Why You Should Treat Your HSA Like an IRA

March 27, 2025

Would you raid your Roth IRA or 401(k) to pay for car repair bills? I suppose if you have no other choice, you might. But ordinarily, we want to use our tax-advantaged retirement accounts only as a last resort because we want that money to grow tax-free or tax-deferred for as long as possible. The HSA is the only account that allows us to make pre-tax contributions and withdraw them tax-free. Why then are we so willing to tap into our HSAs for medical expenses? Continue reading “Why You Should Treat Your HSA Like an IRA”

Should You Choose a High Deductible Health Insurance Plan?

March 27, 2025

With “consumer-driven health care” (CDHC) being a common option during annual enrollment, you may soon face the decision of whether to switch to a high–deductible health care plan with a health savings account (HSA) if you don’t have one already. The basic idea is that your health insurance premiums are lower but you have to pay more out-of-pocket (the deductible) before the insurance kicks in. To help you cover those higher out-of-pocket costs, you and your employer can contribute pre-tax to a health savings account, which allows you to use the money tax-free for qualified medical expenses like a medical FSA. Continue reading “Should You Choose a High Deductible Health Insurance Plan?”

Have a Pre-Existing Condition? Here’s What to Do Now

May 15, 2017

There’s been a lot of talk in the news this past week about health insurance for people who have pre-existing health conditions. Are you worried about what the American Health Care Act (AHCA) could mean for you or your family’s health insurance should it eventually be signed into law? Here are some ways you can prepare if the current law on pre-existing conditions and health coverage changes.

What We Know

Under the Affordable Care Act (known as “Obamacare”), insurers could not deny coverage for pre-existing health conditions or charge higher premiums for plans beginning in 2014. The AHCA still requires insurers to cover those with pre-existing conditions but allows states to seek a waiver so that insurance plans they regulate could charge higher premiums for those with pre-existing conditions who let their insurance coverage lapse as long as those states meet certain conditions such as setting up a high risk insurance pool. For those with pre-existing health conditions such as diabetes, epilepsy or cancer, this introduces a new level of uncertainty of future, affordable coverage. You couldn’t be denied insurance coverage, but the premiums could be so high you might not be able to afford them. This may put insurance out of reach for those who lose their employer coverage (such as in a layoff or by retiring before Medicare eligibility at age 65).

Note that the AHCA version that recently passed the House of Representatives eliminates the Affordable Care Act penalties for large employers who do not provide affordable health coverage to their employees. For employees of most companies, that is unlikely to have much effect in my opinion. That’s because health insurance is currently considered an expected employee benefit and companies would need to offer it to attract talent.

What We Don’t Know

I don’t pretend to know what’s going to happen with the law. The version passed by the House is not likely to be the version passed by the Senate. Both the House and Senate need to come to agreement on a final version and then the President needs to sign it before it becomes law. If the bill passes as written, we also don’t know if your state would apply for a waiver to allow the insurance companies they regulate to charge premiums that reflect the individual cost of covering pre-existing conditions. If you have strong opinions about it and want to express your views, you can contact your congressperson and senators. You can find their contact information here.

While We Wait For More Information

While we’re waiting to see what finally shakes out, here are a few suggestions for how to put yourself in the best possible financial position in the event you lose your insurance or face significantly higher premiums. Remember that if you are currently covered by your employer’s plan, your risk of that is very low. However, it won’t hurt to be as prepared as you can be in the event you lose your job or plan to retire before age 65.

Max out that HSA if you have one.

If you are currently covered by a high deductible health plan (HDHP) with a health savings account (HSA), bulk up your balance as much as you can. Contributions are pre-tax and distributions from HSAs for qualified medical expenses are always tax-free. If the House version of the AHCA passes, the additional tax penalty for taking distributions for non-medical expenses will be reduced from 20 percent to 10 percent. A robust health savings account can help you to pay future medical expenses and well as insurance premiums under certain circumstances. (See below.)

How much can you put in? Those workers with individual coverage can contribute a maximum of $3,400 and those with family coverage can contribute a maximum of $6,750 for 2017, which includes any money your employer contributes on your behalf. If you are 55 or older, you may contribute an additional $1,000.

Under the House version of the AHCA, contribution limits would increase to $6,550 for individual coverage and $13,100 for family coverage. I know that seems like a lot, but it’s a better alternative than paying health care expenses after tax. Usually, you only change your target HSA contribution amount deducted from your paycheck during open enrollment, but you can write a check directly to your account for the difference.

