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HSA Tip -- Use Payroll Deduction to Maximize Tax Savings

155 126 November 23, 2017 at 08:35 AM
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Open Enrollment time is happening (or just finishing) for many of us and a lot of us are switching health plans. You might be thinking about your HSA options.

Most HSA accounts are set up to allow direct deposit from your employer. But some HSA investment plans do not offer direct deposit (since there is no real normal account to deposit into), and you need to manually contribute funds like an IRA. Saturna was one of those for me.

When the employer contributes pre-tax to the account directly, you don't pay some taxes (like FICA and maybe medicare) on the amount. If the employer pays you and then you make the contribution on your own, you will get the state and federal tax back when you file your tax return, but you won't get your FICA tax back. This can be a decent % of the contribution for many people.

Just a little tidbit that's not talked about very much. Make sure you're doing your HSA contributions via pre-tax payroll through your employer if at all possible.

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Great advice! Most people will see a 6% reduction in FICA tax through payroll deductions.
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Question:

My employer has new insurance this year with and HSA option that I selected.

They need bank account info to deposit this money into.

I'm assuming it can be any standard checking or savings account? Just an account that will only be used for HSA purposes (pre-tax money going in, funds only used for medical purposes)?

Does that sound correct?
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Quote from spartanstew
:
Question:

My employer has new insurance this year with and HSA option that I selected.

They need bank account info to deposit this money into.

I'm assuming it can be any standard checking or savings account? Just an account that will only be used for HSA purposes (pre-tax money going in, funds only used for medical purposes)?

Does that sound correct?
That is incorrect. It needs to be an HSA account through an HSA provider.

The bogleheads forum has a good discussion on best HSA. You will have to decide if you want to just use it as a normal savings account to pay for medical expenses or as a stealth investment account that acts as an IRA.

https://www.bogleheads.org/forum/...p?t=207051

Myself I kind of use it as an investment account/medical emergency fund. I will pay minor medical expenses myself, but if anything big comes up I withdraw from the HSA.

I use healthsavings.com which allows me to circumvent vanguard admiral funds minimums, but the fees are a little high. Many suggest saturna or eli lilly. One of your local credit unions may offer a no or low fee HSA option without investment capability.
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Thank you.

My employer hasn't given me much direction. They started taking the money out of my check (pre-tax) and it's up to me to tell them where to put it.

I would like to use it as an investment account too, but with a wife and 2 kids, our yearly medical expenses are more than the $5K I'm contributing (employers is contributing the other $1900). Maybe this will be the year without medical costs.
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Last edited by spartanstew January 20, 2018 at 04:24 PM.
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Holy crap, dude, I've fallen into the rabbit hole of bogleheads.com

I had no idea how much crap I didn't know (and still don't)
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Thanks for the bogle link, should be some good reading.

For hsa junk we are dealing with it this year. Both my wife and I are on separate plans but mine is through usagov and our small business payroll service doesn't have a built in hsa option. As such I'm rolling my old hsa to hsabank account and getting it to 5k to avoid fees (current account has them) but otherwise putting everything into the wife's hsa to avoid payroll taxes. We plan on getting 15k or so in hsa for emergencies and then rest will be invested through the hsa.
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Quote from spartanstew
:
Holy crap, dude, I've fallen into the rabbit hole of bogleheads.com

I had no idea how much crap I didn't know (and still don't)
Quote from IPABeerLover
:
Thanks for the bogle link, should be some good reading.

For hsa junk we are dealing with it this year. Both my wife and I are on separate plans but mine is through usagov and our small business payroll service doesn't have a built in hsa option. As such I'm rolling my old hsa to hsabank account and getting it to 5k to avoid fees (current account has them) but otherwise putting everything into the wife's hsa to avoid payroll taxes. We plan on getting 15k or so in hsa for emergencies and then rest will be invested through the hsa.
Yeah bogleheads is an excellent resource for anything personal finance related, especially retirement savings.
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