102R | The Triple Tax Savings of Health Savings Account

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102r triple tax savings

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ChooseFI Favorite: top rewards card for beginners

Chase Sapphire Preferred Card​

Looking for the best credit card to start earning travel rewards points? The Chase Sapphire Preferred is our pick. With a 50,000 point signup bonus (after spending $4,000 in the first 3 months), the $95 annual fee waived the first year, and ultra-flexible points (transfers to 13 airlines & hotels!), this is our top choice!

Brad and Jonathan explain the long-term tax benefits of using a Health Savings Account to pay for medical expenses, discuss the benefits of new index fund investing options, review Monday’s episode with Timika Downes.

  • Brad and Jonathan are getting back to traditional health insurance, and excited about the Health Savings Account (HSA).
  • Most companies offer health insurance options, typically including:
    • Low monthly premium + high deductible
    • High(er) monthly premium + low(er) deductible.
  • The IRS defines a high deductible plan as anything higher than $1,350 for an individual, or $2,700 for a family.
  • Employees with high deductible plans have access to an HSA (eligible accounts).
  • An FSA (Flex Savings Account) is a reloadable account, that is primarily use-it or lose-it
  • Putting money in an HSA is tax free, and rolls over to future years, and drawing it out for medical purposes is tax free.
  • 2018 HSA contribution limits:
    • $3,450 for individuals
    • $6,900 for families
  • After 65, if you have unused money in your HSA, you can draw it out like a traditional IRA and just pay your normal tax. Here's how an HSA can fit with your FI plans.
  • Brad intends to save his receipts and wait to be reimbursed until later, as HSAs will earn interest the same as any investment account.
  • ChooseFI community members recommend Lively or Fidelity. Check out our related article: Investing Inside Your HSA: Healthcare's Best Kept Secret
  • Review of Monday’s episode with Timika – similar concepts and action points as the recommendations from Alan in the Side Hustle Coaching Series.
  • You don’t need permission: just take action.
  • Dan writes in to report that he’s reached FI!
  • ChooseFI has listeners across the globe – although not all the tax and investment information are relevant to international listeners, the lifestyle conversations are.
  • Brad and Jonathan highly recommend Vanguard because they have low fees, which means investors keep more of their returns.
  • In last few months, Fidelity began offering zero-fee funds and Vanguard has lowered its minimum investment from $10k to $3k for several funds.
  • Investments abroad can have very high fees.
  • Zero fees are not the only thing to consider when picking accounts: tax efficiency is very important as well.

 

Links:

Vanguard Ratchets Up Index-Fund Price Battle

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8 thoughts on “102R | The Triple Tax Savings of Health Savings Account

  1. Expenses matter could be the FI motto–they matter in how much you spend in your life and how many expenses there are for your investments.

  2. My family have been doing this HSA for several years. My plan is to use it as our self health insurance money when we retire (geoarbitrage) in the Philippines. Nice work! I also learned a lot with Madfientist’s article. You guys are awesome! The FIRE is spreading literally.

  3. After listening to this podcast episode, and hearing about Fidelity’s new individual HSA option, I was very intrigued. So I called them to clear a few things up, and thought I’d share them here (because this information is NOT on their website, which is annoying):

    Fidelity Individual HSA:
    – Account maintenance fee of $48/year.
    – No minimum cash balance.
    – Direct deposit not available (pre-tax) from a paycheck. I was informed that they are working on this, but it is not available at this time.
    – Acts a standard brokerage account in terms of available investments.

    Direct deposit from a paycheck is necessary to avoid FICA taxes, so it’s a must for me. I have a different HSA through my employer, but it doesn’t have the investment option. So I opened an individual HSA at Further, and my employer has agreed to switch my DD to that account. Further is only $30/year (like Lively), and I can get Vanguard S&P 500 admiral shares at 0.04%. But it has a minimum cash balance of $1,000 before you can invest the next dollar, which is acceptable for me, because I look at that cash as the medical part of my emergency fund.

    Lively is fine, but their TD Ameritrade brokerage is not ideal for FI-style investing. Their NTF index fund list is poor (no Vanguard), and the closest thing to a VTI on their commission-free ETF list is SPDR Total Market ETF (SPTM) at 0.03%, but it’s bid-ask spread is quite large.

  4. Mike I believe you are mistaken. There is no account maintenance fee at Fidelity based upon my phone call with their reps a few days ago. There is a fee for an employer to open up the HSA for their employees but not for individuals opening up a standalone HSA.

    Also the work-around for FICA taxes is simply to do the following:
    1. Contribute to your employers HSA
    2. Go on Fidelity and fill out their partial trustee-to-trustee transfer form. I filled mine out, left the dollar amount blank and made several copies as I do this quarterly.
    3. Print out the most recent copy of your employers HSA statement
    4. Fax both the form and the statement to 1-800-731-3384

    It will take about 2 – 3 weeks for your employer/fidelity to process. No cost or charge (at least not from Fidelity). Some employers do not accept electronic signatures (thankfully mine does). If they do not then you will just have to mail the form.

  5. I love the HSA. I’ve had one for a few years. Unfortunately I’ve also had some large medical expenses so I’ve had to pay 5,000 (out of pocket max) and not been able to keep the money in there and invested. One thing to keep in mind which I’ve read from other sources is that the current rule is that you can save your expenses for years and submit them. The articles that I’ve read warn that the rule that allows you to go back to submit may go away. Not sure how valid that is, or the probability of it going away, but something to keep in mind.

  6. It would be amazing if you were able to follow through with your idea of having a round table with a group of people with Jim Collins and someone who is an expert type in Dividend Investing on a podcast. I have been intrigued with “Dividend Growth Investing”. Especially when you set up your own portfolio where you are getting paid dividends monthly or weekly and when there are market dips, you are reinvesting those dividends at lower rates and buying up much more shares.

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