April is financial literacy month. While I said I wasn’t going to be turning this into a personal finance blog, and while I do have other things to write about, this kick-start back to blogging with finance-related posts has really been helpful to me, and I will probably focus more on it than I intended right now. Thanks for reading!
We literally just opened our HSA a couple of weeks ago with $100 (which I promptly spent ordering contacts!). Honestly, I’m concerned what effect this will have on our budget since the pre-tax HSA contribution will decrease Joshua’s paycheck. It will take a little while to build up some reserve in the account, and in the meantime, I’m still paying OOP for medical expenses.
What’s great about an HSA, is not only can we pay for straight medical, dental and vision expenses, but I can use it to pay for health-related items including prescriptions, over-the-counter drugs, and first aid supplies, like Band-Aids. And with two small children in the house, we use a LOT of Band-Aids! It’s not without a learning curve, as I’ll have to figure out how to submit things for reimbursement - like the check I just wrote to cover Mary Judah’s labwork.
The maximum allowable we can contribute to an HSA this year is $5,950. Over 12 months, that would come to about $496. Since our first contribution will be this month, we could divide that instead by nine months, for about $661.
We’re not going to contribute the maximum to the HSA. Not only do I doubt we could afford that anyway, but because I first want to see how it affects our budget. We’re going to start with $250 a month.
The difficulty I’m having is this:
Joshua’s paycheck is not static right now — it went up slightly due to the stimulus package, but it will go down due to the rise in his insurance premium, beginning this month. The HSA contribution will also begin this month. As a result, I have no idea how much our new budget will be, since our take-home pay will be much lower. So I don’t want to over-contribute to our HSA until I see what happens.
I currently have $930 worth of reimbursable expenses to submit once we have money in the account. If I can factor in expenses from this year that occurred before we opened the account, then I have almost $2,750 of expenses. Can I do that?
I have a dental visit coming up in two weeks, and we should be getting Mary Judah’s hospital bill any day now, now that it’s been processed by insurance. I could also use a new pair of glasses. If I factor in all of those things, it will take over 13 months worth of contributions at $250 a month! Never mind any other upcoming medical and dental visits we have.
On the other hand, that money has already been spent. Is it worth trying to get the reimbursement? Should I concentrate on making sure the HSA money is there for our future expenses, or should I try to submit all these reimbursements?
If it turns out that we can afford to contribute more, then we will. Right now I’m cautious, especially since we only have half a month’s worth of emergency fund while we’re in a recession. If Joshua got laid off, we’d pretty much be screwed.
I want to be smart and build up our HSA and our emergency fund, and pay off our car, but I don’t even have a real idea of what our finances will be by the end if the month. I’ve tried to go ahead and make provisions in the budget, anticipating the decrease in take-home pay, but I feel like our wheels are spinning and we’re getting nowhere.
Any suggestions?
I don’t know if you can get reimbursed for expenses that occurred before you opened the HSA or not, but my advice is, if it’s money that’s already gone and forgotten, don’t bother. It sounds like you will not contribute enough to cover every single little health related purchase for the near future, so you have to decide for which ones the HSA can make your life simpler.
For us, the HSA seems to work best as a sort of “rainy day” fund. I don’t use ours for 1st aid and over the counter stuff, since those kind of items are a part of our every day grocery expenses. I do use it for prescriptions and visits to the doctor’s office, because those are the expenses that occur at irregular periods and can put an unplanned dent in the monthly budget. Now, no more dent. Smooth sailing.
I don’t worry about the taxes we might have saved by purchasing band-aids and the like on the HSA. There is only a certain amount in the HSA (and since we are no longer able to contribute, it’s a fixed amount that is running out). Unless you believe that you will be on a high-deductible plan forever, you will one day be in this situation as well. We will use the entire amount eventually and therefore will save the same amount in taxes over time. Or more, if taxes go up between now and then.
Find out from your insurance provider if you can get a debit card that is tied to your HSA. We have one. We just pay with the card and it gets automatically reported back. We don’t have to deal with receipts and paper work. Just don’t use it for any purchase that is not HSA eligible, and you’re good to go.
Holley,
Do you mean that y’all have already contributed the max for the year? Is that why you can’t add anymore? From my understanding, and correct me if I’m wrong, but there’s an annual max that you can contribute, and that money can roll over to next year if you don’t spend it. Can you then re-contribute the max for next year, or does the rollover money count toward next year’s max? Does that make sense?
