I’ve had a HDHP for a couple or so years and have an HSA that I contribute to. I contribute basically $100/week to the HSA, and my employer contributes $1700 annually. At the moment I have about $19.5k in the account. My max OOP for a year is $11k if everything were out of network (I cover my college age son, so my maxes are family size), which would never happen, and my max health OOP in network is $6900. I’ve never even come close to half that.
So: how large should I let my HSA grow before I stop or curtail contributing? At the current rate, by the time I retire in six years there will be something like $50k in contributions plus any investment gain. Is there any reason to put a damper on that and stick the money elsewhere?
If your max OOP in network is $6,900 do you really need to have $50,000 in your HSA? You could likely put that $100 a pay period into something else that will generate more money for you. But the HSA money isn’t going anywhere, and if it gives you peace of mind to have it then there’s no real harm in keeping in there. Once you turn 65 you can use your HSA for whatever you want but you’ll be taxed on it.
A lot depends on whether your firm has a retiree medical plan, and if so, how generous it is. If they don’t have one, or if it’s a cheaper version, then $50K can easily be spent on medical costs, and you have the advantage of the “triple-tax-free” HSA rules.
That said, if you’re not expecting significant investment gains anyway, then you may as well spend it on whatever medical costs you have now.
At which point all the gains would have been tax deferred, and you retain the option to spend it on health care tax free. If your HSA has robust investment options, it’s essentially an avenue for retirement savings that is at worst tax deferred and potentially tax free.
I’m also of the school that HSA is just another IRA or 401K. Assuming you have the free cashflow to do so: Contribute the max, never spend a penny from it, and invest it for growth. Then, having garnered all the tax advantages, plan to spend it down in retirement.
Whether the HSA pays for medical costs and the 401K buys a motorcycle or vice versa is immaterial from the POV of total wealth & total spending.
I’m certainly going to, and do, spend money from it on meds and doctor visits. It’s pretax money and I’m in a top tax bracket so I want that discount. There’s plenty left over since I contribute the limit of $6700 and I think last year spent maybe $1200 of that on medical expenses.
And you’re thereby losing all the future compounded value of that money. For an old enough person that might be sensible. For a younger person the logic to never spend it is compelling.
For example:
Pulling out $100 now to buy a medicine that you’d otherwise pay $130 of pre-tax money sounds like saving $30. But 20 years from now and assuming decent investment returns, that $100 would be worth $300. You gave up $300 to save $30. Oops.
I’m 62. I don’t expect to start eating into my HSA until I’m elderly. So it’s not compounding for just 3 years until I retire. The marginal dollars I deposit this month will still be compounding for e.g. 20 years until I’m 82.
Hmm, I get what you’re saying, but I’m 59 and that HDHP is a bear some years since my pretty expensive meds are not covered until I meet my very high deductible. If I were 40 the calculus would be quite different and I’d be more inclined to just suck it up and leave the money in the HSA and use post tax dollars for this stuff. I mostly pay from the account if I get a bill > maybe $400, not piddle it away on $8 prescriptions.
HSAs are triple advantaged: you don’t pay tax on the money you put in, you don’t pay tax when you take it out, and you don’t pay tax on the interest. It’s superior to all other retirement plans, except if your particular HSA provider provides inferior investment vehicles to a standard broker.
Therefore you should treat it as a retirement plan and not touch it, except that if you have a major medical expense that you can’t currently afford, go ahead and use it. There is no time limit on claiming expenses, so keep a spreadsheet. If you use other funds, you are only using post-tax money temporarily, it will come back when you get the HSA.
My employer hooked me to one, no choice on my part. Here they are. They handle noticing via my insurance (Aetna) if I have a paid med bill and I can request reimbursement, and I have a few options on how to handle the investing side of the health fund.
Typically consumers cannot pick HSA providers. HSAs are part and parcel of HDHPs (high deductible health plans) which are a type of medical insurance plan.
If you are getting medical insurance from your employer a la@squeegee the employer will have chosen the insurance provider and in turn the insurer will have chosen the HSA provider.
if you’re buying your own insurance on the public market, including on an ACA marketplace, then you’ll have a choice of insurers, but most likely each insurer who offers an HDHP will already have a single associated HSA provider.