HSA in retirement

So our company finally offered a plan with HSA. Since we aren’t going to meet the deductible before we retire anyway, we signed up for this plan this year. We each of HSA accounts now.

As I understand it, even when we are no longer employed, we can contribute up to $6350 this year (each), with $1000 “catch-up” because we’re both over 55.

I’m wondering how beneficial this will be, though. It’s HSA Bank. Banks pay crap rates. Sure, for pre-tax money it’s fine. Basically like an FSA that rolls-over. But money from savings? Not sure that would make sense.

Or am I overlooking something? Most of the stuff I’m reading is about HSA while employed, and before Medicare.

1poorguy

I’m wondering how beneficial this will be, though. It’s HSA Bank. Banks pay crap rates. Sure, for pre-tax money it’s fine. Basically like an FSA that rolls-over. But money from savings? Not sure that would make sense.

You can roll your HSA to any provider you want. Fidelity offers a free HSA and you can invest the money however you want.

An HSA is a screaming deal. Money goes into the account tax free. And the growth is tax free too. It is like a combination of a tIRA and a Roth.

Here’s the kicker: You can withdraw the money for qualified medical expenses at any time. So what I do is pay medical costs out of pocket and save the receipts. At some point in the future I will withdraw the money tax free and spend it on whatever I want.

If you don’t spend the money at age 65 it becomes treated like a regular tIRA.

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Cool. I didn’t know about the rollover option. That makes is a better deal. I’ll have to check out Vanguard, too (I prefer Vanguard, though the 401K is in Fido).

I did know about saving receipts (which I always do anyway for taxes). As I understand it, there is no time limit or expiration on a receipt once an HSA is established, so I can claim the expense in five years as if I had just incurred it.

1poorguy

$7300 per family, plus the $1000 catch up.

https://www.irs.gov/pub/irs-drop/rp-21-25.pdf

Annual contribution limitation. For calendar year 2022, the annual limitation on
deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high
deductible health plan is $3,650. For calendar year 2022, the annual limitation on
deductions under § 223(b)(2)(B) for an individual with family coverage under a high
deductible health plan is $7,300.

High deductible health plan. For calendar year 2022, a “high deductible health
2 plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is
not less than $1,400 for self-only coverage or $2,800 for family coverage, and the
annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not
premiums) do not exceed $7,050 for self-only coverage or $14,100 for family coverage.

Note that Bronze ACA plans can have annual out-of-pocket expenses that exceed these limits, so don’t qualify as a “High deductible health plan”…

This explains something I never understood: why our Bronze ACA plan is not HSA compliant, but has even higher deductibles than the HSA plans.

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pa…

ACA’s Limits Differ

There are two sets of limits on out-of-pocket expenses for health plans, determined annually by federal agencies, which can be a source of confusion for plan administrators.

The Department of Health and Human Services (HHS) establishes annual out-of-pocket or cost-sharing limits under the ACA for essential health benefits covered under an ACA-compliant plan, excluding grandfathered plans.

The HHS’s annual out-of-pocket limits are higher than those set by the IRS. To qualify as an HSA-compatible HDHP, a plan must not exceed the IRS’s lower out-of-pocket maximums.

Maximum out-of-pocket for ACA-compliant plans (HHS)
Self-only: $8,700
Family: $17,400

Maximum out-of-pocket for HSA-qualified HDHPs (IRS)
Self-only: $7,050
Family: $14,100

As I understand it, even when we are no longer employed, we can contribute up to $6350 this year (each), with $1000 “catch-up” because we’re both over 55.

Not exactly. The $6,350 allowable contribution for 2022 (indexed each year) is probably not ‘each’ assuming you are married*. If you are covered by a family plan, a married couple can only contribute a total of $6,350 for the allowable contribution. That $6,350 can be split between HSAs for each one, or contributed fully to an HSA belonging to one or the other. Plus each person over 55 can contribute $1000 in catch-up contributions to their own HSA. So a couple MFJ can contribute a total of $8,350 of which at least $1000 has to be contributed to each person’s HSA.

