Healthcare and HSA Reminders

Whether you have health insurance or not, it’s important to stay abreast of the major changes that have occurred to the healthcare system in the wake of the Affordable Care Act—also known as Obamacare. Fortunately, the IRS has issued four reminders to Americans as they go forward. After each reminder, I’ve added a short bit of additional information and commentary.

1. Most people already have qualified health insurance coverage and will not need to do anything more than maintain qualified coverage throughout 2014. Indeed, many employers offer health insurance that fits the requirements set by the Affordable Care Act. If your employer offers an acceptable plan and you do not take it, you will be mandated to register for health insurance or, eventually, pay a penalty fee.

2. If you do not have health insurance through your job or a government plan, you may be able to buy it through the Health Insurance Marketplace. Using the marketplace, accessible at healthcare.gov, is a new tool launched by the government to help Americans find the insurance plan that works best for them. The deadline to sign up for 2014 has passed, but you can still browse plans for next year on the Marketplace.

3. If you buy your insurance through the Marketplace, you may be eligible for an advance premium tax credit to lower your out-of-pocket monthly premiums. Tax credits and subsidies are a major part of the Affordable Care Act. By offering ways to lower premiums and expenses, the government is encouraging Americans to get covered. You must meet certain requirements including whether your employer offers a plan and how much money you make.

4. Your 2014 tax return will ask if you had insurance coverage or qualified for an exemption.  If not, you may owe a shared responsibility payment when you file in 2015.

The IRS issues tips and reminders periodically and you can browse them by visiting www.IRS.gov. IF you have questions about health insurance or about Health Savings Accounts (HSAs), visit www.ndira.com.

Using the HSA for Long-Term Medical Expenses

A Health Savings Account, or HSA, is a valuable tool in managing medical expenses. They can help you save, pay for certain expenses not covered by your insurance and you can reimburse yourself at any time in the future for medical expenses you incur while the HSA is open.

First, let’s look at Qualified Medical Expenses, or QMEs.

The HSA can be used to pay for QMEs that are not covered by your HDHP. QMEs are medical expenses the IRS allows HSAs to pay, including (but not limited to) dentist and optometrist visits, eyeglasses, transportation to medical care, chiropractic care and much more. The best part is that these expenses can be paid tax-free with the HSA. QMEs include expenses of the individual, their spouse and dependents regardless of their medical insurance coverage.

Secondly, your HSA can reimburse you for QMEs at any time. You decide. You can take a reimbursement the day you incur the medical expense or 30 years in the future. Regardless of when you take the QME reimbursement, it is tax free.

Say you go to the doctor for a checkup and get a bill for $1,000. With an HSA, you can pay that bill with your HSA funds immediately, or you can pay the bill out of pocket, keep the receipt, and reimburse yourself that $1,00 anytime, tax-free, in the future. That gives you $1,00 more dollars in your HAS to invest, which will hopefully appreciate over time.

Note that your HSA cannot pay for medical expenses incurred before the account is opened, but it can reimburse for any expense after that even if the account does not have that amount in it at the time.

Lastly, any withdrawals are subject to ordinary income tax, just like traditional IRAs. So if you and your dependents are fortunate enough to not have medical expenses but you need the money for non-medical expenses after age 65, the HSA works in your favor by letting you keep that money in the account.

There are no Required Minimum Distributions (RMDs) for HSAs. That means you may continue to make contributions as long as you are not enrolled in Medicare. When you die, your HSA funds can be used by your spouse or it can be taxed and pass on to your non-spouse beneficiaries.

Gold HSA: Holding precious metals in an HSA

Health Savings Accounts (HSAs) are becoming increasingly popular for investors looking to save money and help pay medical expenses. Most investors don’t realize that like other IRAs, the HSA can be used to invest in alternative assets such as gold and other precious metals.

HSAs enable you to save on your medical expenses because you can make pre-tax contributions to your HSA, and withdraw those moneys tax free when you want to pay for the expenses. Anyone can make contributions into your HSA—and you can contribute to anyone else’s—until the contribution limit is met.