Here’s the key. Don’t spend the money if you can use other funds to pay your current deductible and out-of-pocket expenses. After you have built a balance greater than your out-of-pocket maximum for the year, consider investing the remainder. The goal is to build as big of an HSA balance as possible while you have insurance.

Seek coverage under your spouse’s insurance if you lose your job.

Losing health insurance due to a layoff can be considered a qualifying event and would generally allow your spouse to add you to his/her group health insurance plan during a special enrollment period. Under most plans, you’ve only got a 30-60 day window to apply for the updated coverage, so contact your spouse’s HR department as soon as possible. If you are married, this is a natural first place to start, whether or not you have any pre-existing health conditions.

Continue coverage under COBRA.

If you lose your job or retire early, you may continue your group coverage under COBRA for 18 months. You will have to pay the full premium yourself (unless you are fortunate enough to have a retiree health plan). Note that if you have funds in your health savings account (HSA), you can use them tax and penalty free to pay for insurance premiums for health care coverage on your existing group plan through COBRA.

Bearing the full cost of coverage under a group plan can be expensive, so don’t be surprised. However, if the law becomes unfavorable for folks with pre-existing conditions, COBRA is likely to be your best bet to continue coverage. As I wrote in a previous blog post, “If you have a pre-existing condition and are retiring within 18 months of when you’ll be 65, COBRA is likely to be your best option in this age of uncertainty. As long as you pay your premiums, you’ll remain covered up until you’re eligible for Medicare. Even if you don’t have a pre-existing condition, choosing COBRA still gives you a little breathing room to figure out your next steps for insurance once it’s clear what happens to the ACA.”

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can also follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

Which Health Insurance Plan is Best For You?

April 07, 2017

Recently, healthcare in America has been a rather newsworthy topic. Congress failed in their attempt to repeal and replace Obamacare. Large insurers are dropping out of the exchanges and premiums are rising rapidly.

I’ll leave the fixing to our “leaders” in Congress, but most people don’t purchase their insurance through the exchanges. They have coverage through their employers. When you consider how expensive health insurance premiums are for individuals and families who have to purchase their own coverage, employer-paid medical insurance is a very valuable benefit. In fact, when discussing early retirement packages with employees, the #1 concern – by far – is what health insurance coverage they will have after they leave their employer and how much it will cost.

Taking the time to understand what your employee benefits package offers so that you can choose the best plan for your needs could be time well spent. When open enrollment comes around, carve out some time to evaluate your options. These are some of the things you may see when you look through your options:

Medical Coverage

Medical plans are usually either the indemnity or managed care type. (You may be offered both.) You’ll want to know how the plans differ so that you can choose the one that’s best for you.

Indemnity Plan

An indemnity or fee-for-service plan lets you choose any medical provider. Either you or the provider sends the bill to the insurance company, which pays part of it, usually after you’ve met your annual deductible. Once the deductible has been satisfied, indemnity plans typically pay 80 percent of the cost of covered services, while you pay the remaining 20 percent. The plan may pay for medical tests and prescriptions, but it may not pay for some preventive care, like check-ups.

Managed Care

The oldest form of managed care plan, the health maintenance organization (HMO), offers members a range of health benefits, including preventive care, for a set monthly fee. There are different types of HMOs. In a staff or group HMO model, doctors are employees of the health plan and you visit them at central facilities. In an individual practice association (IPA) or network, the HMO contracts with physician groups or individual doctors who have private offices.

Some HMOs require no payment for doctor visits while other HMOs require a small co-payment (typically $5 to $20) for most services. If you belong to an HMO, the plan only covers the cost of charges for doctors in that HMO. If you go outside the HMO, you usually pay the bill.

Many HMOs offer an indemnity-like option known as a point-of-service (POS) plan. In a POS plan, members can use providers outside the plan and still be covered to some extent. If the HMO physician chooses to refer a patient outside the network, the plan pays all or most of the bill. If you choose to go to a provider outside the network for covered service, you may incur greater expenses than just the co-pay.

Although a part of managed care, a preferred provider organization (PPO) closely resembles an indemnity plan. A PPO has arrangements with doctors, hospitals and other providers who have agreed to accept lower fees from the insurer for their services. PPO doctors can make referrals to other physicians and plan members can self-refer to non-PPO doctors as well.

If you go to a doctor within the PPO network, you generally pay the plan’s standard co-payment. If you choose to go outside the network, you may have to meet the deductible and pay a co-payment based on higher charges. In addition, you may have to pay the difference between what the provider charges and what the plan will cover.

