Obamacare possible repeal may birth a new retirement account

Obamacare possible repeal may birth a new retirement account
Obamacare possible repeal may birth a new retirement account

To understand the trade-offs of a Roth HSA, you have to know how regular HSAs work.

HSAs, introduced in 2003, offer you triple tax advantages: First, contributions are tax-deductible. Second, those contributions can be invested and grow tax-free. Third, withdrawals aren't taxed as long as you use them for qualified medical expenses.

If you use an HSA to pay for unqualified medical expenses, the tax penalty is 20 percent, unless you are 65 or older. That is when when you can take money out for whatever you want, but the withdrawals will still be subject to regular income taxes.

A drawback of HSAs is that they are paired with a high-deductible health plan. Such a plan means you'll have to pay a deductible of at least $1,300 for individual coverage and $2,600 for families. The maximum annual out-of-pocket costs for these plans are $6,550 for individuals and $13,100 for families.

In 2017, you (and your employer) can contribute up to $3,400 to an HSA for individuals and $6,750 for families. Account holders age 55 and older can contribute an extra $1,000.

You also can use your HSA to pay for Medicare premiums and out-of-pocket expenses including deductibles, co-pays and coinsurance (except Medigap).

Under the Cassidy-Collins plan, Roth HSA contributions would not be tax-deductible, cutting off one leg of the triple advantage. However, unlike regular HSAs, you wouldn't need a high-deductible health plan to qualify for a Roth HSA — and you could pay health-insurance premiums with the account.

"Using a Roth HSA to pay premiums sounds good, but since the average HSA has a balance of $2,000 you would quickly exhaust the account," said Eric Remjeske, president and founder of Devenir, an HSA consulting firm in Minneapolis.

Remjeske, who favors expanding HSAs as part of health care reform, prefer Congress would focus on options that "are a little more realistic and doable."


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