*There is a loophole for unmarried domestic partners who get family coverage - they can each contribute the $6350 to their own HSA.

I will point out that you will also have to maintain HSA compliant insurance, often known as an HDHP (High Deductible Health Plan), in order to continue making contributions. So if you’re keeping your employer’s HDHP insurance in retirement, you will still be able to make HSA contributions. If you’re getting other insurance, you will need to be sure it’s an HDHP before you make contributions to your HSA. And contributions for any years that you have HDHP coverage for only part of the year must be pro-rated. See IRS Pub 969 https://www.irs.gov/pub/irs-pdf/p969.pdf for details

I’m wondering how beneficial this will be, though. It’s HSA Bank. Banks pay crap rates. Sure, for pre-tax money it’s fine. Basically like an FSA that rolls-over. But money from savings? Not sure that would make sense.

I haven’t looked into HSA Bank for a while, but at the time I did, I think it was because they offered investment options through Vanguard. I don’t know if they still do offer these investment options, or if this plan is through your employer, if your employer would have had to make this a specific offering of their plan. If you don’t recall seeing any investment options on your HSA Bank account, those issues may be the reason. I also seem to remember that HSA Bank charged monthly or annual fees to have some of the account invested.

You are always free to change HSA administrators, even while you are still employed by the company sponsoring the HSA. Fidelity offers an HSA with investment options that doesn’t charge any fees, and I’ve heard good things about them: https://www.fidelity.com/go/hsa/why-hsa?imm_pid=700000002058… I think there are other HSA administrators that offer no fee investing, too.

Or am I overlooking something? Most of the stuff I’m reading is about HSA while employed, and before Medicare.

You don’t have to be employed to make contributions to an HSA - you just have to have HSA compliant insurance (see above). That said - much of the insurance in the US is tied to employment, and many employers offering HDHP insurance provide an HSA through payroll deductions, so that’s probably why what you’re reading ties HSAs to employment. If you make HSA contributions through payroll deductions, your contributions are exempt from SS and Medicare payroll taxes. But if you don’t like the HSA account that your employer offers, you are free to start an HSA with another administrator, although that generally will mean missing out on the payroll tax savings and any contribution your employer would have made. (Some employers offer to send HSA contributions from payroll to an administrator you choose, so you could still get the payroll tax savings - most don’t.)

If you have an HSA, but no longer have HSA compliant insurance, you can still use the HSA to pay for (or be reimbursed for) most eligible medical expenses without incurring taxes or penalties. I say most because pre-Medicare medical insurance premiums, other than COBRA premiums or premiums paid while you are receiving unemployment benefits, are not HSA eligible expenses, even though they are eligible medical expenses when figuring Schedule A deductions. Some Medicare insurance premiums are also eligible for HSA reimbursement.

After the date you opened your HSA account, you can also save documentation for health care expenses that you pay out of pocket, and get reimbursed from the HSA at a later date. So if you can afford your co-pays and deductibles now, but may want tax-free income in the future, just save your receipts.

AJ

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I have a HSA account (personal, not through a company) through HSA Bank. You have to leave $5,000 in your account for no fees. I’ve transferred anything above that amount into my TD ameritrade account.

zoro

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I had HSA Bank. The benefit is the pre-tax deferral. They don’t have to pay rates, but many of them are now integrated with a retail brokerage house who will be happy to invest your (supposed to be cash) HSA funds in various investment vehicles (for an additional fee).

But if you don’t like the HSA account that your employer offers, you are free to start an HSA with another administrator, although that generally will mean missing out on the payroll tax savings and any contribution your employer would have made.

A solution here is that you are also free to have more than one HSA account.

So you can keep the account your employer set up, with it’s payroll tax savings and employer contributions. Then periodically roll a part of that account over to the HSA you prefer for the bulk of your HSA funds.