Dental Coverage

Like health plans, dental plans also follow a fee-for-service or managed care model. In a fee-for-service plan, your monthly premiums cover a portion of your dental expenses. Generally, this type of plan will pay 100 percent of the cost of preventive services, 80 percent for common restorative services, and 50 percent for major treatments, such as crowns and orthodontics.

Under a managed care plan, you’re required to choose from a pool of screened dentists and pay a co-payment for treatment. The co-payment amount can vary according to the procedure. While preventive procedures usually are performed without co-payments, more advanced procedures will have higher co-payments, and there may be limitations on coverage of certain major procedures within a given period of time. Some plans are flexible, offering services through an HMO or PPO option.

Vision Coverage

Most vision plans offer coverage for comprehensive eye exams as well as for lenses and frames. The cost of the plans generally depends on how frequently the services are used and at what level the deductible is set. You may have the option to pay an additional premium for added coverage (for things like extra or special pairs of glasses and hard and soft contact lenses). Non-insured discount plans for exams and lenses are available as an alternative to insurance and can provide retail discounts of up to 40 percent.

The bottom line here is that your employee benefits package is worth a whole lot more than you probably think it is. Don’t be one of the people who takes it for granted and just checks some boxes. Find out which health plans and options your employer offers and then study them to determine which provides your family with the greatest benefits. Your employer’s human resource representative or health plan administrator can provide information to help you match your needs and preferences to the available plans. Look at the pros and cons of each option presented to you and make the best choice for your family.

Do the same thing each year. Don’t assume that just because your current plan worked last year that it’s still going to work this year. There is a lot of change in this area on an annual basis, so keep your eyes open for what might be a better choice.

What Are Your Health Insurance Options When Retiring Early?

February 20, 2017

Are you considering retiring before age 65 but worried you could lose your access to health insurance due to the new administration’s promise to repeal the Affordable Care Act? There’s a lot up in the air right now, and it’s going to take some time to play out in Congress. Health insurance is expensive, and health care costs are likely to comprise a large chunk of your retirement spending.

Up until now, if you are like most Americans, you have participated in a group health plan with your employer subsidizing the cost. With family coverage, the typical full cost of coverage is over $18,000 per year. If you retire early, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Here are some strategies for making wise decisions in the face of increasing uncertainty about health insurance access and costs.

Don’t Panic

It may feel like the earth is being demolished to make room for an intergalactic freeway, but don’t panic. The health insurance landscape could look a lot different next year than it does now – or it may not. We don’t know very much for sure except that there is uncertainty.

Under those circumstances, it’s helpful to plan for multiple scenarios: health insurance costs more and/or is harder to obtain, waiting periods for pre-existing conditions could be reinstated, or the major provisions of the ACA are not repealed. Prepare an early retirement budget which reflects your projected health insurance costs under each of these scenarios. Remember – you only need to model the changes through age 65, when Medicare kicks in.

Build up your HSA – and don’t spend it

If you are currently covered by a high deductible health plan (HDHP) with a health savings account (HSA), build up your balance as much as you can. Contribute the maximum to your HSA between now and your retirement date. Those with individual coverage can contribute a maximum of $3,400 and those with family coverage can contribute a maximum of $6,750 for 2017. If you are 55 or older, you may contribute an additional $1,000.

Once you’ve contributed those funds, if possible – don’t spend them. Use other available cash reserves to pay for your routine expenses up to the deductible. After you have built a balance greater than your out-of-pocket maximum for the year, consider investing the remainder.

For those retiring early, keep as much of your HSA balance as possible to pay for eligible medical expenses after you retire, including COBRA premiums (see below) as an early retiree and Medicare Parts B, D and Medicare Advantage after age 65. For IRS guidelines on HSAs see here. For more ideas on maximizing your HSA see here.

Increase your cash reserves

The years leading up to an early retirement are a great time to power up your cash reserves. Work towards building short term liquid savings such as a savings account, money market fund, short duration CDs or Treasury Bills equal to several years’ worth of projected maximum out-of-pocket health care costs.

Look for part-time work with access to health care benefits

Many early retirees have discovered that the key to managing health care costs in retirement is to work part-time. Ask yourself if it makes sense to look for part-time work through age 65, either with your existing company or another, such as these companies who offer insurance coverage to their part-time employees. You will probably have to cover all or most of the cost of your health insurance. However, participation in a group plan may offer more comprehensive coverage. It also isn’t going to hurt to have some extra money coming in the door during the early retirement years to help pay health care costs.

Consider COBRA

When you retire, you may continue your group coverage under COBRA for 18 months, paying the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have a retiree health plan). As mentioned above, if you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA. Your coverage continues during the same period, and you won’t have to change providers or get used to a new procedure for submitting claims. Be aware: there will be some sticker shock as you begin to pay the entire cost of your health insurance premium.

