How much should I put in our HSA per year?

September 11, 2012 2:17 PM

How much should I put in our HSA per year?

I'm just signing up my husband and son to new health insurance (I have my own separate insurance) and am wildly guessing as to how much to set aside in the HSA. Can you give me a range of dollar amounts?

Should it be close to the deductible amount ($2600)? Am I correct in that, unlike an FSA, the money rolls over from year to year?

My husband is 40 and healthy, my son is two weeks old and healthy. Vaccinations and yearly check-ups are covered and outside the deductible. (I anticipate regular check-ups for my son, but as this is our first child, I don't know how frequently those are.)

We are in Oregon. Thanks.

posted by Specklet to Health & Fitness (25 answers total)

For my HSA it does not roll-over year to year (you have til like March of 2013 to make 2012 claims, though). Me, my husband and my 22-month-old: YMMV but I put in $750 and still have about $100 left at this point. I put in that much because I needed new eyeglasses/prescription sunglasses. They changed the rules this year so a lot of the OTC stuff like sunscreen, Advil, etc is no longer covered, which reduces the value for me as far as what I would use it for. On the other hand, if stuff pops up it's easy to burn through it...like a $100 ER co-pay if your kid runs a high fever on the weekend, etc. I wouldn't max it unless you know you have big, regular expenses, but having $500-$1000 in, you could probably go through it in 15 months just on basic things, plus the occasional unexpected event.
posted by handful of rain at 2:25 PM on September 11, 2012

Our HSA DOES roll over (unlike an FSA) and I put in what I think my annual expenses will be (Rxs, glasses, co-pays, etc.) Now that I'm doing an expensive office procedure, I kind of wish I had put in a bit more.

Our company puts $250 a year in in January, which helps for budget. I put in $50 per pay period and I'll change that to $100 until I have enought to cover the deductable PLUS my usual expenses.
posted by Ruthless Bunny at 2:31 PM on September 11, 2012

I put in the max (about 2600) for me and my husband, but then just getting a pair of glasses in my special magic prescription costs $800, and I usually have to get 3 pairs (regular, computer, and sunglasses).

Check whether it rolls over or not on the plan website, because that makes a big difference. Mine is an FSA and it does not roll over.
posted by matildaben at 2:42 PM on September 11, 2012

I've just confirmed: it WILL roll over. We can also contribute to it any time... So maybe I'll just put in $500 for now? ($85-ish per pay period.)
posted by Specklet at 2:48 PM on September 11, 2012

If you can contribute more any time, that might really be nice...depending on how yours works, if a big expense crops up can you pay it out of pocket and then apply to be reimbursed later? Then you could contribute more once you know more is needed. Seems like that would be the best of both worlds.
posted by handful of rain at 2:52 PM on September 11, 2012

I think the key question is how the health insurance covers your husband and son in various situations. The intent of such plans, especially when paid paired with high deductible insurance, is to build up a certain amount of savings in the account so as to be able to afford your side of the costs if a catastrophic health event occurs. That's why it is a savings account instead of a FSA. What does your insurance pay after reaching the deductible? In other words, if your husband, unfortunately, needs to be hospitalized for a week and/or have major surgery, what kind of out of pocket costs will you have? You can then plan your HSA contributions to provide a form of tax-free savings to prepare for these expenses.

Keep in mind also that you may be able to run dental expenses, prescription co-pays, eyeglasses and eye exams, and the like through your HSA and get the money tax-free.
posted by zachlipton at 3:00 PM on September 11, 2012

I had put in $15 per pay period or $390 a year, which, in a given year, typically left me with money at the end of the most years to buy glasses. This year is the first year I've been married and we ran out of that mid-year. So I would suggest $300-$400 per person.

Ours is use-it-or-lose-it so I'd rather have to pay out of pocket than have funds left over.
posted by kindall at 3:02 PM on September 11, 2012

I'm in oregon, but don't have an HSA option. Used to, but the new employer is unionized and they hate these things. I didn't mind but whatever.

