School me on HSAs

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If you have a HDHP, absolutely.

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Does that stand for High deductible health plan?

If so, I have the highest deduct that my company offers- $700 annual deductible.

I guess that means I need to come $700 out of pocket in a given year before insurance kicks in right?

Surely you forgot to type another zero??

It doesn't.

You have a PPO that doesn't qualify.

To me, HSAs are the best tax advantaged vehicle you can find. You can potentially not pay taxes on any money going into an HSA (provided you spend on a qualified medical expense). Furthermore, after age 65, an HSA is treated like a traditional IRA for non-medical related withdrawal (no 20% penalty).

$700 isn't a high deductible - if your looking for tax advantages you would be better off maxing out an FSA just make sure you spend it all - your health plan probably won't qualify for an HSA, and it also has to be offered through your employers benefits to enroll.

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IRAs don't have a 20% penalty either.

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HSAs do if you take a non-medical distribution before the age of 65, which is higher than a traditional IRA (10%). However, at age 65, non-medical distributions from an HSA and an IRA are treated the same.

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To me, HSAs are the best tax advantaged vehicle you can find.

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Annuities are tax-favored: you pay taxes going in and coming out, but the earnings grow tax-deferred.

IRAs and other qualified plans are double tax-favored. Growth is tax deferred, and depending on the plan, money going in or coming out is tax free.

HSAs are triple tax-favored. Earnings grow tax-deferred, tax-free money going in, and if the money is used for medical expenses, it's tax free coming out.

The rub is you have to have enough money to fund it, and enough time to let it build up.

That's what caught me a few years ago. Wife's school district forced everyone onto an HDHP. $5,000 family deductible, district put in $1,000, and we set up to put in $333.33 per month.

Three weeks into January, kid ended up in the hospital for two days, $17,000 bill. Met entire deductible, the HSA had $1,333.33 in it, so had to write a check for $3,666.67. Then, had to pay another $2,400 in co-insurance for the 20 percent due (our out of pocket total including deductible was $8,000).

Didn't pay much for medical bills the rest of the year, but that made a huge dent in our savings. They did let us continue to turn in proof of medical bills to the HSA each month, so even though our contributions continued, we pulled them right back out and put the cash into savings.

Eventually, we were fine, but that was a heck of a shock to the finances at first.

What really sucked is, if our old PPO plan would still have been available, out total out of pocket cost would have been $600 - $250 per day for the hospital, plus another $100 in doctor co-pays.

No problem. Glad to learn a little about HSAs now. Didn't know anything about them before this