If you have a pre-existing condition and are retiring within 18 months of when you’ll be 65, COBRA is likely to be your best option in this age of uncertainty. As long as you pay your premiums, you’ll remain covered up until you’re eligible for Medicare. Even if you don’t have a pre-existing condition, choosing COBRA still gives you a little breathing room to figure out your next steps for insurance once it’s clear what happens to the ACA.

Price coverage on the private market

If you are in good health, consider pricing your options in the private insurance marketplace. The younger your early retirement begins, the more it could make sense to shop around for the right insurance. The private market offers a wider range of options. Compare plans and prices by using online marketplaces such as ehealthinsurance.com or gohealthinsurance.com or working directly with an insurance broker. Even if you are considering coverage under COBRA or the Affordable Care Act, it’s a good idea to shop around and compare.

Take your chances now with the ACA

The Affordable Care Act is still the current law and the infrastructure which allows consumers to buy insurance is still firmly in place. If you are planning to retire soon, you may consider applying for coverage under the ACA and comparing plans to COBRA and what you found through the private market. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at Healthcare.gov to see what is available in your state.

Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. However, that is something which could change quickly, so it’s best not to count on it. In any case, you cannot be turned down for coverage. There are many advantages to the ACA for early retirees if the law remains the same or amended: cost savings, universal access, subsidies for lower income participants, etc. The biggest disadvantage right now for early retirees in buying insurance is not knowing whether the same or similar coverage will be available if the law is repealed.

In conclusion, for those considering early retirement, the uncertainty about what’s going to happen to the Affordable Care Act has added a layer of complexity to pre-retirement preparations. For some employees, they may decide it’s best to delay their planned early retirements until there is more clarity about what happens next. For others, they may choose to forge ahead, hopefully with bigger balances in their HSAs and savings accounts to help manage the risk that comes along with this uncertainty. If you have strong opinions about the ACA and what Congress and the President should do next, you can find information about how to contact them here.

Do you have a question you’d like answered in this column? Please email me at [email protected]. You can follow me on our Financial Finesse blog by signing up here, and on Twitter@cynthiameyer_FF.

What to Expect When You’re Expecting

January 09, 2017

When I found out I was pregnant with my daughter, I thought a lot about what I needed to do to have a healthy pregnancy and birth. I didn’t consider how much it was going to cost. I had a healthy pregnancy, but during the last few days before labor, I developed high blood pressure, so I had to have extra monitoring for both me and the baby. My daughter was a breech baby, which we knew, and I ended up with an emergency C-section after nearly two days of unsuccessful labor in the hospital birthing room. My daughter was born healthy and I recovered quickly.

Luckily for us, I had excellent coverage from my HMO, so our out-of-pocket costs were minimal. However, for most families with low risk pregnancies, their costs could be in the thousands, especially if they have a high deductible health care plan. If a woman were uninsured and had a situation similar to mine, the cost could be $10,000 to $70,000, depending on where she lived and where she gave birth.

If you are thinking about getting pregnant or are already expecting, you’ll need to take care of your financial business in addition to your health. Even if you are insured, you are likely to have significant out-of-pocket costs for pre-natal care, labor and birth, and care for your new baby. Step one is to contact your health insurance provider to see what’s covered:

Am I covered and how?

Will my insurance cover my pregnancy?
What kind of care does my insurance cover? What coverage is fully paid, and what costs should I expect?
What is the most I could pay out-of-pocket?
Does my health care provider offer a healthy pregnancy program and birthing classes? How can I participate?

What if I need more than the basics?

What happens if there are problems during the pregnancy which require special care?
Do I need preauthorization for any prenatal care procedures? What is the process for getting authorization?
How will I know in advance how much I will pay for a specific medical test or procedure?
What is the coverage if there are complications during birth?

What to expect for my hospital stay?

Do I need preauthorization for my hospital stay during birth? What is the process for getting authorization?
What if the hospital bills for a provider who does not participate in my health insurance without my knowledge (e.g., physician, lab, etc.)?
Do I have choices of where/how I can deliver my baby?
How many days can I stay in the hospital following the birth? What if I need a cesarean birth?

Is my baby covered?

Will my baby be covered right away under my health insurance? Are my baby’s costs covered if he/she has to stay in the hospital longer than me?
How can I add my child to my policy when he/she is born? Is there a time window (e.g. 30 or 60 days)?
Does my insurance cover any breastfeeding coaching and supplies?