HSAs even allow the HSA account-holder to pay themselves back for bills paid out of pocket (provided paperwork still in hand and that the HSA was opened prior to the medical expense). You can hold on to those receipts for years, allowing the account to grow to its maximum potential before using the funds to reimburse yourself for those expenses.

At the same time, you may have been considering the merits of holding real physical precious metals such as gold and silver in a retirement account. Holding precious metals in an IRA provides protection against the erosion of purchasing power via inflation as well as the potential for appreciation as hard assets.

A Gold HSA, then, will allow you to create a reoccurring purchase plan with a metals dealer of your choosing to make specific bullion or precious metals purchases at regular intervals. As your HSA accumulates funds, it can buy more assets, potentially generating more money to pay for expenses. This is called Dollar Cost Averaging.

Dollar Cost Averaging Basics

Dollar Cost Averaging has long been popular with mutual fund investors, since this practice of buying the same dollar amount or same number of specific items, at regular intervals, means that you automatically a bit less when prices have risen, and you buy a bit more when prices have fallen.

In other words, over time these price fluctuations even themselves out, enabling the investor to accumulate the investment at a lower average cost, while also protecting against the risk that prices will drop just after making a big lump investment.

What’s the bottom line to me?

Obviously, since prices — whether they be stocks, gold, or foodstuffs — will tend to rise over time, the best investment strategy (provided you knew what you wanted to buy and how much of it) would be to invest all the funds now, rather than over time. Since this is a retirement account, however, and therefore one is typically making annual contributions over a number of years’ time, the “all at once” strategy may not be feasible.

The next best thing, however, is Dollar Cost Averaging—and the Gold HSA utilizes the power of this principle in tandem with the practical matter of accumulating hard assets such as gold or silver to your retirement account.

How to use an HSA: Save for medical expenses, save for retirement

It's difficult sometimes to make ends meet while putting away enough to reach our retirement goals, especially with an uncertain market and ever-changing legislation. The government recognizes this. And so we're fortunate, at least, that our current tax laws provide us with a great way to save and reduce our taxes in retirement accounts.

Health Savings Accounts (HSAs), specifically, are rapidly growing in popularity and provide a unique way to save money, grow retirement accounts and pay for medical expenses. HSAs have been available since 2004 and have the tax-free quality of a Roth IRA but the tax deductibility of a Traditional IRA.

Rising health insurance costs have forced employers into offering High Deductible Health Plans to employees. Some employers choose to fund the HSA for the employee to take some of the sting out of the high deductible. However, what makes these HSAs alluring is that contributions to HSA accounts made by the individual are 100% tax deductible and distributions for qualified expenses from the HSA are not taxable.

The best part of taking HSA distributions is that there is no time limit on how long you can hold onto qualified expenses before requesting a reimbursement. In fact, waiting to take distributions from the HSA gives the account time to grow.

Most HSA accounts are meant to be spent, which means that most of those offered are without access to true investments. In order to gain access to investments that are going to grow your HSA, you need to open a self-directed HSA account and direct the funds. You may direct the funds into brokerage accounts, precious metals or, in the case of one account holder, real estate. There is no limit on what you can invest in as long as you stay within the IRS guidelines.

Consider this example: Joe has been contributing to his HSA for 3 years and has accumulated more than $16,000. Although he has more than $10,000 in reimbursable medical expenses he plans on holding on to them for a while. As a real estate broker Joe sees lots of opportunities for second mortgages. One of his office mates, Phil, has a deal that requires additional cash. A first mortgage has been obtained by Phil’s client for the purchase but the renovations will require an additional $15,000. Joe offers to lend the funds to Phil’s client for 8% and will secure the financing with the property. The money will be tied up for 2 years but during that time it will be earning a reasonable interest rate.

Why not invest in something long-term and request reimbursement 10, 15 or 20 years in the future? Allowing your contributions to grow long-term (now $6,450 per family in 2013) could result in a lucrative and pain-free investment.

New Direction IRA is a self-directed IRA and HSA account administrator and does not sell or sponsor any investment products nor provide investment or tax advice. Since 2003 New Direction has helped clients invest in what they know and understand.