Skip to comments.HSA Account
Posted on 07/12/2012 4:48:19 AM PDT by junebug54
I have a question about Health Savings Accounts. I have a HSA that is no longer being funded. I have treated it like an IRA and have not used it since inception. With all the talk about Obamacare and what is in it, I am seeking advice on what to do with the funds in the account. Any suggestion (almost) will be appreciated.
I have had one over the years but it has to be funded annually and the funds used in the same year. This is through the company I work for. And if we don’t use those funds set aside in that year, they are forfeit.
Unless there’s something new oout there, this is how I understood these to work.
I don't know if you can ever pull it out for any reason .. but I'd like to know as well as you.
That's not an HSA, that's a pretax Health Care Spending Account (also for dependent day care, etc). An HSA is much better because it grows with interest and turns into an IRA if you don't use it.
I have an HSA that I no longer contribute to. My med insurance has a large deductible and I use the HSA to cover the deductible and other non-covered medical costs - dental, optician, co-pays, etc. Given the low current return and the high monthly charge (Thanks Wells Fargo!) I plan to spend this as quickly as I can. Given the likely trajectory of tax rates, I suspect that my future medical costs will be worth more as tax deductions than any tax exempt accruals in the HSA.
Is this the type of info you were after?
Once you hit 65, you can use the money for non-healthcare purposes, but you’ll then pay tax on it as income. Otherwise, it is like an IRA and you can sit on it and invest the money and grow it. Or you can go ahead and tap into it and use it for uncovered medical costs. Talk to your bank or wherever you have investments and they may have special ways to grow your HSA account into a retirement nestegg.
I would grow it as a disability nestegg just in case you ever need home nursing care. Last thing I would want is to go into a nursing home, so having money to pay for home care would be something good to have.
Health Savings Accounts, while not yet outlawed under Obamacare, may very well be an endangered species. As with so many things in the Obama regime, the power of life and death is shifting to those who write the administrative regulations (not the original laws).
Here is a good article: http://www.redstate.com/brian_d/2012/07/06/health-savings-accounts-under-attack/
Another good link: http://hsaguy.wordpress.com/
Thanks to Obamacare an HSA will be capped at $2500 max contribution.
Also if I’m not mistaken funds cannot be used anymore for tuition for special needs schools. Charming
Thanks for that!!! Honestly, I learn more here than I do from my own investment advisor....she never mentioned this option. I’ll be looking into it. THANKS!!
Some of the above, all of the above, none of the above?
But in any of those cases, you can still use the existing funds in your HSA, tax free for qualified medical expenses as HSAs are fully portable even if you are no longer in a High Deductible employer sponsored health plan.
You must however keep documentation to prove that the funds were used for qualified medical expenses, otherwise you may be subject to income tax and penalties. You can also leave the money in the HSA account as you said, treating it much like an IRA.
However, any withdrawals that are not used for qualified medical expenses are subject to a 20% penalty as well as income taxes, much as taking a non-qualified distribution from a 401K or IRA account. The 20% penalty is waived for people age 65 and older or those who have become disabled. Income taxes still apply in these situations but there are no additional penalties.
You can roll over your HSA from one HSA fund to another HSA fund, but HSAs cannot be rolled into an IRA or a 401(k), and funds from these types of investment vehicles cannot be rolled into an HSA, except for the one-time IRA transfer. If you are not happy with the performance or investment options available with your current financial institution you can move your HSA to another financial institution into another HSA account.
While Obamacare will in the future put even more limits on HSAs, contributions and uses and the types of plans that qualify for HSAs, for the time being there are still ordinary income taxes and a hefty 20% penalty for withdrawls for anything other than qualified medical expenses. So if you are thinking about cashing it out and spending it on a vacation or taking out the funds and investing in gold coins or baseball cards, my advice to you would be dont do it unless you can afford to or dont care about paying the income taxes and the 20% penalty.
I found this very good link of FAQ regarding HSAs
Unfortunately thanks to the government trying to prevent people from taking control of their destiny, they exclude getting an HSA if you have an HMO or PPO. The only way you can get one is if your employer offers you a high deductible insurance plan that meets certain rules. I would love to have one myself, but I can’t. My sister has one and has some nice savings built up despite spending on some health issues.
As I recall the $2500 cap is for FSAs. It does not apply to HSAs.
With an FSA, you elect a yearly contribution and all those funds are available for you to use from day one of the plan year but it is also a use it or lose it plan. So in other words, say on January 1 you elect a $1,200 annual FSA contribution that your employer will take as a deduction for on a pre-tax basis from each of your 24 bi-weekly pays over the year, i.e. $50 per pay. With an FSA you can use all $1,200 of that election on January 1 assuming that all of the $1,200 qualified expenses occurred on January 1. If you quit your job on January 2nd, your employer eats the balance and while some employers attempt to, they cannot legally recoup those deductions from you.
However if you contribute the whole $1,200 over the year and at December 31st, have incurred no qualified FSA eligible expenses or only a portion of those available funds, you lose the balance as it doesnt carry over and the unused funds go back to your employer. On one had the employer takes a risk with an FSA that you will not use of more of the available funds than what you actually contributed to but OTOH, if you dont use all of your elected funds, your employer keeps it. Over all it tends to balance out.
This is why you often see with folks with FSAs, a late in the year rush of folks going to the doctors, getting new eye glasses and trying to get Rxs filled near the end of the year as they are trying to spend down their balances. Its also a good clue that an employee is getting ready to leave a company when at mid-year they are suddenly putting in an unusual amount of FSA claims.
With HSAs OTOH, you can only use what has actually been contributed to date (those plans are not pre-funded) but then those unspent funds from year to year roll over from year to year and with HSAs, the funds, including whatever the employer contributes if any are 100% portable and 100% owned by you.
HSA ineligible withdrawals become taxable income and subject to a tax penalty at 10 percent. This will not apply if you become totally disabled, reach age 65 or die.
As of 2011, the penalty is 20%
Thanks to everyone for the useful info. I am 65, no longer
in a high deductible health insurance plan, covered by medicare and my wife’s employer for what medicaid does not cover. We do pay to have her employer cover me and I have the medicaid premium deducted from my SS check each month.
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