While not everyone can plan in advance for the costs of pregnancy and birth, if you have the opportunity, estimate your out-of-pocket costs up front and build cash reserves to meet them. Even if your pregnancy is a surprise, you still have nine months to get prepared financially. That way, you will be able to focus on the joys of parenting and not the stress of unexpected medical bills when your baby arrives.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

What I Learned From an Early Retirement Package

November 11, 2016

Over the last few weeks, I have been having a whole lot of conversations about retirement with employees of one of our client companies. They are offering an early retirement package (ERP) to a fairly large number of employees, and they have a fairly short window of time in which to make a decision about accepting it or declining the offer. When retirement is no longer something that has a long term time horizon and is suddenly presented as an immediate opportunity, what is important suddenly becomes crystal clear, and that is slightly different for each person.

I have been able to make some observations on the factors that have driven the decision for most of the candidates for the ERP. It isn’t hugely surprising, but these factors are helping people make one of the most important decisions of their lives. So let’s learn from them so that we can be in a great position to make our retirement decisions with a clear head and on our own time lines. Here’s what I’ve found over the last several weeks:

People with very low levels of debt are much more likely to be able to accept the ERP. The people I met who have paid their mortgage off are, with an almost unanimous vote, accepting the offer and moving on to the next phase of life.

What I learned: I want to pay my mortgage off ASAP! Any debt should be eliminated quickly and you’ll be in a better position over the long haul. When all debt is gone, your embedded cost of living is lower for the rest of your life. That can do nothing but extend the life of your asset base.

The cost of health insurance in the future was a factor in everyone’s decision. Some had a spouse who could cover them or had the ability to roll into Medicare. Others are going to price policies on the exchanges or with affinity groups or simply price policies on a few insurer websites. Those with a clear plan for how to handle the cost of insurance had a very good likelihood of accepting the ERP.

What I learned: In order to prepare for medical costs in the future, I’m planning to max out my HSA annually and invest the account for long term growth, while paying most medical costs out-of-pocket. I plan to keep abreast of the ever-changing landscape of health insurance as well. Recently, we saw significant increases in premiums for health insurance in the exchanges so being aware of the landscape is always a best practice.

The folks who were confident in their ability to land another job before the severance package ran out were also much more likely to accept the offer. With a relatively generous severance package, those who could get jobs relatively quickly could “double dip” for a while. With income from two jobs, they can work on paying debt off or invest a sizable portion of their income.

What I learned: Having an updated resume and refreshing your LinkedIn profile periodically is always a best practice. One never knows when the employment market will turn into the next batch of good (or bad) news, so being prepared at all times is a very worthy endeavor. Keep your contacts organized. Stay in touch with former coworkers, as well as current ones. Use your internal network to help find opportunities.

The lessons I learned over the last few weeks will provide more benefits to me than the benefits I provided to the individual employees. I will consider all of these factors and work to make sure that when the time comes for me to consider retiring, I have all of my I’s dotted and T’s crossed. You should too.

How to Evaluate an Early Retirement Offer

November 07, 2016

You’ve received an offer from your employer with financial incentives to retire early. You’ve got to admit you’re intrigued. Should you consider accepting it? Before you say “yes” or “no,” ask yourself these questions:

Am I ready to leave?

Before running any numbers, be honest with yourself. When you received the offer of early retirement incentives, were you excited, somewhat interested or depressed? The more interested you are emotionally in moving on, the less likely you will regret your decision if you decide to accept the offer.

It’s also important to assess the state of the company. If you decide to stay, are there any reasons your job might be in jeopardy in the near future? Be clear-eyed about all the possibilities, and factor them into your decision.

Can I afford to completely retire now?

Run a retirement calculator to see if you could retire now, based on what you’ve saved so far and your estimated income from Social Security and any pensions and/or other investments. Make sure you run the worst case scenario, not just the best case scenario. For example, model scenarios assuming a 2% return, a 4% return and a 6% return, and consider running the scenarios through ages 85, 90 and even 100. If the model shows you can retire with a reasonable lifestyle, keep pace with inflation and not run out of money in old age, you will feel more comfortable that you are ready.

What will I do for health insurance?

Health insurance is expensive. Up until now, you’ve participated in a group health plan, with your employer picking up a large part of the cost. If you have family coverage, the typical full cost of coverage is $17,500 per year. If you accept the offer, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Review your options:

Continue your group coverage under COBRA for 18 months. You would pay the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have one). If you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA.
Get coverage from your spouse’s employer-sponsored plan, if applicable. A spouse losing their coverage is a qualifying event and they will be able to add you to their insurance.
Seek coverage under the Affordable Care Act. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at healthcare.gov to see what is available in your state. Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. In any case, you cannot be turned down for coverage.
Look for coverage on the private market. An insurance broker or online marketplaces such as eHealth or GoHealth are helpful places to start comparing plans and prices. Even if you are considering coverage under the Affordable Care Act, it’s a good idea to shop around and compare.

