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self-employed health deduction vs. HSA vs. MSA meeotch 06-27-2006
Posted by meeotch on June 27, 2006, 12:38 pm
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 So I've spent a significant chunk of time googling this, and
I'm still confused. As I understand it, a self-employed
person cannot contribute pre-tax dollars to an HSA:

http://www.ustreas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml#hsa11

But we /can/ deduct the cost of our high-deductible health
plan premiums, just as we normally do. So for someone who's
paying, say, $300/month for a low-deductible plan, and is
considering a $200/month $1500 high-deductible plan + HSA:

old = pay only SE tax on $3600
new = pay only SE tax on $2400, but full fed tax on $1500
HSA contribution

Using roughly 15% for SE, we've got:

old = $540 tax savings, $3600 in premiums
new = $360 tax savings, $2400 in premiums

Meaning about $1020 left to spend on getting sick, before it
becomes a bad idea. Does that sound right?

Bonus Question: I've got an Archer MSA from back in Ye Olde
Days. I was going to close it out, as I currently don't
have a high-deductible plan (I'm in New York, where the
high-deductible plans don't seem to be such a great
bargain.) My questions: are there any substantive
differences between MSA's and HSA's? Is it true that no new
MSA's may be written after 2003, or were they made
permanent? Is there any reason to keep my MSA, rather than
shutting it down & just getting an HSA in the future if I
choose?

mitch

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Posted by MyVeryOwnSelf on June 29, 2006, 12:35 am
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> ... I've got an Archer MSA from back in Ye Olde
> Days. I was going to close it out, as I currently don't
> have a high-deductible plan (I'm in New York, where the
> high-deductible plans don't seem to be such a great
> bargain.) My questions: are there any substantive
> differences between MSA's and HSA's?         

A few random thoughts.

First, watch out for state taxes. I live in California, and
got bitten by the state's decision not to conform with the
federal rules for HSAs. They basically don't recognize the
existence of HSAs for the purpose of state income tax. I
rolled over my MSA into an HSA: big mistake because the
state penalized me for using the MSA for what they
considered to be a non-medical purpose.

To "close out" an MSA, I'd suggest draining it by paying
medical bills, for as long as it takes. If you just withdraw
the funds you may end up being penalized by both the feds
and the state. There are qualifications (like
employment/insurance status) for putting funds into an MSA,
but once they're in there are no penalties for spending the
funds on medical expenses. While the MSA is draining, you
can start an HSA too.

Disclaimer: I'm not a tax pro, just somebody who has had an
MSA and an HSA.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by George on June 30, 2006, 6:27 pm
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eeotch@gmail.com wrote:

> ... As I understand it, a self-employed
> person cannot contribute pre-tax dollars to an HSA:
>
>
http://www.ustreas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml#hsa11
>
> But we /can/ deduct the cost of our high-deductible health
> plan premiums, just as we normally do. So for someone who's
> paying, say, $300/month for a low-deductible plan, and is
> considering a $200/month $1500 high-deductible plan + HSA:
>
> old = pay only SE tax on $3600
> new = pay only SE tax on $2400, but full fed tax on $1500
> HSA contribution

Can't the HSA contribution be taken as an adjustment on line
25 (1040)? If not, I'm in trouble.

George

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by MyVeryOwnSelf on July 2, 2006, 10:44 pm
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> Can't the HSA contribution be taken as an adjustment on line
> 25 (1040)? If not, I'm in trouble.

Yes, according to form 8889, line 11.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by D. Stussy on July 3, 2006, 1:37 am
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meeotch@gmail.com wrote:

> So I've spent a significant chunk of time googling this, and
> I'm still confused. As I understand it, a self-employed
> person cannot contribute pre-tax dollars to an HSA:
>
>
http://www.ustreas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml#hsa11

"Self-employed pre-tax dollars"???? What? Only employees can
have pre-tax dollars....

> But we /can/ deduct the cost of our high-deductible health
> plan premiums, just as we normally do. So for someone who's
> paying, say, $300/month for a low-deductible plan, and is
> considering a $200/month $1500 high-deductible plan + HSA:
>
> old = pay only SE tax on $3600
> new = pay only SE tax on $2400, but full fed tax on $1500
> HSA contribution
>
> Using roughly 15% for SE, we've got:
>
> old = $540 tax savings, $3600 in premiums
> new = $360 tax savings, $2400 in premiums
>
> Meaning about $1020 left to spend on getting sick, before it
> becomes a bad idea. Does that sound right?
>
> Bonus Question: I've got an Archer MSA from back in Ye Olde
> Days. I was going to close it out, as I currently don't
> have a high-deductible plan (I'm in New York, where the
> high-deductible plans don't seem to be such a great
> bargain.) My questions: are there any substantive
> differences between MSA's and HSA's? Is it true that no new
> MSA's may be written after 2003, or were they made
> permanent? Is there any reason to keep my MSA, rather than
> shutting it down & just getting an HSA in the future if I
> choose?

An existing MSA may continue to exist in its current form, but
no new accounts may be opened.

<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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