HSA contributions per pay period/or on own
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HSA contributions per pay period/or on own
My company is switching benefit plans and I know have the option of contributing to my HSA per pay period via a pre-tax deduction in my paycheck.
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
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Re: HSA contributions per pay period/or on own
If it's deducted from payroll, it's not subject to social security taxes. If you contribute independently, it's after social taxes are already deducted.
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Re: HSA contributions per pay period/or on own
Also medicare taxes.Independent George wrote: ↑Mon Dec 06, 2021 7:27 pm If it's deducted from payroll, it's not subject to social security taxes. If you contribute independently, it's after social taxes are already deducted.
Can you set your payroll deductions to be high at that you max out early in the year?
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Re: HSA contributions per pay period/or on own
Via payroll will reduce your FICA (7.65%) tax, so that’s significant. However, if your income is over $147k, you’ll only save the Medicare portion (1.45%).
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Re: HSA contributions per pay period/or on own
It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Re: HSA contributions per pay period/or on own
See Payroll deduction on the wiki. Avoiding SS taxes may be a mixed blessing, as it reduces future SS benefits.Independent George wrote: ↑Mon Dec 06, 2021 7:27 pm If it's deducted from payroll, it's not subject to social security taxes. If you contribute independently, it's after social taxes are already deducted.
Re: HSA contributions per pay period/or on own
Pay attention at your next open enrollment. You may find the option to contribute a fixed amount allowing you to front load the HSA.
Re: HSA contributions per pay period/or on own
My employer allows HSA payroll contributions to be changed at any time. By default it’s split across the entire year, but I’ve been able to modify it so that it is completed in the first month of the year.
My employer also provides a contribution that’s automatically deposited in their providers HSA account. So, each January I initiate a transfer to Fidelity once the maximum contribution for the year is in the account.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Re: HSA contributions per pay period/or on own
That amounts to almost a 3 % expense on a 20,000 portfolio. Of course it's an 8 % expense on your contribution. This would be slightly offset by an increase in SS benefits. To each his own.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Re: HSA contributions per pay period/or on own
Be aware of potential tax penalty implications of front loading an HSA if you become ineligible for an HSA later in the year.TurksandCaicos01 wrote: ↑Mon Dec 06, 2021 7:22 pm My company is switching benefit plans and I know have the option of contributing to my HSA per pay period via a pre-tax deduction in my paycheck.
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
https://20somethingfinance.com/should-y ... ributions/
Cheers.
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Re: HSA contributions per pay period/or on own
Good point. DW has a larger HSA from previously being the one with the family HDHP plan so now me contributing to my employer HSA and also wanting a Fidelity HSA (most assets at Fidelity) means 3 HSAs instead of 1 since you can't rollover/transfer between spouses. Since we reimburse medical expenses from our HSA, we opted for the simplicity of a single HSA at the higher expense.bberris wrote: ↑Tue Dec 07, 2021 6:45 amThat amounts to almost a 3 % expense on a 20,000 portfolio. Of course it's an 8 % expense on your contribution. This would be slightly offset by an increase in SS benefits. To each his own.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Re: HSA contributions per pay period/or on own
Check the math; it is unlikely to be just "slightly offset". Even if you are over the second bend point for Social Security, it's close to break-even; the increased SS payment gives you an inflation-linked annuity which is worth about as much as the amount you paid.bberris wrote: ↑Tue Dec 07, 2021 6:45 amThat amounts to almost a 3 % expense on a 20,000 portfolio. Of course it's an 8 % expense on your contribution. This would be slightly offset by an increase in SS benefits. To each his own.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Re: HSA contributions per pay period/or on own
I read the Wiki article that you linked above. Just to clarify, the $550 FICA tax saving now (7200 * 7.65%) would be slightly break-even to the SS payment in the future? Does that take into account the $550 would be invested in a taxable 60/40 portfolio for 30 years?grabiner wrote: ↑Tue Dec 07, 2021 8:13 amCheck the math; it is unlikely to be just "slightly offset". Even if you are over the second bend point for Social Security, it's close to break-even; the increased SS payment gives you an inflation-linked annuity which is worth about as much as the amount you paid.bberris wrote: ↑Tue Dec 07, 2021 6:45 amThat amounts to almost a 3 % expense on a 20,000 portfolio. Of course it's an 8 % expense on your contribution. This would be slightly offset by an increase in SS benefits. To each his own.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Time is the ultimate currency.
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Re: HSA contributions per pay period/or on own
Why would one become ineligible mid year?dcabler wrote: ↑Tue Dec 07, 2021 6:46 amBe aware of potential tax penalty implications of front loading an HSA if you become ineligible for an HSA later in the year.TurksandCaicos01 wrote: ↑Mon Dec 06, 2021 7:22 pm My company is switching benefit plans and I know have the option of contributing to my HSA per pay period via a pre-tax deduction in my paycheck.
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
https://20somethingfinance.com/should-y ... ributions/
Cheers.
