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Old 11-24-2016, 05:05 AM
 
Location: Central Massachusetts
4,800 posts, read 4,847,776 times
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I came across this article today and I have not seen anyone here offer advice to this.

Why You Should Max Out Your HSA Before Your 401(k)

I have heard of HSA (Health Savings Accounts) but didn't think much of them since I had really good health insurance at a decent price and lots of sick leave that never got used until I cashed it in for time on the books. So it never occurred to me to use this into retirement. Now that I am in retirement I wonder if I can set up a HSA and contribute to it even though I have no earned income.

Also what are your thoughts on this? The piece says that we should first reach match from employer 401k. Then max HSA. Then IRA and finally 401k max in that order.
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Old 11-24-2016, 06:26 AM
 
Location: Idaho
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First, you can not setup or contribute to a HSA if you don't have an earned income.

Secondly, although I have not read the article, I generally agree with the recommendations of "first reach match from employer 401k. Then max HSA. Then IRA and finally 401k max in that order."

The exception is that if one is not qualified to contribute to a deductible IRA then one should max out the tax deductible 401K first.

Another thing to consider is that a HSA requires enrollment in a high deductible health insurance. This was the reason I hesitated to contribute to an HSA account and chose FSA (flexible spending account) instead for many years.

Health savings vs. flexible spending accounts

When I got tired of having to find ways to use up my FSA at the end of the year, I switched to a HSA for about 4 years before retirement.

P.S.

I would like to wish everybody a Happy Thanksgiving.

Last edited by BellaDL; 11-24-2016 at 06:50 AM..
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Old 11-24-2016, 06:47 AM
 
Location: RVA
2,165 posts, read 1,266,382 times
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Happy Thanksgiving to all as well. Belladls advice is pretty spot on. All HSAs, as far as I know, are employer offered only. Maybe if you are self employed you can fund one yourself? I switched to HSA the first year it was offered at my current employer and my only regret is not maxing it out from day one and paying all medical expenses out of pocket instead. I treated it like an FSA and used it. It seemed too good to be true. I've been maxing it out for the last 3 years, and paying all expenses out of pocket once I realized its value. It is basically a Super Medical Roth. All contributions are not only pre tax (and my employer adds $1000/yr to our account), so I put in $6000 or so, they add $1000, they are also FICA and Medicare free, a nice bonus if you don't max out your SS based on income each year and/or already have 35 high years for SS. And any amount over $2000 can be invested in funds approved by the HSA provider which is typically a bank. The number of funds is fairly limited in our case, but all earnings and contributions are tax free as long as used for basically anything medical, dental, or vision related, including premiums. By the time I retire we should have about $50k in that account. I know people that already have $30k in theirs. I would also recommend to anyone that is more than 5 years from retirement to open a Roth account and at least seed it to get the 5 year clock running on the account. I would always contribute to a Roth before a non-deductible traditional IRA, if eligible. It is valuable to have an acount that earns evrything tax free so you can draw any amount from it and not affect income while in retirement.

Interestingly, that article hints that an HSA account does not HAVE to be employer provided, so it would be worth investigating if you are self employed in retirement. That could possibly save double the FICA payment.

Last edited by Perryinva; 11-24-2016 at 07:01 AM..
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Old 11-24-2016, 07:12 AM
 
Location: Central Massachusetts
4,800 posts, read 4,847,776 times
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So far I have not seen that they have to be employer sponsored. Second off my wife does have earned income but I also have not seen earned income requirement even on the IRS website. I am still looking though.
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Old 11-24-2016, 07:30 AM
 
Location: RVA
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VERY interesting! Keep us posted. I've always seen it referred to as "your eployer sponsored HSA" so I was just extrapolating. I have never actually read anything that stated employer sponsored only or income requirements. That would be valuable information for many to know pre-medicare. How it would work post medicare, I have no clue.
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Old 11-24-2016, 07:30 AM
 
Location: Southern California
372 posts, read 448,278 times
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You *can* have an HSA without earned income. In fact, we didn't each open one until we no longer had employer-provided health insurance.

You can each set up an HSA at a variety of places. I think it's better to have individual accounts so you don't miss out on the age 55 catch-up of $1000.

The requirement to have an HSA is that you have to have a high deductible health plan. Your health insurance plan has to be compatible with an HSA. Without that specific type of plan, you're not supposed to open an HSA.

Once my husband hits Medicare age in a couple of years, he won't be able to contribute any longer; his contribution for the year he turns 65 will be prorated. He will be able to pay his Medicare premiums with HSA funds, if he chooses.

Last edited by Goin' Coastal; 11-24-2016 at 07:39 AM..
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Old 11-24-2016, 07:30 AM
 
Location: Idaho
1,454 posts, read 1,155,024 times
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Quote:
Originally Posted by golfingduo View Post
So far I have not seen that they have to be employer sponsored. Second off my wife does have earned income but I also have not seen earned income requirement even on the IRS website. I am still looking though.
golfingduo,

I stand corrected regarding earned income requirement for HSA

You Don’t Need Earnings to Contribute to a Health Savings Account

You Don

You may also be correct with regards to the health insurance not having to be an employer sponsored plan.
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Old 11-24-2016, 07:43 AM
 
Location: Central Massachusetts
4,800 posts, read 4,847,776 times
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https://www.irs.gov/pub/irs-pdf/i8889.pdf

Looking into this I can also possibly use the HSA to pay my premiums since I believe my premiums qualify as continuation coverage maybe. Possibly not since I am paying the same rates that I paid while employed. But this is good news. I have a few months to be able to figure it out but it could have a huge impact on my income for the next 8 years.

[quote]

You cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
1. Long-term care (LTC) insurance,
2. Health care continuation coverage (such as coverage under COBRA),
3. Health care coverage while receiving unemployment compensation under federal or state law, or
4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). [quote]
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Old 11-24-2016, 07:49 AM
 
Location: Central Massachusetts
4,800 posts, read 4,847,776 times
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The one trouble I have not been able to answer is if my health insurance is a high deductible plan. I am in Federal Blue Cross Blue Shield Basic. Because it is a holiday a lot of my questions will not get answered until next week at minimum.
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Old 11-24-2016, 08:02 AM
 
Location: Southern California
372 posts, read 448,278 times
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Quote:
Originally Posted by golfingduo View Post
The one trouble I have not been able to answer is if my health insurance is a high deductible plan. I am in Federal Blue Cross Blue Shield Basic. Because it is a holiday a lot of my questions will not get answered until next week at minimum.
If you have plan docs or can access your plan description online, you should find this info. HSA compatibility is usually clearly laid out.

I've chosen an HSA-compatible every year since 2011, from whatever choices were available to me, and it's always been very clear which plans were so designated.
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