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If not maxing 401k, is high deductible plan worth HSA investment benefit?

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  • Avatar familymedicineresident 
    Participant
    Status: Resident
    Posts: 10
    Joined: 03/14/2018

    I just started a new attending job. We are an LLP and have a profit-sharing investment plan. I can save above 50k in the profit sharing plan. For now our family is only planning to save about 30k yearly.

    I was planning to get a high-deductible health insurance plan for the benefit of being able to use the HSA as an investment vehicle. But if I am not maxing 401k, would it be better to save the 7k of HSA max there and then go with a low deductible plan? I have three children and very likely will hit deductible.

    Thanks

    #235762 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    1. Welcome to attending-land. Change your username.
    2. Just this year you wont max out 401k? You might reconsider that, also consider Roth401k if you have that option.
    3. Are you sure you’re going to meet the deductible? That is a lot of healthcare for a young family.

    #235767 Reply
    Liked by Lordosis
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    If you are going to use the HSA as an investment vehicle, an HSA in and of itself is preferable to either a 401k or a Roth IRA. This assumes, of course, that you will have healthcare expenses throughout the contribution period and save receipts so that you will be able to tap the HSA in retirement whenever you want, tax-free.

    However, you stated that you will likely hit the deductible of your plan. By this, are you saying that the HDHP will cause you to be OOP significantly more than the traditional HI plan? If so, it may make more sense to bypass the HSA while your children are young and get the plan that will pay a chunk of those costs.

    Of course, this  without any other numbers for reference, the above is a generalization.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #235768 Reply
    Liked by spiritrider
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1807
    Joined: 02/11/2019

    Remember that health maintenance is usually covered on most health plans. WCC, Vaccines, CPE, etc.   Unless you have a chronic medical issue or kids with expensive meds you may not even get close.

    First pick the plan that fits your family need.  If that happens to be a high deductable plan then the HSA is a good place to invest.

    “Never let your sense of morals prevent you from doing what is right.”

    #235779 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 323
    Joined: 06/10/2019

    Great advice Johanna. If the employer is going to pay the premium differential between the lower deductible plan and the high deductible plan then it’s probably better to go with a low deductible plan and put the deductible costs saved into OP’s retirement plan. Don’t you go spending it! The retirement accounts are so much more important at your young age!

    However, if you have to pay the premium difference then the deductible savings by going with the lower deductible plan is going to be offset by your increased cost on the premiums and boy do I like the HSA idea – reason being, if ultimately used for appropriate healthcare expenses, the funds go in and come out tax free, as well as the compounding on your investments over the many years/decades, God willing. Just make sure to shoebox receipts as Johanna mentioned.

    If possible you really should max out tax deferred retirement plans annually, but if I also had an HSA and had to choose, I would fund the HSA before maxing out the retirement accounts as Johanna has eluded it is the more efficient tax vehicle.

    Johanna feel free to let me know if I’m missing something.

    An HSA seems to me one of the best gifts Uncle Sam gives us regular folks.

    #235787 Reply
    Avatar familymedicineresident 
    Participant
    Status: Resident
    Posts: 10
    Joined: 03/14/2018

    Thank you everyone. This is fantastic advice. I am covering the entire premium which negates the benefit of a lower deductible and therefore am going to go with the HDHP and HSA as recommended.

    #235806 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1903
    Joined: 02/01/2016
    Splash Refinancing Bonus

    Note: The benefit of an HDHP/HSA and making the maximum contribution exists regardless of whether you maximize your other tax advantaged accounts.

    The difference is that if you are NOT maximizing your tax-advantaged accounts, it is generally more beneficial to reimburse yourself for all qualified medical expenses and use that money to fund additional tax-advantaged contributions. The balance in the HSA can still be invested, but you will want to consider the likely distribution needs.

    The exemption from income and FICA taxes is obtained at time of contribution. Unreimbursed qualified medical expenses are fungible tax-free money. It only makes sense to use that money for additional contributions to other string-free tax-advantaged accounts.

    Likewise, the purpose of not reimbursing when you are maximizing your tax advantaged accounts. Is to effectively increase your tax-advantaged space.

     

    #235811 Reply
    Liked by Hank, jfoxcpacfp

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