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I un-retired a couple of years back and returned to work full time. My current employer will be offering health insurance plans with HSAs next year.

Employees are able to make Federal (and usually state) tax-free contributions to the HSA which can be used for qualified medical expenses and that money can rollover from year to year. So what I am thinking of is treating the HSA as a retirement investment vehicle. From a tax perspective, I thinking this is even better than 401ks which are only tax-deferred.

I already save the max per year in my 401k. So using an HSA to further reduce my taxable income and boost my nest egg sounds good to me.

The only pitfalls I can see:

- If retirement finds me superhealthy, then I might not be able to spend all of that HSA money. In that case, it would go to my heirs. ,

- The HSA fund investment options are limited to what the HSA plan adminstrator allows.

Comments?
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>> I un-retired a couple of years back and returned to work full time. My current employer will be offering health insurance plans with HSAs next year. <<

Same here. I'm interested to see how it compares in terms of deductibles, company contributions and premiums, to our existing high deductible options.

>> The only pitfalls I can see:

- If retirement finds me superhealthy, then I might not be able to spend all of that HSA money. In that case, it would go to my heirs. ,

- The HSA fund investment options are limited to what the HSA plan adminstrator allows.
<<

As for your first comment, you will be able to withdraw this for any reason starting at age 65. It will continue to be tax-free to withdraw for health care purposes, but taxable as ordinary income (but no penalty after 65) for other purposes, much like a 401K.

As for the second, yes, that's a concern. I am waiting to see what investments will be there. Still, I'd probably play it safe anyway until I had 1-2 years of out of pocket maximums in there, and then I'd probably start investing what's above that (assuming we can). Some administrators have little more than low-yielding savings accounts, and if that's the case, it wouldn't make much sense to fund an HSA beyond a couple years of potential out of pocket maximums. But in reality we'll probably need to see the details and play with a spreadsheet.

#29
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- If retirement finds me superhealthy, then I might not be able to spend all of that HSA money. In that case, it would go to my heirs

Once you reach 65, you can withdraw the money for any purpose if you are willing to pay ordinary income tax on it, just like an IRA or 401(k). Any money withdrawn for medical purposes is still tax free.

I am considering my HSA as a combo medical savings and 401(k)/IRA supplement. So far, I am covering all my medical costs out of my pocket and not withdrawing from my HSA. Of course, I've been pretty healthy, and my medical insurance covers any 'preventive care' at 100%, so my out of pocket expenses thus far have been nothing.

- The HSA fund investment options are limited to what the HSA plan adminstrator allows.

Yes, and the fees can be expensive. Until my HSA is funded to a level where the fees are less onerous as a % of the account balance, I am just keeping my HSA in a savings account that was earning almost 5% - it's dropped a bit since the Fed dropped rates, but is still nearly 4.5%. Once I get 3 years contributions or so, so I get closer to $10k, I will look to roll the money over to something where it can be invested in the market.

AJ
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I have an HSA. I'm not real keen on the invesment choices (seem expensive) though. Eventually, I'll try to roll it over to Vanguard but for now have "premium pass through" equal to half my deductable being deposited with Chase through my insurer.

To answer the subject question. I carry my HSA off balance sheet (just as I do any unrealized home equity) and thus don't count it as a retirement "asset". It will serve as a cushion. If the balance is large enough by the time I FIRE myself, I may reduce my anticipated annual expenses by the amount of my insurance deductable/max out of pocket since it would be paid for by the off-balance sheet account and wouldn't require any withdrawal. Given that the HSA $ will be relatively inflexible for me for a lot of years (if I retire in my late 30s-early 40s as I hope to do) I do not want to count on it for funding my retirement. Given that the nature of health expenses is relatively unstable (except for chronic conditions) I think it would be silly of me to count on spending from the HSA).

Hopefully, I'll live a healthy life can pull some of the money out to really party it up at my 120th birthday!

FoolNBlue
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Woo Hoo! As a follow up, I just looked at the 2008 rate for my HDHP. My monthly employee share of the premium, pre-tax is $73.24 . Adjusted for tax I will actually pay "out of pocket" $54.93/month. Each month, the premium pass through deposited on my behalf by my insurer into my HSA is $83.33. Net cost to me to have insurance is -$28.40/month! Pretty cool, eh?! I've been in this plan for two years and have accumulated $2K (one year's deductable) just through premium pass through -all free money. So unless I get really sick, I shouldn't have any real out of pocket medical expenses for some time. I've also contributed about $900 to the account but doubt I'll contribute more than the free money since the investment choices are not that great.

I'm sure this is more exciting for me than you but I still think it's cool that I get "paid" to have insurance.

FoolNBlue (What healthcare crisis? -yeah, I know, just wait till I quit my job)
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I've had an HSA plan now for about 4 years. I decided to keep two years of deductibles in the original account to get a decent interest rate. I then funnel new contributions to Ameritrade via my HSA. There I can trade just about anything. I'm keeping it simple, IVV.

JLC
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>> I've had an HSA plan now for about 4 years. I decided to keep two years of deductibles in the original account to get a decent interest rate. I then funnel new contributions to Ameritrade via my HSA. There I can trade just about anything. I'm keeping it simple, IVV. <<

The teaser info we got in the mail yesterday tells me that we're basically going to have only two options (down from 4-5 last year) -- one a traditional PPO and one an HSA, both from Aetna. (We had been on BCBS through this year.) It remains to be seen what the difference in premium we'd have to pay between the two, but I'm guessing it's more than $200 a month (based on the differences in this year's plans), which would mean for the same cost I could get the HSA and put $2400 a year in it as well as the company contribution to it. So most likely I'll be going with the HSA option which will use Chase as the HSA administrator.

It looks like we will have the option to invest in a selection of JP Morgan and American Century funds with amounts over $2,000.

The first $2000 would be in a savings account paying about 3% (not too great, but I've certainly seen worse for HSA savings). But we could put amounts above that in a JP Morgan money market fund now paying about 4.7%. I'd probably put a year or two of deductible in the money market and then invest the rest in a mix of their index fund and a conservative growth fund.

#29
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