Posts

How Can a Self-Directed HSA Work for you?

April 10, 2019/in Blog, Health Savings Account /by Jim Hitt

People who want control of their investment decisions are choosing self-directed accounts. They like the secure feeling that comes from making their own decisions rather than having a broker or custodian make them. That’s why more and more retirement investors are turning to Self-Directed IRAs. They receive a wide spectrum of investment choices and the freedom to pick those with which they are most comfortable.

Now, that same mindset is being applied to health savings accounts (HSAs). Self-Directed HSAs afford you the same control and choices that you get with a Self-Directed IRA. Of course, the primary benefit of an HSA is tax-free growth of the income that your account generates, and with a self-directed account, you have the potential to produce quite a bit with investments in real estate and private stocks.

But first, take a look at the basics of a health savings account:

What is a Self-Directed HSA?

The IRS created the health savings account as a tax-advantaged method for paying medical expenses. If they qualify, taxpayers receive a tax benefit for medical expenses whether they itemize or not. The Self-Directed HSAs are available to those who have a high deductible health plan. If you qualify, your contributions are made with pre-tax dollars and are tax deductible. Earnings and qualified withdrawals are tax-free.

What is a High Deductible Health Plan (HDHP)?

An HDHP is a health insurance plan, obtainable from most health insurance providers, that has a lower monthly premium and a higher yearly deductible than other health insurance plans. To qualify as a high deductible health plan, the plan’s deductible may not be lower than $1350 for an individual and $2700 for a family. If your plan meets or exceeds these amounts, you may open a Self-Directed HSA.

Other benefits of having a Health Savings Account

Contribution limits have risen for 2019 to $3500 for individuals and $7000 for families.
Unused funds roll over into the next year—no “use it or lose it”.
If you change employers, your Self-Directed HSA goes with you.
The interest earned in the account is not taxable.
Distributions used to pay for qualified medical expenses are tax-free.
Contributions made on your behalf by your employer, including any pre-tax contributions you make, are typically not taxable.
If you choose a Self-Directed HSA, your investment choices are expanded from stocks and bonds to alternative investments such as real estate, notes, private equity, options, tax liens, gold, and more
You can use it for living expenses after you turn 65 by paying taxes on the withdrawals

Keep in mind that you are not allowed to treat insurance premiums as qualified medical expenses unless the premiums are used for the following:

Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

What are the advantages of a Self-Directed HSA?

You may, of course, invest in mutual funds, common stocks, and bonds just like you would in the typical HSA. The advantage of self-direction comes from all those alternative investments that are not available from banks, insurance companies, and mutual fund companies. Imagine making your account grow through the years with the help of investments such as:

Real estate that includes single-family and multi-unit homes, apartment buildings, condominiums, land, or commercial property.
Private companies.
Precious metals like gold, silver, and platinum.
Private lending notes.
Tax
Joint ventures and partnerships.
Single-member limited liability corporation (LLC).

Let our experts help you get started

Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.

New Bill Significantly Increases Self-Directed HSA (Health Savings Account) Contribution Limits

September 27, 2018/in Blog, Health Savings Account /by Jim Hitt

H.R. 6311, The Increasing Access of Lower Premium Plans and Expanding Health Savings Account Act of 2018, was passed on July 25^th. The new legislation increases the Self-Directed HSA (Health Savings Account) annual contribution limits for those with employee-only coverage from $3,450 to $6,550. And for those with family coverage, the limits are increased from the current $6,900 to $13,300.

A new provision also allows both spouses to make “catch-up” contributions (an extra $1,000 each year) into a single Self-Directed HSA account provided that they are both HSA-eligible and age 55 or older. The previous law required both spouses to open separate Self-Directed HSA accounts for their respective catch-up contributions.

Some of the other noteworthy features of the bill include:

It allows Flexible Spending Account (FSA) balances to be carried over to the following plan year as long as the balance in the account does not exceed three times the annual FSA contribution limit.
Formerly, individuals were allowed to use their Self-Directed HSA funds only for qualified medical expenses that they incurred after they established their HSA, which could have been after they opened the associated high-deductible policy. The new provision treats Self-Directed HSAs opened within 60 days after establishing coverage under HDHP as having been opened on the same day as the policy.
Specific bronze and catastrophic health plans may now be Self-Directed HSA-qualified plans.
Everyone who is in the individual market may now purchase lower-premium copper health plans.
The Affordable Care Act’s annual tax on health insurers has been postponed from 2020 to 2022.

Will the limit increases result in contribution increases?

Even under the lower contribution limits, studies have shown that only around 13 percent of account owners were contributing the maximum. This statistic is surprising since these contributions have a triple tax advantage:

Employee contributions to the account are deductible from taxable income.
Interest or capital gains on the assets in the account accumulate tax-free.
Distributions for qualified medical expenses are excluded from taxable income.