You’ll probably have monthly or annual fees with the employer sponsored HSA. But the payroll tax savings alone probably more than make up for that, as would any employer contribution.

–Peter

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You’ll probably have monthly or annual fees with the employer sponsored HSA. But the payroll tax savings alone probably more than make up for that, as would any employer contribution.

Depends a lot on the employer’s plan. My former employer’s current plan doesn’t have monthly or annual fees to me as an employee* but it has fees to transfer money out. It also allowed me to make investments at no cost to me, other than the expense ratios of the investments, which are the same or lower than I would be charged for the same investment if I bought it in a brokerage account. However, my former employer’s previous plan did have monthly fees and charged for investments, as well as having fees to transfer money out.

*My former employer told me that when I retired, they would start charging monthly fees. But they haven’t yet, so I haven’t moved the account yet.

AJ

I’m wondering how beneficial this will be, though. It’s HSA Bank.

I also have HSA Bank. You should have access to TD Ameritrade through that account (with no fee trading). I am required to keep $1k in cash in the HSA and can invest the rest. Monthly fee on the HSA account of about $3.

But money from savings? Not sure that would make sense.

You still get the tax deduction - and tax free growth.

Coming back to this, we each have separate insurance. It was cheaper than doing “family” once 1poorkid had her own insurance. So we each have an HSA account. I assume we would have to keep separate insurance to maintain both accounts. At first glance it appears “family” is cheaper if we have to get our own insurance after retirement. Assuming I am able to get an HSA compliant policy (I’m looking at healthcare.gov), it would have to be a joint account (again…I assume).

I see the option for TD Ameritrade through HSA Bank. I’ll have to dive into the rules. Right now the company is paying any fees, but once retired we’ll need to hit the minimum balance to avoid them. Or I can investigate Fido (our 401Ks are there already).

I’ve heard elsewhere that it can be tricky to find a good HSA compliant plan on the exchanges (e.g. most bronze plans don’t seem to qualify).

1poorguy

I assume we would have to keep separate insurance to maintain both accounts.

No, once your accounts are set up, they are there until you are no longer eligible to make contributions and have spent all of the money. You will each have to maintain HSA eligible insurance (often known as HDHP - High Deductible Health Plan) to continue to make contributions. And even if you do go back to family coverage, you can still contribute to both accounts, as long as your combined contributions don’t go over the maximum family contribution amount. In fact, to both take advantage of the extra $1000 contribution for those 55 and over, you MUST contribute at least $1000 to EACH account, while the family contribution amount can be split however you choose.

And you can keep using the money in the account for eligible medical expenses, including some Medicare premiums, even when you no longer have HSA compliant insurance.

I’ve heard elsewhere that it can be tricky to find a good HSA compliant plan on the exchanges (e.g. most bronze plans don’t seem to qualify).

Just because a plan has a high deductible, like bronze plans do, doesn’t mean that it is an HSA eligible plan. That means that you do need to look at the coverage details and confirm that it is HSA eligible. In my state, when you search for plans on the website, you can actually filter for HSA eligible plans, so it’s not really that difficult to find one.

AJ

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I’ve heard elsewhere that it can be tricky to find a good HSA compliant plan on the exchanges (e.g. most bronze plans don’t seem to qualify).

On our exchange there is an HSA compliant plan by the same insurer we use, with the same doctors.
We just don’t feel the additional premium and out of pocket costs are worth it over the Bronze plan we get. That did bite us 2020, when Mrs C had major surgery. Hopefully that’s behind us.

I finally got into my healthcare.gov account (need to update my security questions…it wasn’t accepting my answers, so I had to call them to do a hard reset).

It seems if I stick with BCBS, which all my providers accept, there is about a $100 difference (per month) between an HSA plan (bronze-ish) and not (silver). The deductibles are not that different, at least not when talking healthcare expenses. Still pretty high, so we would have to consider this “disaster coverage”; routine stuff we would have to do cash out of pocket. I’ll poke around a bit more, but that’s what I saw at first perusal. No dental coverage included (though some plans include it…don’t know if I need that for 2 cleanings per year, occasional x-rays, and rare fillings).

