How to Help With HSAS

Th­ese triple-tax-ad­van­taged sav­ings ac­counts can be great, but track­ing down the right one may in­volve sev­eral de­ci­sions.


Th­ese triple-tax-ad­van­taged ac­counts can be great, but track­ing down the right one may in­volve sev­eral de­ci­sions.

Not all HSA providers are cre­ated equal; huge vari­a­tions ex­ist in in­ter­est rates, fees and in­vest­ment op­tions.

Odds are your clients are strug­gling with higher insurance costs and wor­ried about in­cur­ring fu­ture med­i­cal bills. Here’s one op­tion ad­vi­sors can help them ex­plore: health sav­ings ac­counts.

Th­ese ac­counts, which are of­fered in com­bi­na­tion with high-de­ductible health insurance plans, pro­vide a unique op­por­tu­nity for clients to save. Bet­ter still, they af­ford triple tax ad­van­tages.

Widespread con­fu­sion about how th­ese ac­counts work, how­ever, can keep clients from es­tab­lish­ing HSAS or tak­ing full ad­van­tage of them. Un­for­tu­nately, ad­vi­sors are of­ten at sea as well, par­tic­u­larly in help­ing clients es­tab­lish their own ac­count out­side of an em­ployer.

“A lot of plan­ners fo­cus on in­vest­ments rather than insurance, so un­less they them­selves are pur­chas­ing in­di­vid­ual health insurance or have lots of clients who do, they’re usu­ally not very fa­mil­iar with in­de­pen­dent HSAS and don’t know in-depth de­tails about them,” says John Chan, a plan­ner with Alamo Insurance and Wealth Man­age­ment in San An­to­nio.

Be­cause HSA sav­ings en­joy triple tax ad­van­tages — con­tri­bu­tions are tax-deduct- ible, earn­ings ac­crue tax-free and tax-free with­drawals can be made for qual­i­fied med­i­cal ex­penses — fail­ing to help clients es­tab­lish their own HSA can be a big missed op­por­tu­nity.

“Ad­vi­sors I’ve spo­ken with know the ba­sics of an HSA, but I feel many ad­vi­sors un­der-stress HSAS with clients,” adds Stephen Jor­dan, a plan­ner with Cyr|wo­ertz Fi­nan­cial Group in Peo­ria, Illi­nois. “I think it is a re­ally im­por­tant tool.”

But ad­vi­sors who do have a solid grasp on HSAS can build client loy­alty. “Most clients did not know HSAS ex­isted, but were ex­cited they could get an ad­di­tional tax de­duc­tion,” Chan says. Those who did open HSAS “felt it was very ben­e­fi­cial and ap­pre­ci­ated that I brought the ac­count to their at­ten­tion.”

Here are a num­ber of key is­sues that ad­vi­sors should ad­dress with clients:

HSA El­i­gi­bil­ity

First, clients will need to con­firm that their health insurance plan can be paired with an HSA. For many, this will be fairly ob­vi­ous, as plan names will of­ten in­clude HSA in the ti­tle. But clients should

check with their in­surer.

“Try to dis­cour­age peo­ple from mak­ing such a de­ter­mi­na­tion on their own,” says Roy Ramthun, the pres­i­dent and founder of HSA Con­sult­ing Ser­vices.

To qual­ify for use with an HSA, the IRS says, a plan must have a min­i­mum an­nual de­ductible of $1,350 for in­di­vid­u­als or $2,700 for fam­i­lies and a max­i­mum an­nual de­ductible of $6,650 for in­di­vid­u­als and $13,300 for fam­i­lies.

Clients can­not have any other health insurance cov­er­age, be en­rolled in Medi­care or be cov­ered by an­other plan, say through their spouse, Ramthun says.

And they can­not be claimed as a de­pen­dent on some­one else’s tax re­turn. If they’re cov­ered by a high­d­e­ductible health plan that’s al­ready paired with a flex­i­ble spend­ing ac­count or health re­im­burse­ment ar­range­ment, they typ­i­cally can’t con­trib­ute to an HSA. For fur­ther help de­ter­min­ing if your client can open an HSA, con­sult IRS Publi­ca­tion 969.

En­cour­age clients to do this check as soon as they’ve joined a high-de­ductible plan. Any med­i­cal ex­penses they ac­cu­mu­late be­fore open­ing the HSA will not be re­im­bursable, even if they were in an el­i­gi­ble health insurance

plan at the time, says Paul Fron­stin, di­rec­tor of the Em­ployee Ben­e­fit Re­search In­sti­tute’s health re­search and ed­u­ca­tion pro­gram.

Where to Open an HSA

Hun­dreds of fi­nan­cial in­sti­tu­tions of­fer HSAS. But not all providers are cre­ated equal; big vari­a­tions ex­ist in in­ter­est rates, fees and in­vest­ment op­tions.

How your client in­tends to use the HSA will have a huge im­pact on which fea­tures should take top con­sid­er­a­tion. If they will be us­ing it to pay cur­rent med­i­cal costs, ac­count main­te­nance fees should be the main con­cern. Fea­tures like a debit card and easy online bill pay­ing are also worth look­ing into, Ramthun adds.

If, in­stead, the HSA will be used as an in­vest­ment ve­hi­cle to save for med­i­cal ex­penses in re­tire­ment, the fo­cus shifts to the plan’s in­vest­ment menu, the man­agers and fund fees.