When will I claim Social Security?

The earliest eligible retirees can claim Social Security benefits is age 62. Most workers receiving early retirement incentive offers now would not be eligible for full Social Security benefits until age 66 to 67, depending on current age. If you claim early, benefits will be reduced based on the longer payout period. Delaying Social Security to full retirement age or even as late as age 70 will increase your monthly benefits. Factors to consider include:

Will you need the money? If you will need the income to make ends meet, you have your answer. However, if you can get by with some additional income from part time work, you’ll be able to receive higher monthly benefits by delaying claiming Social Security.
Is your spouse still working or do you anticipate any employment income? If your spouse is still working, you’ll be taxed at their marginal tax rate on your Social Security benefits. Plus, if your family earnings exceeds $15,720 for 2016, you’ll lose $1 for every $2 you earn above the limit. (Note that the benefit isn’t truly lost. You’ll be able to recoup that once you hit full retirement age).
How’s your health? If you have health issues, you may decide to take Social Security early. If you don’t, delaying may make more sense.
Do you have longevity in your family? Do you have someone in your immediate family who lived to 95 or 100? If folks in your family generally live long lives, consider delaying Social Security benefits
Do you have other assets you can tap? Does it make sense to tap your 401(k), pension, Roth IRA or brokerage accounts first? Model different scenarios to see which offers you the highest total lifestyle in retirement.

As you can see, there are a lot of factors to consider in deciding whether to take an early retirement offer. There is no right or wrong answer for everyone. Just make sure yours is an educated one.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

How To Take Money Out Of Your Accounts In Retirement

September 22, 2016

Updated April, 2018

We typically spend most of our working life putting money in accounts for retirement, but how do we take them out after we retire? I recently received a question from a “long time reader, first time caller,” about how to order which accounts he will withdraw from when he retires soon. The conventional wisdom is to withdraw money first from taxable accounts, then tax-deferred accounts, and then tax-free accounts in order to allow your money to grow tax-deferred or tax-free as long as possible. However, there are a few other things you might want to consider too:

Will you need to purchase health insurance before you’re eligible for Medicare at 65? If so, your eligibility for subsidies under the Affordable Care Act is partly based on your taxable income. In that case, you might want to tap money that’s already been taxed like savings accounts and money that’s tax-free like Roth accounts to maximize your health insurance subsidy (but not so low that you end up on Medicaid instead). You can use this calculator to estimate what that amount would be.

Are you collecting Social Security yet? Withdrawing from tax-free Roth accounts can also reduce the taxes on your Social Security. That’s because the amount of your Social Security that’s taxable (either 0, 50%, or 85%) depends on your overall taxable income plus nontaxable interest (like muni bonds) but not tax-free Roth withdrawals.

How can you minimize your tax rate? First, you’ll want to withdraw (or convert to a Roth) at least about $12k a year from your pre-tax accounts because the standard deduction makes that income tax-free. If you have other deductions, you may be able to have even more tax-free income. Then take a look at the tax brackets and see how much income you can withdraw before going into a higher bracket.

For example, a married couple’s first $19,050 of taxable income is only taxed at 10%, with the next $58,350 is taxed at 12% according to 2018 tax brackets. Any long term capital gains at those levels are taxed at 0%. If you’re about to go into a higher bracket, you may want to use tax-free income to avoid those higher rates. Just keep in mind that pensions and taxable Social Security (see above) will also count as income in determining your tax bracket.

How do you put it all together? Your withdrawal strategy may change and adjust based on the situation. You may tap into savings accounts (including your HSA) and sell taxable investments to maximize your health insurance credits until 65. Then you may withdraw from taxable accounts until you collect Social Security benefits at age 70, which draws down your required minimums at 70 1/2 while maximizing your Social Security payment. At that point, you can continue withdrawing from your taxable accounts to fill in the lower tax brackets and then use tax-free accounts to avoid the next tax bracket.

Of course, this all assumes that you have investments in multiple types of tax accounts. Otherwise, it doesn’t really apply to you. But if you do, you might want to consult with a qualified and unbiased financial planner to help you sort it out and come up with the right strategy. If your employer offers that as a free benefit, it might be a good place to start.

Are HSAs Still a Good Deal?

