HSA contribution question

You don't have to contribute through your paycheck. Instead, I'd recommend depositing a lump sum individually. I think you have until next April to complete it.

Long story short, while we usually max out our HSA, this year we've contributed $0 thus far.

Now, I could change my wife's paperwork such that the required amount is taken out of every check, but then next year I'd need to change it back. It's a huge hassle.

Or, I can just transfer the money into the account.

At tax time, it will all wash out right?

Your HSA contributions aren't limited to payroll deductions. If your wife has a direct deposit of her paycheck, it's easy to do a simple direct contribution from that same account for the HSA contribution. Literally, you can deposit this at year-end and not every paycheck cycle. Perhaps even invest in an I-bond to gain substantial interest, although you'd need to hold for one year or at least stagger somewhat. If you happen to be older, also remember the extra amount eligible for contribution.

On a separate but related topic, you might wish to check on your employers to see if they offer FSA plans. In the old days, you had to choose between contributing to an HSA or FSA and you had to spend down the latter or lose it each year.

However a few years ago, things changed. I was able to contribute to both an HSA and a LIMITED FSA. The latter starts off being limited to vision, dental, and certain prescriptions. However, once we met our family deductible, the FSA could be used to pay any medical cost. There were some hiccups with my employer's Inhuman Resources department who were clueless and I had to show them the actual IRS tax language so that they could recode my FSA card to accommodate all healthcare costs. Additionally, you can roll over up to $500 in the FSA each year. No rush to buy stuff on New Years Eve!

At a minimum, even if we didn't meet the deductible in a given year, using the Limited FSA saves taxes on those costs which we would incur anyway and avoids using the HSA money.

Using both the HSA and Limited FSA allowed me to preserve the contributions to my HSA into retirement. A particularly odd and beneficial aspect of my Limited FSA was that it could pay out the maximum amount of what I signed up to contribute to even though the actual contributions to date were less than that. For example, if I planned to contribute $2600 ($100 every biweekly paycheck) and had a $1500 expense on Jan 1st, the plan reimbursed me for the full $1500 despite the fact that I contributed $0 at that point. This provided an unexpected windfall when I retired mid-year.

Finally, take note of certain HSA contribution restrictions in the year you join Medicare. Gets a little tricky based on timing but you can still maximize within the limits.

Some pretax deductions are also captured not only by federal taxes but also other things like SS and medicare; I think 401k contributions are like that? (IOW, there is a benefit to using payroll deductions than just putting cash in separately).

We used to have an FSA when we didn't have HDHP, moved to HSA a number of years ago. Ironically, if we stay in network, given the difference in deductibles between PPO and HDHP and what her employer gives her to HSA, it's impossible for us to be worse off with the HDHP. My plan for the HSA is essentially an IRA, just contribute over the years, invest, cash flow actual expenses.

I'll look into the limited FSA; we use an FSA for dependent care but aren't eligible for the health FSA.

401k contributions can be made on either a pretax or post tax basis. I know this from personal experience.

While payroll deductions make it convenient for things like SS, Medicare, state income taxes, and so on, there is no tax benefit per se for making contributions from your recurring paycheck or direct contributions. it's just a timing thing. Your income from wages will determine your liability, regardless of how much you've set aside or the timing of those contributions. There is a penalty for underpaying your income tax throughout a year but it really doesn't matter whether you've under-withheld each pay period or simply didn't put in enough each quarter. Again, it's about timing.

Agree on HDHP. For most folks without major medical problems, this is a no-brainer. My only regret was not starting this earlier. Have been retired two years and still have almost $20k in my HSA.

Here's two other tips about HDHP and those considering retirement in the few years.

First, when you sign up for Medicare, the amount you pay for the monthly part B premium is based on your income. In most cases, it looks at your income for the last available tax year. Usually this means, from two years ago. So it's in your best interest to lower the taxable income in those final years to lessen the amount you pay for Medicare. A real shocker for many is that they are inundated with ads on TV, mail, radio, etc. that imply the Medicare part B premium is a standard amount. That's true if your income is at or below a certain amount. If you income is above that, you pay a higher premium. IIRC, it can be up to five times the standard premium amount. This is known as IRMAA. If you meet some criteria, you can appeal this. For example, if you received a large severance package or payout of accrued vacation/sick leave. You can show how this non-recurring item might have pushed you over the IRMAA limit and try to exclude this from the calculations.

The other tip is that HSA funds can be used to reimburse yourself for your Medicare part B premiums. Yet another reason to leverage the tax savings of an HSA.

That's actually more of an argument to retire early, or at least >>2 yrs prior to medicare enrollment, since the vast majority of people will have their highest earning years later in life. The obvious con is what to do for health insurance for those couple years.....

At tax time, it will all wash out right?