From what I've gathered, you really want to balance 2 somewhat conflicting goals:

1. Having enough money to cover any medical expenses that come up.
2. Paying as little as possible (in fees and opportunity costs) for the privilege of holding your contributions in an account.

What that means is you want to target having a year's deductible at least in there. Not enough and you risk losing some tax advantages. Too much and you're basically saving for retirement poorly. So front load contributions now, then you set next year's contribution rate to target having a full deductible next year.

Also you need to follow the rules on qualifying expenses as they seem to change regularly. Child care is a common thing, and all I know about it is that if you want to pay for childcare in a tax advantaged account, it's possible but complicated. Like, maybe FSAs only?
posted by pwnguin at 3:02 PM on September 11, 2012

It's not crazy to use an HSA for retirement savings. If you can afford it, and benefit from the tax deduction, there's no reason not to put in the maximum.
posted by alexei at 3:36 PM on September 11, 2012

I just started with an HSA/HDHP this year, and my intention is to max it out each year that I can afford to. The money rolls over, and you can always make penalty-free and tax-free withdrawals from the HSA for qualified medical expenses even after you switch back to a traditional health insurance plan (in case you're worried about that possibility), so it's not like the money is ever lost.

In any case, it's best to make your HSA contributions via pre-tax payroll deduction through your employer, as opposed to after-tax contributions you send in yourself (via check or EFT). Yes, you can deduct those after-tax contributions from your federal (and most state) income taxes, but when your contributions are made by payroll deduction, you also benefit from lower FICA (Social Security & Medicare) taxes. There is no way to obtain this FICA tax benefit except through payroll deduction.
posted by Nothlit at 3:56 PM on September 11, 2012

Regarding HSA opportunity cost: Some HSA accounts* have monthly account fees. If yours does, that hampers its use as a savings vehicle. That is, if your fees are beating your tax savings gain, find a different HSA provider!


* Mine was $5 / month. [shakes angry fist at the sky!]
posted by gregglind at 3:56 PM on September 11, 2012

I spoke to the HR administrator and asked for advice on this and they also told me about using the HSA as a retirement account.

Based on our conversation we set up to put the amount of the deductible (which is about the same as yours, $2500) in the account per year.
posted by treehorn+bunny at 4:01 PM on September 11, 2012

Unless you expect to have large medical bills over the next few years, you will do much, much better to put any spare income into your 401k before putting any more than your expected annual medical expenses (checkup, dental cleaning, eye exam plus a pair of glasses, gyno visit if applicable) into your HSA. Good news, though, the IRS might allow us to use HSA funds for OTC drugs and supplies again as of next year. Woo-hoo! There goes another 40 bucks a year pre-tax! ;)

Although the IRS allows you to invest your HSAs similarly to your 401k, I know of no HSA plans that actually work as more than a savings account (ie, 0.2% interest, and no I didn't misplace the decimal). They probably exist, but we-the-99% don't have 'em.

If, however, you've already maxed out your 401k contributions (17k this year), you can keep a few more bucks (3.1k) away from Uncle Sam's fat fingers by maximizing your HSA contribution as well.
posted by pla at 4:10 PM on September 11, 2012

Thanks, everyone. I marked a few as best answers, but every answer was helpful.
posted by Specklet at 5:00 PM on September 11, 2012

All the above is true and valid. I personally put the maximum amount in every year so far (for individuals, $3100, for families, $6250 for tax year 2012). This helps me in three ways:

1. Now, I have enough to cover the deductible (mine is outrageously high) if something catastrophic happens.
2. My personal contributions to the HSA give me a tax break - that break has saved my tax bill several times.
3. I now have enough in the account that the interest pays for any fees the account requires. There's no monthly fee once your balance is over a certain amount. The interest rate for my account is currently 0.49%, which isn't great but is better than someone else mentioned. My account is through HSA Bank (http://www.hsabank.com), who I recommend.


