Below is an article that I read related to your H.S.A. account. It is from ToughMoneyLove and can be accessed at http://www.freemoneyfinance.com/2008/08/using-your-heal.html
Below I have included his entire discussion. This is a unique way to use the H.S.A. account to save tax-free for retirement and also enjoy the tax-free gains on the contributions.
Health Savings Accounts (HSA for short) have become all the rage in recent years, particularly for small businesses like mine that struggle to balance benefit cost control with taking care of our employees. So, several years ago we introduced a high deductible insurance plan with an HSA. We fund most of the deductible for our employees with quarterly contributions. We also allow our employees to make additional contributions on their own, subject to the maximum contribution allowed by IRS regulations. The maximum contribution (the aggregate of employer and employee contributions) allowed in 2008 is $5650 for a family plan like mine. I can contribute an additional $900 this year because I am over 55. All of these contributions are "above the line" meaning that they are not included in your taxable income on your Form 1040.
For the first two years, I followed conventional practice and used HSA funds to pay for all of our medical expenses, including approved expenses that were not covered by our insurance plan (over the counter medications and such). However, at the end of 2007 I began to think about the conventional wisdom and studied various government rules and publications about HSA contributions. It was then that I realized that I could likely obtain a greater long term financial benefit from my HSA funds by NOT spending them now. Instead, I could let them accumulate in the account and withdraw those funds when I retire later (including any investment earnings and appreciation), absolutely tax free. In other words, I was going to use my HSA account as a "super Roth" account.
Why do I refer to my HSA as a "super Roth" account? We all know that funds that are deposited in a Roth IRA (or that are contributed to the Roth component of a 410k plan) can be withdrawn in retirement tax free, including accumulated earnings and appreciation on the contributions. The only drawback is that the contributions are "below the line" i.e., they are included in your taxable income. Nevertheless, that is still a good investment strategy for many because tax rates are expected to go way up for future generations. (If you don't believe this, do some more research!) Turning to the HSA, we now see that you can get the tax-free benefit both going in and coming out. You don't pay any tax at all on those HSA funds, as long as they are used for qualified medical expenses. Thus, it is a "super" Roth. For me, its really a double super-Roth because our income is over the limit allowed for contributing to a Roth IRA. For the HSA "super" Roth, there are no such income limits.
Right now readers are thinking "wait a minute - how are you going to get all of that money out of the HSA without paying taxes unless your future medical bills are astronomical." That brings me to the second part of the strategy. First, we are saving all of our receipts for every qualified medical expense we incur and putting them in a file. There are lots of them, believe me: aspirin, bandages, ointments, eyeglasses, dental bills, etc., along with all of the typical physician bills and prescriptions. We are going to save these until we retire and need some tax free income. I checked IRS regs and publications and there is no rule against withdrawing HSA funds accumulated (and grown) over many years and applying them to unreimbursed qualified medical expenses that you incurred in past years, as long as they were incurred after you set up the HSA. So, if I want $5000 in tax free income in 2015, I can pull out $5000 from my HSA and match those funds up with $5000 in receipts from my file. Because we already paid those old bills, I can use the $5000 withdrawal in 2015 for anything I want, tax free.
Now readers are thinking "what's the big deal you - you are just withdrawing funds later that you could have withdrawn earlier, also tax free." My response is not to forget about the accumulated investment earnings. If the market has been decent, I will have a nice pool of money to use for other medical expenses. Thus, the second part of this strategy is that when I am 65, I will have to pay Medicare premiums. These premiums are increasing faster than the rate of inflation. Even though HSA funds cannot be used to pay conventional health insurance premiums now (or for Medigap coverage when I retire), the IRS will allow me to use HSA funds for Medicare premiums and for some types of long-term care insurance. I will also have other health care expenses that Medicare does not cover. That's where the accumulated investment earnings (I hope!) will go. Again, its all tax free.
Now skeptics are saying "what if Congress enacts a national health plan for all Americans. You won't have any future premiums or medical expenses." My answer is that (a) don't count on 100% reimbursement with any future plan and (b) I still have my old medical receipts file. Plus, even if I want to use HSA funds for non-medical expenses, I can do so without penalty (paying ordinary tax rates) after I turn 65.