An anal­y­sis by Morn­ingstar from 2017 of the 10 largest Hsa-plan providers found that Al­liant Credit Union was the best op­tion for clients us­ing an HSA for cur­rent spend­ing.

It also rec­om­mended Selec­tac­count (the com­pany has since changed its name to Fur­ther) and the HSA Au­thor­ity be­cause, like Al­liant, they of­fer check­ing ac­counts with­out monthly main­te­nance fees.

For those look­ing to in­vest HSA sav­ings, Morn­ingstar found that Healthe­quity was the only plan of­fer­ing “a well-de­signed in­vest­ment menu, strong un­der­ly­ing man­agers, and at­trac­tive fees.”

But it also rec­om­mended Op­tum Bank, the HSA Au­thor­ity and Bank of Amer­ica. All four plans had at least two of the three key fea­tures.

Only the HSA Au­thor­ity was rec­om­mended by Morn­ingstar as both a spend­ing and sav­ing ve­hi­cle.

Devenir of­fers a search tool that al­lows peo­ple to search through 519

plan providers by a wide range of cri­te­ria.

Fund­ing the HSA

If a client’s em­ployer is not as­so­ci­ated with the HSA, they may need to ask HR if it is pos­si­ble to have a por­tion of their pay or bonuses di­rected to it. If they can’t do that or are self-em­ployed, they will need to take a more ac­tive role in fund­ing the ac­count.

For 2018, those with in­di­vid­ual cov­er­age can save a max­i­mum of $3,450 in their HSA. For those with fam­ily cov­er­age, the con­tri­bu­tion limit jumps to $6,900. Clients who are 55 or older by the end of the year can sock away an ad­di­tional $1,000.

If your client joined a high-de­ductible plan dur­ing the year, they can still con­trib­ute the max­i­mum as long as they had cov­er­age by Dec. 1, un­der what’s known as the last-month rule.

When tak­ing ad­van­tage of that rule, clients must re­main on a high-de­ductible plan for all of the fol­low­ing year. Fail­ing to do so may mean they’ll have to claim “ex­cess” con­tri­bu­tions as part of their tax­able in­come and pay a 10% penalty tax on that sum.

Re­mem­ber that all fund­ing lim­its are re­lated to tax fil­ing sta­tus too, mean­ing that while spouses can each have their own HSA, the max­i­mum re­mains un­changed if they file a joint tax re­turn. For in­stance, a hus­band can put $4,000 into his HSA this year, but that means his wife can con­trib­ute only $2,900 to hers, so as a fam­ily, they still re­main un­der the $6,900 limit.

All con­tri­bu­tions made to an in­de­pen­dent HSA are still de­ductible from tax­able in­come, even if a client doesn’t item­ize.

For fam­i­lies with adult chil­dren still on the fam­ily health plan who file their own in­de­pen­dent tax re­turns, this presents a chance to fully fund two HSAS connected to the same insurance cov­er­age, Ramthun says. A client and adult child can each open an HSA and each stash the full $6,900 in it this year. Happy news for broke chil­dren: the fund­ing can come from some­one be­side the ac­count owner. Bad news: par­ents can’t use their HSA to cover an in­de­pen­dent child’s med­i­cal costs.

“Con­tri­bu­tions can be put in as a lump sum or be spread out over the course of the year,” Ramthun says. “But if they want the tax de­duc­tion, they need to make sure the money is in the ac­count be­fore the April tax dead­line, though I urge peo­ple not to wait that long. If they want to wait to see how much med­i­cal ex­penses they ac­tu­ally in­curred and use it as a cash ac­count, they should still put the funds in by the end of the year.”

All con­tri­bu­tions made to an in­de­pen­dently opened HSA are still de­ductible from tax­able in­come, even if a client doesn’t item­ize. The tax break just won’t be re­al­ized un­til a client com­pletes their tax re­turn and files IRS Form 8889. That said, work­ers will typ­i­cally lose out on FICA tax ben­e­fits on their con­tri­bu­tions, Fron­stin adds.

If Clients Al­ready Have HSAS

Clients who have HSAS but then join an em­ployer that of­fers dif­fer­ent ones have two op­tions. They can keep both ac­counts or close the one they opened in­de­pen­dently and move the funds to the work-re­lated HSA.

They should not, how­ever, opt out of the work-re­lated ac­count, Ramthun ad­vises. They’ll need to leave it open to re­ceive em­ployer HSA con­tri­bu­tions.

Rather, if a client wants to keep the orig­i­nal HSA, they should opt to do a trustee-to-trustee trans­fer once or twice a year, Ramthun says. “You can move the money be­tween HSAS as of­ten as you want, but I would limit it as there can be fees in­volved.”

Also, be care­ful not to roll the money over. Tak­ing money out of an ac­count and into your pos­ses­sion only to de­posit it in an­other ac­count must be done in 60 days and can be done only once a year, as with an IRA. FP

An es­sen­tial start­ing point for clients is to de­cide whether the HSA is mainly an ac­count to pay cur­rent med­i­cal costs or an in­vest­ment ve­hi­cle to save for med­i­cal ex­penses in re­tire­ment.

Source: Devenir Re­search

Source: Devenir Re­search

Share of Dol­lars Placed in In­di­vid­ual HSAS Em­ployee ac­counts dom­i­nate the sec­tor

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