Considering your situation, I'd say putting in the amount of your deductible would suit your needs. You've got until tax day of 2013 to make contributions for tax year 2012, which gives you about 8 months.
posted by Lately Gone at 5:03 PM on September 11, 2012

Although the IRS allows you to invest your HSAs similarly to your 401k, I know of no HSA plans that actually work as more than a savings account (ie, 0.2% interest, and no I didn't misplace the decimal). They probably exist, but we-the-99% don't have 'em.

FWIW, my HSA account at HSA Bank offers a brokerage account option through TD Ameritrade and the ability to invest in selected mutual funds through DEVENIR.
posted by roomwithaview at 5:44 PM on September 11, 2012

Unless you expect to have large medical bills over the next few years, you will do much, much better to put any spare income into your 401k before putting any more than your expected annual medical expenses (checkup, dental cleaning, eye exam plus a pair of glasses, gyno visit if applicable) into your HSA.

This is not necessarily correct for the following important reason. Money put into a 401k is not taxed on the way in (it is pre-tax dollars), but it (and earnings) are taxed on the way out (it is counted as income when withdrawn). However, money put in a HSA is not taxed on the way in or the way out, as long as it is spent of health expenses when withdrawn. So it avoids taxes in both directions, which is potentially a huge advantage. This is assuming your HSA account offers access to mutual funds, as mentioned by roomwithaview.
posted by notme at 5:53 PM on September 11, 2012

For my HSA it does not roll-over year to year (you have til like March of 2013 to make 2012 claims, though

By definition, an HSA does roll over. In fact, the term isn't even correct. You don't say your checking account rolls over every year, and an HSA is entirely your bank account. Neither your employer, health insurance provider, or anyone else can take money out of it.

I think some people are confusing an FSA (flexible spending account) with an HSA (health savings account). All FSAs are use-it-or-lose-it each year and all HSAs "roll-over" like a checking account.
posted by notme at 6:02 PM on September 11, 2012

I would put in enough to cover your deductible, and then whatever money you want to spend on healthcare that's not covered by your health insurance (say, dental work).

That said, it is my understanding (I am not a lawyer or tax professional) that you do not need to put money into the HSA before you use it to get the tax advantage. For example, let's say you have no money in your HSA, and then you have $1000 of medical expenses. You could put the medical expenses on your credit card, keep the receipts, and then deposit and immediately withdraw $1000 from your HSA later (possibly years later) to get the tax advantage.

As with any advice found on the Internet, take this with a grain of salt. If you plan to do this, you should probably call the IRS and ask them, or ask a tax professional.

You should shop around for an HSA account. You'll want one with no fees, and hopefully a decent interest rate.

There's a list of HSA accounts at the Fat Wallet HSA FAQ thread, but it's hardly complete. My HSA is with the San Francisco Fire Credit Union which has no fee and 1.11% APY, which is better than Ally. (But, it's not FDIC insured.)
posted by danielparks at 7:12 PM on September 11, 2012

Generally speaking, as much as you possibly can.

Here's the thing: you're generally allowed to put in as much as you need to meet your deductible for the year. But if you're going to meet your deductible, odds are really good that you're going to exceed your deductible with various out-of-pocket costs, e.g., a new pair of glasses, dental work, OTC medications and first aid supplies, etc. Unless you've got money socked away from previous years, you're going to wind up spending money post-tax instead of pre-tax, which will cost you whatever percentage your income dictates.

you do not need to put money into the HSA before you use it to get the tax advantage.

This is correct, but note that this doesn't have any effect on your annual contribution cap.
posted by valkyryn at 7:29 PM on September 11, 2012

You should shop around for an HSA account.

Wait, the one I'm looking at is through my husband's employer, and I thought it was part of the health insurance package. Should I be looking at getting one on our own?

And what happens to this account when my husband changes jobs? Will we still be able to contribute to it?
posted by Specklet at 7:35 PM on September 11, 2012

I thought it was part of the health insurance package. Should I be looking at getting one on our own?

