquid as an emergency fund, but it's still packaged up nicely in a stock fund.
Lastly if you guys are healthy young family there shouldn't be much healthcare cost (all annual visits are free with high-deductible plan), so it makes this even more attractive.
Yes, the $1000 your company will match is "free money." BUT: The current FICA cap is $128,400, so with your 401k and IRA contributions you're already coming in below that cap by $11,600. Signing up for a HSA will put you even further below that cap. So that extra $1000 match is coming at the cost of lower SS payments down the road.
That said, I'd probably make the tradeoff and fund a HSA, as I suspect that with a bit of luck (in the form of good health) it will grow enough to more than offset the effects on your SS payments down the road. But it's your call to make.
Slight correction on this - I don't think 401k contributions are subtracted for SS income purposes, not sure about IRAs, someone can clarify.
What I did when my company switched to a High Deductible Health Plan (HDHP) is I continued with the same deduction I had the previous year with a more traditional health plan (high premiums, low deductible). Let's say my premiums under HDHP are 2400/yr and my old premium was 8000/yr. I put in the difference (5200) into my HSA in the first year. Those numbers aren't spot on since there are limits (I have family limits, not single limits). My company also pitches in some money too.
If you continue with HDHP in the future, you'll have a nice safety net in place. For someone that is single, you want at least to have the entire deductible in your account to protect you from catastrophe. If you get up to the out-of-pocket max for your health plan, more power to you.
And then optionally, if you want, you could step down your HSA contributions the following year if you were healthy and wanted to pocket some of that money. However, long term, you MIGHT be better off continuing capping out your HSA and investing it longterm to grow it. At a young age, your HSA will likely grow but when you are older, it will shrink since you'll be taking money out.
A pro to HSA that I didn't see mentioned was that unlike the FSA, you have to have the money in your account to actually draw it out and pay a provider. This might sound obvious - but with an FSA, 100% of the amount you elected is available on Jan 1st. Whereas with the HSA, you'll go a few months where if you had some medical bills, you might be paying out of pocket. However, later on, you can take a withdrawal to pay yourself back with tax-free money.
Another pro is that if you switch back to a traditional plan, a plan that doesn't let you contribute to your HSA, you can still use your HSA to pay for expenses with that tax-free money. So if in a few years you switch companies (or your company switched health care plans) and you have a traditional plan, you can simply use the HSA to pay deductibles and other out of pocket expenses.
Yes, the $1000 your company will match is "free money." BUT: The current FICA cap is $128,400, so with your 401k and IRA contributions you're already coming in below that cap by $11,600. Signing up for a HSA will put you even further below that cap. So that extra $1000 match is coming at the cost of lower SS payments down the road.
That said, I'd probably make the tradeoff and fund a HSA, as I suspect that with a bit of luck (in the form of good health) it will grow enough to more than offset the effects on your SS payments down the road. But it's your call to make.
401(k) and IRA don't reduce your FICA and Medicare tax. They only reduce Federal. (And usually state, if you have a state income tax).
So the hypothetical $140K salary will exempt things like health/dental/vision from FICA but not a 401(k).
I don't quite understand the rules. I can only have an HSA if I choose a high deductible health insurance plan. I opt for a more traditional plan so all I can get is a flex spending account which is use-it-or-lose-it.
I kind of like the whole strategy of investing the HSA money and paying medical expenses with after tax money since I dodge Medicare tax. I'm in the 24% tax bracket. I don't pay state income tax. I've been doing the max $24.5k catch-up Roth as a hedge against means testing when I'm retired. An HSA paying any medical bill with after tax money until I hit the deductible looks like a good way to go. I'll have to take a hard look at it before the next enrollment period. It has the added advantage that if I go unemployed, the COBRA premiums will be a heck of a lot lower for high deductible insurance. I was paying $10K for COBRA last year.
This may have already been mentioned but the contribution limit of $6850 has to be reduced by the employer contribution of $1200 so your family contribution limit will be $5650. I messed this up my first year on an HSA and had to request back the excess contribution and amend my federal income tax forms. My government employer called the "employer contribution" by a different name which confused me.
Also if you are switching to the HDHP mid year, I don't know if you would be eligible for a full year of HSA contributions. You may have to prorate the contribution for the number of months you were enrolled in the HDHP. There is an IRS form with instructions on the HSA topic.
And you are allowed to contribute an extra $1K catch up contribution for singles once you reach a certain age. It is likely a different number for a family HSA.
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