August 29, 2016

A few years ago, my colleague Greg Ward wrote a blog post called Why I Max Out My Health Savings Account (And You Should Too). In the past, health savings account (HSA) eligible health plans were a lot less expensive than their traditional counterparts, but premiums for HSA-eligible plans have recently gone up, and as a result, the difference in the premiums is not always as great as it was in the past. This has caused some readers to question whether or not Greg still believes the HSA is a good deal. Here is his response to a recent inquiry he received regarding this issue:

The reader writes:

“I’m really struggling to understand all of this. You have to have an HSA insurance plan to have the HSA, but the premiums and deductible are still really high and it doesn’t cover very much so I feel like I’m missing something. Also, are you still suggesting that we max out our contributions to the HSA but then not use the money for qualified expenses or are you incurring the expenses and then having them reimbursed later? It seems that a person will have to be a meticulous record keeper or it just won’t work…or you’ll get audited…or penalized. Am I right to be this worried??”

Here’s my response:

Hi [Reader],

Thanks for your comments. It is true that you must be enrolled in a high-deductible plan in order to be eligible to contribute to a health savings account (HSA). In general, the higher the deductible, the lower the premium, so while your premiums for a high-deductible plan may seem “really high,” they should still be less than their lower-deductible alternatives. Since the participant bears more of the financial responsibility under a high-deductible plan, they are more appropriate for healthy families that do not incur a lot of out-of-pocket expenses for healthcare services.

For example, let’s say my HSA-eligible plan costs $600 a month and my traditional plan costs $1,000 a month. If I incur $3,000 of out-of-pocket expenses for the year, my total cost under the HSA-eligible plan would be $10,200 versus $12,000 under my traditional plan (assuming the traditional plan covered the $3,000 of out-of-pocket expenses). The less I incur in out-of-pocket expenses, the greater the savings under the HSA-eligible plan (and vice versa).

Since my need for healthcare services will likely be greater in the future, such as in retirement, I choose not to use my HSA funds for current healthcare expenditures. That way I can invest the money so that I have more of it in the future. As long as you are not using the funds for unintended purposes, you probably don’t need to worry about an audit or penalty.

I hope that gives you more confidence to use the HSA if you’re eligible, but don’t let the HSA tail wag the health insurance dog. You should choose your health insurance based on your anticipated need for services. If you have an ongoing need for health care that will meet or exceed your deductible under an HSA-eligible plan, then a traditional plan may be more appropriate.

As you can see, I still believe in the HSA. I recognize that with premium disparity, the decision may not be as cut and dry as it’s been in the past. That said, if you (and your family) are healthy, and you feel comfortable investing your HSA dollars for future healthcare expenditures, I strongly believe in the value of this health insurance option.

Why HSAs Are the Most Underrated Employee Benefit

March 24, 2016

In one of the chapters in her new book, What Your Financial Advisor Isn’t Telling You: 10 Essential Truths You Need to Know About Your Money, our founder and CEO, Liz Davidson wrote about how the best place to invest your money is often where you earned it in the first place: your employer. Last week, I wrote about how to avoid common mistakes when investing in your employer’s retirement plan. This week, I’m writing about some common myths causing people to under-utilize one of their most valuable employee benefits: the health savings account (HSA).

HSAs are generally a bad deal. In order to contribute to an HSA, you have to be enrolled in a high-deductible health care plan. The downside is that these plans require you to spend more out-of-pocket before the insurance kicks in. If you have a lot of health care costs, they may not make sense for you. Otherwise, when you add up the premium savings (high-deductible plans tend to be cheaper), any employer contributions you may receive to your HSA, and the taxes saved on your HSA contributions (contributions are pre-tax), you may be surprised to find that they cost you less money overall.

HSAs are use it or lose it. That’s true for FSAs or flexible spending accounts. But whatever you don’t spend from an HSA, you get to keep in the account even if you leave your job or switch to a non-high deductible health insurance plan,. If you like your HSA, you can keep it.

HSAs are only for health care expenses. It’s true that HSAs are only tax-free when used for qualified heath care expenses but if you really needed the money, you could use it for other things. Be aware that you’d have to pay taxes and a 20% penalty in that case. Even better, you can use the HSA for any purpose once you turn 65 so it can be part of your retirement funds. (It’s still tax-free for health care expenses in retirement, including qualified long term care insurance and some Medicare premiums so unlike your other retirement accounts, you can contribute pre-tax AND make tax-free withdrawals.)