It is and it isn't. You're not allowed to sign up for an HSA just because. You also need to be enrolled in a high-deductible health plan. If you don't have insurance, or you have a traditional health insurance plan, you are not eligible for an HSA. So in that sense, it is "part of the health insurance package."

But it is not actually the same financial product. Health insurance is provided by insurance companies, but HSAs are provided by banks. Most banks do not write health insurance,* and most health insurers do not act as depository institutions. So if you've got an HDHP, you've got both a health insurance company who provides the benefits and a bank that manages the HSA. They're rarely the same entity.

Many employers have an arrangement with a bank to manage their employees' HSAs. If you're eligible for an HSA, you can sign up for one wherever--assuming your employer is willing to play ball--but if it isn't something your employer has set up, you may be charged a monthly fee. If it is your employer's bank of choice, the bank has probably agreed to waive those fees because they're guaranteed a lot of business, or because the employer is just paying them.

With HSAs you get directly, fees are entirely dependent upon the bank. Some charge a fee every month, some waive the fee if you maintain a certain balance, some waive it if you also sign up for their checking and use direct deposit, etc. Highly variable. But if your employer has a designated bank that they use, you're probably best off just going with that one. The extra $10 or whatever you might maybe be able to score by going elsewhere is probably not worth the hassle.

Regardless, interest rates are in the toilet right now, to the point that going somewhere other than your employer's bank may well cost you more than any extra you earn in interest.

*Many banks sell a full range of insurance products, but they're generally just repackaging policies underwritten by a third-party insurance companies. The insurance companies are more than happy to get the benefit of the bank's sales and marketing efforts, and the bank takes a cut of the premium as commission. You were going to pay that commission anyway, so it doesn't matter to you. But in all but a very few circumstances, the policy is written by an entity other than the bank itself.
posted by valkyryn at 7:59 PM on September 11, 2012

And what happens to this account when my husband changes jobs? Will we still be able to contribute to it?

Nothing much. It's still there. If the employer was paying your fee, you'll have to pay that now, but the money doesn't go anywhere unless you say so.

If your new employer has a different preferred bank, there's a mechanism whereby you can transfer money from one account to another without it counting as a withdrawal and deposit.

Of course, if you lose your eligibility--say going from an HDHP to a traditional plan, or lose your coverage entirely--that's an issue. You stop being able to contribute to the account. But the money stays there and can be spent as if nothing had changed.
posted by valkyryn at 8:02 PM on September 11, 2012

You can get an HSA Account at any bank that offers one. You just direct your deposits to the appropriate account. I have one with NO fees at First American Bank.

They issue you a Master Card debit card and you use that for your medical expenses, co-pays, etc.

The bank has been super-easy to deal with and everyone there is really nice.

I live in Georgia, the bank is in Illinois, I believe.
posted by Ruthless Bunny at 6:44 AM on September 12, 2012

That said, it is my understanding (I am not a lawyer or tax professional) that you do not need to put money into the HSA before you use it to get the tax advantage. For example, let's say you have no money in your HSA, and then you have $1000 of medical expenses. You could put the medical expenses on your credit card, keep the receipts, and then deposit and immediately withdraw $1000 from your HSA later (possibly years later) to get the tax advantage.

In addition to what Valkyryn said, remember, though, that the expense can't be incurred before the HSA was established.

Notice 2004-2, 2004-2 IRB 269 -- IRC Sec(s). 223, 12/22/2003

Q-26. What are the “qualified medical expenses” that are eligible for tax-free distributions?

A-26. The term “qualified medical expenses” are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in section 213(d) (including nonprescription drugs as described in Rev. Rul. 2003-102, 2003-38 I.R.B. 559), but only to the extent the expenses are not covered by insurance or otherwise. The qualified medical expenses must be incurred only after the HSA has been established. For purposes of determining the itemized deduction for medical expenses, medical expenses paid or reimbursed by distributions from an HSA are not treated as expenses paid for medical care under section 213.


posted by Pax at 11:48 AM on September 12, 2012