Of course, before you implement the HSA "super" Roth strategy, you want to make sure that you have access to suitable investment vehicles for your contributions. Our HSA provider is Wells Fargo. It offers a handful of decent (not great) mutual funds for HSA deposits. I have selected a balanced fund that I hope will show 6%-8% annual tax free growth over the next 10 years. If so, our HSA funds will give us additional flexibility in managing the tax burden of withdrawing and spending taxable and tax free retirement assets in the future.
In summary, if you can afford to delay using your HSA funds and instead leave them invested, your payoff in retirement will be substantial. You will receive tax free benefits that surpass those of even a conventional Roth IRA or Roth 401k. The "super" Roth!
Tuesday, August 26, 2008
Thursday, August 21, 2008
John Wesley and Money
As a Methodist one of our heros is John Wesley, the founder of Methodism. During his ministry, he had a lot to say about money and its uses. John Wesley once said, "make all you can, save all you can, and give all you can." Most of us, including myself attempt to be pretty good at least one of these areas, but not usually all three. It should be our desire to strive to be good at all three as Wesley proved to be during his ministry. It is interesting to note that Brother Wesley was concerned with his fellow man and the role of money in this ministry.
He once said, "money is an excellent gift of God, answering the noblest ends. In the hands of his children it is food for the hungry drink for the thirsty raiment for the naked… a means of health to the sick, of ease to them that are in pain. It may be as eyes to the blind, as feet to the lame…… "
This sense of truth should cause us to examine our own giving life. John Wesley showed us that:
•God is a giver, He gave us all that He had by coming to earth through Jesus Christ.
•To grow as a Christian, we must also include growth in our giving as we become more like Christ.
•We are to only use what is necessary for our own consumption (Wesley may have been the first "green" tree hugger). By only consuming resources that provide for our basic needs, we allow other resources to be available to meet the basic needs of others.
•Giving is a way to recognize God’s generosity in our own life. We give to demonstrate our love for God and for our neighbor.
Let us also examine John Wesley's budget and see how his actions backed up his words. He initially earned 30 pounds, lived on 28, and gave 2. Eventually, he earned over 1,400 pounds and gave away over 98% of his income, while living on 30 pounds (he gave himself a slight raise in his lifestyle after many years).
If only I could have been so diligent that when my income increased, my giving increased by the amount of my pay raise. Do you remember your first full-time job and how much you got paid? I remember thinking that I had never been so rich, but quickly I adjusted my lifestyle to match my income. While those decisions have been made, may I begin not giving myself increases, but using the excess for ministry, to save for retirement.
This past year, I received a 3% increase in pay and increased my retirement savings by the amount of my pay increase. Try doing that this year for your giving, long-term savings, or debt retirement plan. I know you will be blessed.
I will close with Matthew 5 from the message
5"You're blessed when you're content with just who you are—no more, no less. That's the moment you find yourselves proud owners of everything that can't be bought."
I am pushing for this to be MasterCard's new slogan, but it might have a negative impact on their bottom line. This is the Bible's version of "priceless" instead of the worldly version.
He once said, "money is an excellent gift of God, answering the noblest ends. In the hands of his children it is food for the hungry drink for the thirsty raiment for the naked… a means of health to the sick, of ease to them that are in pain. It may be as eyes to the blind, as feet to the lame…… "
This sense of truth should cause us to examine our own giving life. John Wesley showed us that:
•God is a giver, He gave us all that He had by coming to earth through Jesus Christ.
•To grow as a Christian, we must also include growth in our giving as we become more like Christ.
•We are to only use what is necessary for our own consumption (Wesley may have been the first "green" tree hugger). By only consuming resources that provide for our basic needs, we allow other resources to be available to meet the basic needs of others.
•Giving is a way to recognize God’s generosity in our own life. We give to demonstrate our love for God and for our neighbor.
Let us also examine John Wesley's budget and see how his actions backed up his words. He initially earned 30 pounds, lived on 28, and gave 2. Eventually, he earned over 1,400 pounds and gave away over 98% of his income, while living on 30 pounds (he gave himself a slight raise in his lifestyle after many years).
