17
Morningstar FundInvestor
January 2
014
HSA
s are also portable, meaning that you can keep
your
HSA
even if you’ve left your employer or if you’re
no longer covered by an
HSA
-eligible plan. (You
won’t be able to make additional contributions to the
HSA
if you’re not in an
HDHP
, however.)
Objection
2
| Why would I want to tie up a lot of
my money in a vehicle if I can withdraw the proceeds
only for health-care expenses?
You’re right that monies in your
HSA
can be with-
drawn tax-free only to cover health-care expenses for
you, your spouse, or your dependent children. But
the list of covered expenses is long, encompassing
everything from physician’s fees, drug costs, and
surgeries, to eyeglasses and exams, fertility treat-
ments, and weight-loss programs. (The list of quali-
fied
HSA
expenses—found in
IRS
Publication
502
—
is the same one used to determine the deductibility of
medical expenses.) Withdrawals from
HSA
s also
can be used to pay long-term care premiums or long-
term care expenditures. Considering that the typical
65
-year-old couple will spend $
220
,
000
in health-care
costs in retirement, according to an estimate from
Fidelity Benefits Consulting, it’s unlikely that many
people will get to retirement and wish they hadn’t
earmarked so much money for health-care costs.
It’s also important to note that withdrawals in retire-
ment don’t need to be used for health-care expenses
at all. Although withdrawals for qualified medical
expenses during retirement will be tax-free, just as
they were when you were working, you can withdraw
the money for any reason after age
65
. You’ll owe
taxes on those distributions, but no penalty. In that
respect, saving in and making in-retirement with-
drawals from an
HSA
is just like saving in and
investing in a traditional
401
(k) or traditional deduct-
ible
IRA
: You make pretax contributions and enjoy tax-
deferred compounding, but you owe tax upon distribu-
tion. (Cracking into an
HSA
prior to age
65
for non-
health-care-related expenses is more onerous than
cracking into an
IRA
or
401
(k), though; you’ll pay tax
on the distribution as well as a
20%
penalty.)
Objection
3
|
Why would I want to tie up money in
a savings account when I could invest it instead?
Despite the word “savings”in the term“health savings
account,” monies invested in an
HSA
needn’t nec-
essarily be in a cash account earning next to nothing.
Increasingly,
HSA
s allow participants to purchase
long-term investments within the
HSA
wrapper. Health
Savings Administrators, for example, offers
22
Van-
guard funds.
HSA
Bank allows savers to invest in a
wide range of securities (stocks, funds, and exchange-
traded funds) via a
TD
Ameritrade brokerage account.
However, if you intend to pay your out-of-pocket
health-care costs out of your
HSA
, make sure you’re
steering enough money into liquid assets. That
way you won’t need to pull assets out of your long-
term holdings when they’re at an ebb.
Objection
4
|
I took a look at the details on the
HSA
that I can contribute to and was dismayed by the
transaction costs.
Alas, high costs remain the sticking point with many
HSA
s and can chip away at the wrapper’s many tax
benefits. There are frequently fees to set up the
HSA
,
ongoing annual or monthly maintenance fees, trans-
action fees, and fees for using debit and checking
features. Because many of these fees are levied on a
dollar basis, rather than a percentage basis, you can
downplay the toll they take by adding more assets to
your account.
œ
Contact Christine Benz at