Once I announce retirement, I will ask HR about COBRA. Don’t want to ask before they know I’m leaving. I will also get a timeframe from my supervisor (I’m planning on 4 weeks notice). Once I have that, then I think I can finish a healthcare.gov application and give a reasonable coverage commencement date. I can cover with COBRA if there is a gap (though need to determine how that will work, and how much it will cost). Plus we’ll have a really good idea what our HSA contributions will be upon separation, and can pad them up to the limits prior to separation. Not really necessary if we stick with HSA-compliant, but probably best to do it now when I KNOW we have HSA-compliant coverage.

I’m six years from Medicare, and 1poorlady is just over 7 years. So we would need to cover ourselves only for that long. Of course, not all providers accept Medicare. Our PCP will only because we’re existing patients. Otherwise she says Medicare is too much of a hassle for them (though she will provide the documents if you want to self-file a claim for reimbursement with Medicare). We’ll have to see how the others handle it.

1poorguy

It seems if I stick with BCBS, which all my providers accept, there is about a $100 difference (per month) between an HSA plan (bronze-ish) and not (silver). The deductibles are not that different, at least not when talking healthcare expenses. Still pretty high, so we would have to consider this “disaster coverage”; routine stuff we would have to do cash out of pocket.

$100 more or $100 less? The non-HSA will have lower out of pocket costs for doctor visits.
Yeah, Obamacare works OK for people like us who can just write a check for a $10k deductible.

No dental coverage included (though some plans include it…don’t know if I need that for 2 cleanings per year, occasional x-rays, and rare fillings).

We don’t get dental. We have a Cigna discount card and that gets us more or less the insurance co rate. You have to make sure your dentist takes it.

https://www.cigna.com/individuals-families/understanding-ins…

https://www.dentalplans.com/lp-ppc/dentalsavingsplans-ipad-c…

Yeah, Obamacare works OK for people like us who can just write a check for a $10k deductible.

Just to be clear, ACA compliant plans do not always have high deductibles. My ACA plan has a max out of pocket (combination of deductible and co-pays) considerably less than $10k. More like $2500 per individual.

The high deductible is required for an HSA compliant plan.

–Peter

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Just to be clear, ACA compliant plans do not always have high deductibles. My ACA plan has a max out of pocket (combination of deductible and co-pays) considerably less than $10k. More like $2500 per individual.

Sure, you can pay higher premiums and have lower deductibles.

What’s the premium for your plan?

My Bronze family plan costs $22,882.44 per year before subsidy.
We sometimes qualify for a small subsidy. This year we will get one due to the Covid relief change.
That goes away for 2023, subject to change. Then we are back to the subsidy cliff again.

So I announced. First to my supervisor, and then walked over to HR to ask some questions. They mostly want to go over this during my “exit interview”, which is my last day. So no time for planning? I don’t think so. I’ve scheduled an actual meeting with the primary HR person for retirement to get a few questions answered.

I think I may push the date a week (for retirement) so that we will have company medical coverage for the rest of the month (April). I was thinking 3/31, but then we would lose coverage the very next day. So maybe 4/1 (Friday). Of course, we lose our last-year unused vacation on 3/31 (no cash-out, no nuthin’). May just use it so we can avoid COBRA (expensive) while processing ACA coverage. Don’t know how long from application to effective coverage from an exchange plan.

Thanks for the links. I’ll check them out. We really like our dentist, so we’re going to keep him no matter what. Even if we have to pay cash.

Also heard about VSP (vision coverage). Will have to look into that.

1poorguy

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We didn’t have an HSA in 2021, but we do now. We got a notice to contribute to our HSA before the deadline for 2021 tax year. Since we didn’t have it in 2021, I’m assuming we can’t contribute to it for the 2021 tax year, yes? The wording of the notice was somewhat ambiguous.

1poorguy