I was thinking I probably wouldn’t go back and try to recoup expenses before the account was opened and just work from here forward. With four people, we have a lot of annual visits (eight for the dentist - two for each family member, one vision for me plus corrective lenses, two well-child exams, and my annual, plus any sick visits). They add up fast.
Throw in Joshua’s crown (or mine, two years ago) and Mary Judah’s ER visit, and wow. There you go. We’re also trying to save up for a vasectomy, which I was hoping we could do this year, but I don’t know if we can at this point.
Oh, and we do have a debit card for our HSA, which is very helpful.
You can only contribute if you are on a High Deductible Health Plan, and we aren’t anymore. We had to switch when the premiums skyrocketed.
We never contributed the max, but even if you drop the insurance plan that the HSA was connected to, you take the HSA itself with you. You just can’t contribute anything additional to it anymore. So if you have $1,000 in the HSA when you drop the insurance, you still have $1,000 sitting there for your future use, whenever you need it. So that’s where we stand right now.
Each year you can make up to the max contribution, even if you have money left over from last year. Ideally, you stay on it forever and build up savings over time. At retirement, you can even use the money for non-medical expenses I believe. So it becomes kinda like a 401k at that point.
Last paragraph should say, “While you are still on the High Deductible Health Plan, each year you can…”
One word of advice: Save any/all potentially applicable receipts, even if you use the very-convenient debit card. Some HSAs are really aggravating and demand documentation on even very self-evident debit card expenses (like office visit co-pays!)… other plans are more reasonable. You strike me as someone who does that anyway.
Also, if you think about it, it really doesn’t matter if you submit everything (small and large) as you go b/c it’s pre-tax, use-it or lose-it. So, use it as long as it’s for things you’d need anyway. If you have extra expenses after your account has been spent, you’d have spent it anyway post-tax. And I KNOW that you’re someone who only buys stuff when needed!
We tend to over-estimate how much we’ll use for our HSA each year, then scramble at the end of the eligible period (often into the next calendar year, so check your plan!) for contacts… new glasses… an optional/overdue trip to the dermatologist or whatever. So you could make a “fluff” list JUST IN CASE you do have leftover funds. DON’T lose the money they’ve already withheld from you!
Laura,
There’s an envelope in the desk labeled “Health Care Receipts 2009″ that contains all our receipts, with the health care item highlighted in bright yellow and circled in fine-point pen. : ) Don’t even get me started on how I keep track of my grocery receipts. I blame you; it’s all your fault.
Can you “lose” money in your HSA? If we don’t use it this year, doesn’t it roll over to next year? So how would we lose it? Are you scrambling to find expenses, or to fund it? I mean, if we don’t use it, there’s just that much more
for me to cut off my husband’s balls with!
Kristen,
According to http://www.irs.gov/publications/p969/ar02.html#en_US_publink100038736
“The contributions remain in your account from year to year until you use them.”
Now, that’s probably a generic so you might want to double check your plan documents, but I’d venture to say you keep the money.
I think Laura may have been confusing an FSA with an HSA. We actually have both. With an FSA, it is a “use it or lose it” scenario, and we only use that for dental and eye stuff. In an HSA, your money stays there until you use it (hopefully in an interest-bearing account–does yours get interest?). We contribute about $5K per year to our HSA, and a good portion of it gets sucked up each year. It’s amazing how much money gets spent on medical stuff, and we are a pretty healthy family.
Your money in an HSA WILL keep rolling from year to year until you spend it on qualified expenses.
Per the note about being able to use an HSA post-retirement for non-medical expenses, that’s true. After age 65, you can use the money in an HSA for non-medical expenses, but it will be taxed. If it’s used for medical expenses, it’s not taxed. If you use it for non-medical expenses BEFORE the age of 65, you’ll be taxed AND incur a 10% penalty.
Per the note about using an HSA to pay for expenses you incurred before you set it up, that’s a no-go.
Clear as mud, right??
You know what else I just found out - while HSA’s are not subject to FEDERAL taxes, ours IS subject to California state taxes! i have no idea how that’s supposed to work, but what a logistical nightmare.
A good tax prep software will take care of that adjustment for you on the Schedule CA. And, as a matter of fact, the company that processes payroll for Joshua’s employer ought to be able to take that into account and not lower the state tax withholding for CA.