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Re: HSA contributions per pay period/or on own
For example, losing or changing a job such that you are no longer enrolled in an eligible HDHP.TurksandCaicos01 wrote: ↑Tue Dec 07, 2021 7:58 pmWhy would one become ineligible mid year?dcabler wrote: ↑Tue Dec 07, 2021 6:46 amBe aware of potential tax penalty implications of front loading an HSA if you become ineligible for an HSA later in the year.TurksandCaicos01 wrote: ↑Mon Dec 06, 2021 7:22 pm My company is switching benefit plans and I know have the option of contributing to my HSA per pay period via a pre-tax deduction in my paycheck.
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
https://20somethingfinance.com/should-y ... ributions/
Cheers.
Re: HSA contributions per pay period/or on own
As I usually do in this type of calculation, I use returns on low-risk assets for a fair comparison. The fact that you hold 40% of your portfolio in bonds implies that you have some risk aversion. You would get a higher expected return if you bought stocks instead of those bonds, but that is not worthwhile for you, because of the additional risk.H-Town wrote: ↑Tue Dec 07, 2021 9:53 amI read the Wiki article that you linked above. Just to clarify, the $550 FICA tax saving now (7200 * 7.65%) would be slightly break-even to the SS payment in the future? Does that take into account the $550 would be invested in a taxable 60/40 portfolio for 30 years?grabiner wrote: ↑Tue Dec 07, 2021 8:13 amCheck the math; it is unlikely to be just "slightly offset". Even if you are over the second bend point for Social Security, it's close to break-even; the increased SS payment gives you an inflation-linked annuity which is worth about as much as the amount you paid.bberris wrote: ↑Tue Dec 07, 2021 6:45 amThat amounts to almost a 3 % expense on a 20,000 portfolio. Of course it's an 8 % expense on your contribution. This would be slightly offset by an increase in SS benefits. To each his own.classicindexer wrote: ↑Mon Dec 06, 2021 9:46 pm It also depends what your employer HSA provider requires the minimum cash balance to be before you can start investing and what investment options they offer. I opted to forgo the $550 tax benefit to just have a single HSA at Fidelity post-tax and not deal with rollovers or transfers from the employer HSA over to the Fidelity HSA.
Since SS is inflation-linked, the fair comparison is investing in long-term TIPS or I-Bonds. If you buy those, you get a guaranteed inflation-adjusted return when they mature. If you pay extra SS, you also get a guaranteed inflation-adjusted return in higher SS benefits. (You don't need to invest in specifically those bonds, but whatever bonds you do invest in give you an appropriate trade-off of risk versus return.)
Currently, the yield on a 30-year TIPS is negative, and the yield on an I-Bond is zero for 30 years but you will owe federal tax on the gain. But assuming a zero real yield, and assuming you are over the second bend point, paying an extra $214 increases your Primary Insurance Amount by $1 monthly, adjusted for inflation. Thus, if you take SS at full retirement age (67 for you), then you break even if the benefits last 214 months, which is 18 years. This may be more or less than the expected benefit time, depending on whether you are the higher-earning or lower-earning spouse, and the age difference.
Taxes also factor in. If saving the FICA tax allows you to contribute more to your 401(k) or Roth IRA, then the reduced FICA tax is a tax-deferred or tax-free benefit; otherwise, it is a taxable benefit. The increased SS will be 85% taxable when paid, which is significantly worse than a 401(k) or Roth IRA, but probably better than a taxable account since the tax on the increased SS is deferred until you take it.
Re: HSA contributions per pay period/or on own
Correct! I'm currently with the first employer I've ever had with an HDHP plan with HSA eligibility. When I started working there, it was mid year and I maxed out an entire year's contribution by year's end. For me it was a pretty safe bet that I wouldn't be let go or would quit after a few months. But when January rolled around, I set it up to be spread evenly over the year to avoid any hassles. I do, however, front load my 401K and have been doing that for years - mainly because in my industry, layoffs tend to happen in the second half of the year and I wanted to layoff proof my 401K contributions. Just need to make sure the checking account has sufficient funds to get us through the first couple of months of the year.BrokerageZelda wrote: ↑Tue Dec 07, 2021 8:07 pmFor example, losing or changing a job such that you are no longer enrolled in an eligible HDHP.TurksandCaicos01 wrote: ↑Tue Dec 07, 2021 7:58 pmWhy would one become ineligible mid year?dcabler wrote: ↑Tue Dec 07, 2021 6:46 amBe aware of potential tax penalty implications of front loading an HSA if you become ineligible for an HSA later in the year.TurksandCaicos01 wrote: ↑Mon Dec 06, 2021 7:22 pm My company is switching benefit plans and I know have the option of contributing to my HSA per pay period via a pre-tax deduction in my paycheck.
Previously I was putting in the maximum HSA contribution in post-tax money in January each year and investing it. This was then deducted from my taxes when I filed my annual federal taxes.
Now that I have another option, I'm not sure if there is a benefit to one or the other.
On one hand I can fully invest at the beginning of the year and have more time in the market. But the other option may have better tax options?
Not sure what to choose. Thanks
https://20somethingfinance.com/should-y ... ributions/
Cheers.
Cheers.