If only I could have been so diligent that when my income increased, my giving increased by the amount of my pay raise. Do you remember your first full-time job and how much you got paid? I remember thinking that I had never been so rich, but quickly I adjusted my lifestyle to match my income. While those decisions have been made, may I begin not giving myself increases, but using the excess for ministry, to save for retirement.
This past year, I received a 3% increase in pay and increased my retirement savings by the amount of my pay increase. Try doing that this year for your giving, long-term savings, or debt retirement plan. I know you will be blessed.
I will close with Matthew 5 from the message
5"You're blessed when you're content with just who you are—no more, no less. That's the moment you find yourselves proud owners of everything that can't be bought."
I am pushing for this to be MasterCard's new slogan, but it might have a negative impact on their bottom line. This is the Bible's version of "priceless" instead of the worldly version.
Tuesday, August 19, 2008
10 Beliefs about money
1. Tithing is a spiritual discipline.
2. You must save for anticipated expenses if you want to achieve financial independence.
3. You must create passive income with investments and earnings to succeed financially.
4. You must have an effective partnership with your spouse to win financially.
5. You must improve your financial intelligence to be successful.
6. You must spend less than you earn.
7. You must exhibit consistent, positive habits over a period of time.
8. You must be a positive role model to teach your children about money.
9. We must be passionate about our work to succeed and prosper.
10. You must die to self to win financially.
2. You must save for anticipated expenses if you want to achieve financial independence.
3. You must create passive income with investments and earnings to succeed financially.
4. You must have an effective partnership with your spouse to win financially.
5. You must improve your financial intelligence to be successful.
6. You must spend less than you earn.
7. You must exhibit consistent, positive habits over a period of time.
8. You must be a positive role model to teach your children about money.
9. We must be passionate about our work to succeed and prosper.
10. You must die to self to win financially.
Thursday, August 14, 2008
Health Insurance
At work we are implementing a new health insurance program that will allow members to choose between 3 options. The "high", "middle", and H.S.A. options. Based upon an analysis of the numbers, I will be able to save some significant funds by enrolling in the H.S.A. plan. Using past data, I have determined that our family will be able to save approximately $5,700 per year over the "high" plan and $2,300 over the "middle" option. While we are fortunate to have good health and am fairly young and healthy, this may not always be the case. Hopefully, we will have several years of good health and can prepare for any large medical claims.
1. Have an emergency fund for medical expenses.
2. Spend the money to go to the doctor to avoid larger medical expenses later.
3. Fully fund your H.S.A. account which will be $5,950 for family coverage in 2009 and $3,000 for single coverage.
4. Be an informed consumer by minimizing your costs by being aware of special programs like the $4 prescription programs offered by Wal-mart, Krogers, and others.
5. Take care of your body by working out, eating healthy, and dealing with stress in an appropriate manner.
By enrolling in the health savings account (H.S.A.) I plan to fully fund my account by redirecting my premium savings directly into my own health savings account. My employer will contribute $1,200 and I will contribute the other $4,750. My current premiums are $512 per month, of which I will contribute $512 to my HSA each month, until I reach the maximum and then will save the additional funds to pay for any costs that may be above the amount in my account. To be successful this will require discipline to avoid spending these funds on other things that might be more fun, more pressing, or to reduce other debts.
1. Have an emergency fund for medical expenses.
2. Spend the money to go to the doctor to avoid larger medical expenses later.
3. Fully fund your H.S.A. account which will be $5,950 for family coverage in 2009 and $3,000 for single coverage.
4. Be an informed consumer by minimizing your costs by being aware of special programs like the $4 prescription programs offered by Wal-mart, Krogers, and others.
5. Take care of your body by working out, eating healthy, and dealing with stress in an appropriate manner.
By enrolling in the health savings account (H.S.A.) I plan to fully fund my account by redirecting my premium savings directly into my own health savings account. My employer will contribute $1,200 and I will contribute the other $4,750. My current premiums are $512 per month, of which I will contribute $512 to my HSA each month, until I reach the maximum and then will save the additional funds to pay for any costs that may be above the amount in my account. To be successful this will require discipline to avoid spending these funds on other things that might be more fun, more pressing, or to reduce other debts.
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