While everyone from financial planners to HR departments have been encouraging the use of Self-Directed HSAs, only 6 percent of the HSA accounts that were opened in 2016 received the maximum annual contribution. That contrasts with the 30 percent of accounts that were opened ten years earlier, in 2006. It shows that the longer someone contributes to a Self-Directed HSA, the more they seem to appreciate the benefits of them. Perhaps increased education on HSAs could prompt even more workers to take full advantage of them.

There are multiple benefits from a Self-Directed HSA

There are now more than 20 million Self-Directed HSA accounts in the United States, with 15 million of those having been opened in the last five years. Apparently, Americans have got the message that Self-Directed HSAs are beneficial in several ways. Here are a few more reasons to max out yours:

Your account can continue to grow year after year if you do not need the funds for medical expenses.
You can invest the money in your account in mutual funds.
You can use your Self-Directed HSA to reimburse expenses that occurred in the past as long as the HSA had been established at the time of the expense.
Like an IRA, the remaining funds in your Self-Directed HSA can help you finance your retirement.

Since Self-Directed HSAs were created back in 2003, they have been helping Americans handle their medical expenses. This newest legislation, which nearly doubles the limits on contributions, serves to make them all the more valuable.

As the burden of medical coverage is shifted toward the worker, Self-Directed HSAs become an invaluable planning tool. The same can be said for a Self-Directed IRA for your retirement.

At American IRA, we have the experienced professionals to make your Self-Directed IRA transactions go smoothly and quickly. With our simplified process, you can effortlessly diversify your Self-Directed IRA account with any alternative investments you wish to own.

Self-Directed HSAs (Health Savings Accounts)

July 6, 2018/in Blog, Health Savings Account /by Jim Hitt

Eligible individuals are permitted to establish and maintain Health Savings Accounts (HSA)s, for the purpose of paying and/or reimbursing themselves for eligible medical expenses. Like IRAs, Self-Directed HSAs must be established and maintained with a qualified custodian/trustee, such as a brokerage firm or bank.

Self-Directed HSAs can be established by individuals or by employers; and contributions are deductible by the contributing party.

Eligibility

An individual must meet certain requirements, in order to be eligible for a Self-Directed HSA. These are:

The individual must be covered under a high deductible health plan (HDHP).
The individual must have no other health coverage, unless an exception applies.
The individual must not be enrolled under Medicare.
The individual must not be claimed as a dependent on another persons’ tax return, for the year in which the Self-Directed HSA contribution is made.

Individuals should consult with their tax professionals, to determine eligibility for HSAs.

Self-Directed HSA Contributions

Self-Directed HSA contributions must be made by the owner’s tax filing due date. Extensions do not apply.

An individual may claim a tax deduction for Self-Directed HSA contributions made to his/her HSA. If the contribution is made by the individual’s employer, the amounts are deductible by the employer but are excluded from the individual’s income.

Self-Directed HSA contributions grow on a tax-deferred basis, and are tax-free when distributed, if the distributions are used to pay for qualified expenses.

The contribution amount that an individual is eligible to make, is dependent on his/her:

Type of HDHP coverage,
Age,
Date of eligibility, and
If the individual ceases to be an eligible individual, the date on which such eligibility ceases.

The contribution limit for 2018 is $3,450 for those with self-only HDHP coverage, and $6,900 for those with family HDHP coverage. An additional catch-up contribution of $1,000 is permitted for individuals who are at least age 55 by the end of the year.

There are other factors that could affect the contribution eligibility, such as whether one is eligible for the entire year. Individuals must consult with their tax professional to determine whether they are eligible to contribute the full amounts stated above.

Contributions in excess of the statutory limit could be subject to excise tax, if not corrected properly and timely.

Distributions

During the Self-Directed HSA owner’s lifetime, distributions are optional.

The tax-treatment of distributions depend on whether they are ‘qualified’ or ‘nonqualified’.

Distributions from Self-Directed HSAs are tax-free if they are used to cover qualified medical expenses, which are expenses that would generally qualify as deductible medical and dental expenses on the individual’s tax return. Individuals should consult with their tax professionals to determine whether particular expenses meet this requirement.

Eligible expenses include those incurred by the Self-Directed HSA owner, as well as:

His/her spouse.
All dependents he/she claim on his/her tax return.
Any person he/she could have claimed as a dependent on his/her return except that:
1. The person filed a joint return,
2. The person had gross income of $4,050 or more, or
3. He/she and spouse if filing jointly, could be claimed as a dependent on someone else’s return for the year.

Generally, expenses incurred before the Self-Directed HSA was established are not considered eligible expenses.

Distributions that meet the eligibility expenses requirements are considered qualified distributions. Nonqualified distributions are treated as ordinary income to the Self-Directed HSA owner, and are subject to a 20% penalty, unless an exception applies.

