Health Savings Accounts
What if I was to tell you that you could sock away as much as to $3,650 per individual this year and never have to pay a single penny of taxes on the amount? Often called the “Super IRA”, Health Savings Accounts (HSAs) allow you to do just that.
I’m probably like the majority of you, in that, I had never heard of HSAs. That is until recently when I happen to read about them while shopping around for health insurance.
HSA contributions are fully tax deductible and distributions are also tax free if used for medical expenses. That alone makes them particularly attractive, but that’s only half the story.
After you turn 65 years old withdrawals are only subject to income taxes for all other non-qualifying expenses. That’s right - the HSA essentially becomes a traditional IRA at this point with the added bonus of not having a mandatory distribution requirement. It should become immediately apparent how valuable HSAs become for those that are young and healthy with historically few medical expenses.
So what’s the catch? Only one - you need to be only covered by a qualified high deductible health plan (HDHP). As mentioned earlier, I just recently signed up for a qualifying individual health plan, so I should be able to contribute $2,850 for this year.
HSAs are relatively new, so account options are still rather limited. Most of what is currently being offered is in the form of interest-bearing accounts, but there are a few now that let you invest in mutual funds.
Here are some of the more popular choices right now:
Shawnee HSA looks particularly attractive with its low fees and investment options (DFA and American Funds). But, as many have discovered, the investment options are not yet available. I called Shawnee earlier this week and was told the deadline is now July.
Because of my uncertainty of Shawnee HSA meeting their deadline, I’m leaning towards going with Health Savings Administrators. They offer a good selection of Vanguard funds, including access to admiral shares. My only concern is that the quarterly custodial fee would become rather expensive as the account grew, but then again, I would have the option of switching providers whenever I’d like in the future.
What to learn more about HSAs?
http://www.ustreas.gov/offices/public-affairs/hsa/
I’m probably like the majority of you, in that, I had never heard of HSAs. That is until recently when I happen to read about them while shopping around for health insurance.
HSA contributions are fully tax deductible and distributions are also tax free if used for medical expenses. That alone makes them particularly attractive, but that’s only half the story.
After you turn 65 years old withdrawals are only subject to income taxes for all other non-qualifying expenses. That’s right - the HSA essentially becomes a traditional IRA at this point with the added bonus of not having a mandatory distribution requirement. It should become immediately apparent how valuable HSAs become for those that are young and healthy with historically few medical expenses.
So what’s the catch? Only one - you need to be only covered by a qualified high deductible health plan (HDHP). As mentioned earlier, I just recently signed up for a qualifying individual health plan, so I should be able to contribute $2,850 for this year.
HSAs are relatively new, so account options are still rather limited. Most of what is currently being offered is in the form of interest-bearing accounts, but there are a few now that let you invest in mutual funds.
Here are some of the more popular choices right now:
- American Chartered Bank
- Cattle National Bank
- Exante Bank
- Health Savings Administrators
- HSA Bank
- Shawnee HSA
- Sterling HSA
Shawnee HSA looks particularly attractive with its low fees and investment options (DFA and American Funds). But, as many have discovered, the investment options are not yet available. I called Shawnee earlier this week and was told the deadline is now July.
Because of my uncertainty of Shawnee HSA meeting their deadline, I’m leaning towards going with Health Savings Administrators. They offer a good selection of Vanguard funds, including access to admiral shares. My only concern is that the quarterly custodial fee would become rather expensive as the account grew, but then again, I would have the option of switching providers whenever I’d like in the future.
What to learn more about HSAs?
http://www.ustreas.gov/offices/public-affairs/hsa/
posted by Brian at
7:03 AM
8 Comments:
I had shopped around for the best deal for the HSA - Exante Bank was hands down the best overall value. They have Vanguard funds too, and you can sign up for a special Vanguard ONLY HSA via the vanguard website. Also NO fees for investing. Happy hunting.
By
Anonymous, at 5/16/2007 8:00 AM
Thanks, I'll take another look at Exante before making a final decision.
By
Brian, at 5/16/2007 8:10 AM
Anonymous, after further research I'll probably go with Health Savings Administrators over Exante Bank for the following reasons:
1. A minimum of $2000 must reside in a separate savings account before you can begin to invest in funds with Exante. Health Savings Administrators allow for 100% of contributions to be invested.
2. Fund choices are limited to 3 Vanguard funds with no access to admiral shares with Exante. The lower expense ratios of the admiral shares that Health Savings Administrators provide will help offset some of the custodial costs.
3. The $48 annual maintenance fee of Exante is more expensive when compared to $39 at Heath Savings Administrators.
According to my calculations, Health Savings Administrators will be cheaper for the first couple of years (assuming I can make the maximum contributions those years), but then Exante will have the advantage thereafter. Because I believe there will be better options in the future, I’m pretty much committed to going with Health Savings Administrators for right now and then make a switch if a better situation arises in the future.
Thank you for your helpful suggestion.
By
Brian, at 5/16/2007 9:31 AM
I've had an HSA for three years now with State Farm Bank. I went with them because that is where I have my auto/home insurance and I had the established relationship. Its just a savings account that pays about 4% so I've been looking into better options. I've done extensive research and pretty much concluded, like you, that HSA Administrators is probably the best option... for now. Hopefully, in a year or two, when more people get higher balances in these accounts, there will be more options with lower fees (i.e. available directly from Vanguard). I now need to set up the HSA Administrators account and transfer from State Farm.
By
Bill, at 5/16/2007 4:51 PM
It is good to save up some money will allocate especially for health purposes. At least there should be about more than $2500 to have better check-up physically and mentally.
By
Gymnastics Requirement, at 5/24/2007 9:11 PM
Love the HSA! So glad you found it!
Don't forget, you can wait until April 2008 to make 2007 contributions. And, if you decide at the end of the year you want some of your cash, just add up your legit medical expenses and withdraw that amount from the HSA (or leave it in there and watch it grow!). Its brilliant!
By
Anonymous, at 5/25/2007 3:41 PM
Another beautiful thing about health savings account is that your spouse's expenses are also reimburseable even if she isn't covered by your high deductible plan. Therefore, any expenses her insurance doesn't cover can be withdrawn tax free and without penalty. This is what my wife and I do for her HSA even though I am not covered under her HSA. Luckily, she has hers through work with exante and her employer, AT&T, covers any admin. expenses on the account.
Like you, we are maxing out her account this year and plan on using it mostly as an investment account for the future. You are right about the 2k min. for investing at exante, but they are going to change that to only $500 in Q4 of this year and I figure that that amount isn't much cash to have on hand in case we do have major medical expenses in the future.
Another benefit of the HSA that some don't know about is there is no time limit on when you can ask for reimbursement. If you were to have $5500 in out of pocket expenses because of a deductibe that high this year, you could still request that money, tax and penalty free, into any year in the future, even 2020 if you so chose.
It provides for a lot of flexibility. It's too bad the current Democratic leadership HATES these accounts because Presicdent Bush's economic team created them.
By
Eddie, at 6/08/2007 1:18 PM
You should check out ConnectYourCare. They have an awesome product with 4.9% interest rate and free investments. Nothing else comes close.
By
Anonymous, at 7/18/2007 6:07 PM
Post a Comment
<< Home