HSAs don’t grow. Many plans allow you to invest your HSA as long as you keep a certain amount (generally around $1k) in cash. Just be sure only to invest any money you don’t plan to spend within the next 3-5 years. In fact, I invest as much of my HSA as I can and make it a point not to use it even for health care expenses. After all, I figure that I’ll have health care expenses in retirement so why not let that money grow tax-free as long as possible?

HSA withdrawals for health care have to be in the same year as the expenses. If you have a health care expense and keep the receipt, you can withdraw that amount tax-free in any future date. That flexibility is one more reason to consider not making HSA withdrawals even for qualified health care expenses unless you need to.

Wish you contributed more to your HSA last year? One more myth is the idea that you have to contribute by the end of the year. Like an IRA, you have until April 18^th to contribute for 2015. You’ll just have to write a check rather than contribute from your paycheck and if you’ve already filed your taxes, you’ll have to amend your return to get the tax deduction. What are you waiting for?

The Insurance Move I’m So Glad I Made

March 15, 2016

If you ever read any of my posts, you probably know that I am a “drive a car until the engine falls out” kind of girl. Unfortunately, that is exactly what happened. I was coming home from the gym, wondering why I keep competing with women half my age, and a car came out of a fast food restaurant without stopping and hit me. I was unconscious for a few minutes and when I came to and was able to think, I thought it was a little strange that the driver of the other car did not get out. When I noticed the car starting, I tried to get the license plate number but it was too late, the car had driven off. Continue reading “The Insurance Move I’m So Glad I Made”

Do You Need Financial Earthquake Insurance?

March 07, 2016

Think of a financial shock that could totally knock you off your feet. That’s a financial earthquake. Unemployment, an illness, divorce, the death of a spouse, the loss of a home or a business – a financial earthquake is unexpected, unpleasant and unwelcome. Continue reading “Do You Need Financial Earthquake Insurance?”

What I Did During Open Enrollment This Year

November 19, 2015

Well, it’s that time of year again. No, I don’t mean the holidays. I’m talking about annual open enrollment, the limited period when you get to make your benefits selection at work for the upcoming year. Continue reading “What I Did During Open Enrollment This Year”

Don’t Leave Any Money On The Way Out

October 06, 2015

I was recently talking to a dear friend of mine who just lost her job due to a layoff. She was shell-shocked, scared and not sure what to do. As I listened to her talk about her plan, I asked her about her workplace benefits and she said that she got the package, saw no value in anything she had and was getting ready to throw the package away. Continue reading “Don’t Leave Any Money On The Way Out”

Four Retirement Myths I’m Hearing

September 18, 2015

Answering calls to our Financial Helpline, I’ve heard some myths or assumptions about retirement and I always enjoy hearing the buzz out there from people contemplating retirement. My thought is – if I’m hearing this from a few people, there are potentially thousands or millions who have the same thought. So, for those who believe some of these things, I’ll share some of the myths/assumptions I’ve heard recently and then give you my $.02. Continue reading “Four Retirement Myths I’m Hearing”

Money For Grown Ups

July 10, 2015

In a conversation with another financial planner here at Financial Finesse, the subject of having college–age children elicited laughter as well as groans. Cynthia Meyer and I shared some stories about our past “adventures” in finance and some mistakes we made along the way. She was inspired enough to write this blog post: Continue reading “Money For Grown Ups”

How to Reduce Out-of-Pocket Health Care Costs

April 02, 2015

Are you paying more for out-of-pocket health care costs? If so, you’re not alone. There’s a growing trend to higher deductibles for health insurance policies, which means we’re increasingly having to pay at least $1-2k out-of-pocket before the insurance kicks in. Here are some ways to reduce those costs: Continue reading “How to Reduce Out-of-Pocket Health Care Costs”

The Changing Landscape of Health Insurance

October 29, 2014

Now that we are in the midst of open-enrollment season, this is a great time to start looking at how the trends in health insurance may impact you and your family. In the last few weeks, Wal-Mart has announced that they will no longer offer health insurance to certain part-time employees. Other large employers are rolling out new plans that will either charge a steep premium to cover spouses that have coverage available at their employer, or they are not offering coverage to those spouses with their own option at all. In addition to all of this, there is an undeniable trend towards high-deductible health plans paired with a Health Savings Account (HSA). Continue reading “The Changing Landscape of Health Insurance”

Lessons From a Visit to Urgent Care

June 11, 2014

We all know that the cost of medical care is going up, but my colleague’s recent trip to urgent care really opened my eyes to just how much. The good news is that she is okay, but what she learned about the current state of the healthcare industry should make us sit up straight and take notice. Here is a brief overview of what happened: Continue reading “Lessons From a Visit to Urgent Care”