Professional Help Is a Must

The information provided herein is a high-level overview of the rules that apply to Self-Directed HSAs, and failure to operate an HSA within the confines of the application regulations and operational requirements could result in the HSA owner being subject to excise taxes, penalties and ineligibility to deduct contributions.

Individuals should consult with a tax professional who is knowledgeable in the area of Self-Directed HSAs, to ensure that all the applicable rules and regulations are followed.

Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.

The Self-Directed HSA – Tapping Your Health Savings Account

July 25, 2016/in Articles, Blog, Health Savings Account, Health Savings Account, Home Link /by Jim Hitt

Have you been contribution to a health savings account for some time? If you’re in good health, you may be sitting on a fairly substantial sum. According to information from the Employee Benefit Research Institute and the New York Times, an investor contributing the maximum allowable per year to an HSA and who only generated a modest average 2.5 percent return could be sitting on as much as $360,000, if they didn’t need to spend anything down. And if they got just 5 percent, that number could be as high as $600,000. A skilled Self-Directed HSA investor can do quite a bit with a sum that big.

Nationwide, health savings accounts represent a lot of capital: As much as $30 billion as of the end of 2015, according to the 2015 Devinir Market Survey. This $30 billion is spread across 1.7 billion assets. Both assets and account numbers are expanding rapidly as the combination of high deductible health plans and health savings accounts gain in popularity among both individuals and employers. This leads us to our next subject, Self-Directed HSA and Retirement.

The primary purpose of the health savings account is, of course, to pay unreimbursed health care expenditures for yourself and your family. Contributions are pre-tax, and any distributions taken to pay for qualified health care expenditures are tax free. Unused balances continue to compound tax free. But if you withdraw money from your HSA before you turn 65 for non-qualified uses, you will have to pay income taxes, plus a 20 percent penalty. That’s twice as big as the 10 percent penalty that normally applies to early withdrawals of IRAs and 401(k)s.

But once you turn age 65, all of that money is fair game. You don’t have to pay any penalties for withdrawals for any purpose after that age. You simply pay the income tax on the amount you take out. It’s just like having an IRA at that point – except expenditures for health care expenses are still tax-free! If you had to raid an IRA to pay medical bills, you’d still have to pay income taxes.

This is why an HSA is a terrific asset to own.

HSAs have only been in existence for a little over a decade. But as long as you continue to contribute and remain in good health – or use other funds to finance health care expenditures – there’s no reason you can’t amass an amount that will make a definite positive difference in your retirement.

And like an IRA, you can choose to self-direct your HSA assets.

How? Simply open an account with American IRA, LLC, and fund it with your HSA assets, generally via a trustee-to-trustee transfer.

Then just tell us what you want to invest in – whom to wire your money to purchase the investment, and how much.

So doing opens a whole world of investments to the Self-Directed HSA owner:

Rental property
Private lending
Mortgage lending
Hard money lending
Tax liens and certificates
Fixing and flipping real estate properties
Private equity
Venture capital
Closely-held C corporations, LLCs and partnerships
Oil and gas investments
Farms and ranches
Horse training and breeding businesses
Fishing boats
Offshore businesses
Foreign real estate
Collateralized debt obligations

And much more.

A few tips: Remember the primary purpose of the health savings account: To pay health care expenses, either before or after you turn age 65. Liquidity is a factor: Keep track of your maximum out of pocket expenses for your high deductible health plan, as long as you’re in one, or for your existing health care plan or Medicare, and try to have that much in cash, cash equivalent or something easily and quickly converted to cash so you can pay those expenditures in the current year.

To learn more about the self-direction option for your health savings account, call us today at 866-7500-IRA(472), or visit us online at www.americanira.com.

We look forward to working with you.

The Self-Directed HSA – Tapping Your Health Savings Account

July 20, 2016/in Articles, Blog, Health Savings Account, Health Savings Account, Home Link /by Jim Hitt

Have you been contribution to a health savings account for some time? If you’re in good health, you may be sitting on a fairly substantial sum. According to information from the Employee Benefit Research Institute and the New York Times, an investor contributing the maximum allowable per year to an HSA and who only generated a modest average 2.5 percent return could be sitting on as much as $360,000, if they didn’t need to spend anything down. And if they got just 5 percent, that number could be as high as $600,000. A skilled Self-Directed HSA investor can do quite a bit with a sum that big.

Nationwide, health savings accounts represent a lot of capital: As much as $30 billion as of the end of 2015, according to the 2015 Devinir Market Survey. This $30 billion is spread across 1.7 billion assets. Both assets and account numbers are expanding rapidly as the combination of high deductible health plans and health savings accounts gain in popularity among both individuals and employers. May people don’t realize they can have a Self-Directed HSA.

Self-Directed HSAs and Retirement

This is why a Self-Directed HSA is a terrific asset to own.