The IRA Financial Group offers one of the country’s only “Checkbook Control” Self-Directed HSA accounts. With IRA Financial Group & IRA Financial Trust Company, you can establish and fund an HSA while gaining the ability to invest in what you know, such as real estate, notes, private businesses, options, and even cryptocurrencies.
What is an HSA?
A Health Savings Account (HSA) is a tax advantaged savings account for medical expenses. The IRS has come up with the HSA for qualifying taxpayers to receive a tax benefit for medical expenses paid whether you itemize or not.
One can open an HSA if you have a qualifying high deductible health plan. The HSA can be kept forever, whether you leave your job or change insurance plans. Contributions, earnings, and qualified withdrawals are all tax free.
What is a High Deductible Health Plan?
A High Deductible Health Plan (HDHP) is a category of health insurance plans available from your health insurance provider. They have lower monthly premiums and a higher yearly deductible than regular health insurance plans. An HDHP has a higher deductible than most health plans, and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you pay. You can set up a self-only (one person) or a family (more than one person) coverage plan.
Does your Plan Qualify as a HDHP?
A qualified HDHP must have a minim deductible, which is set each year by the IRS. This means that the plan can’t have a deductible that is less than the below figures. If the plan does, it is not a qualified plan for the HSA:
- Self-Only Coverage: $1350
- Family Coverage: $2700
In general, high deductible plans have some of the following characteristics:
- Can cost less than other health plans.
- Provides quality health insurance.
- One calendar-year deductible per family.
- Can pay 100% of covered expenses after deductible is met.
Self-Only vs. Family Coverage
If you are married and either you or your spouse has a family HDHP, then both of you have family coverage. This is true even if one of you has a family plan and the other one has a self-only plan. Each of you can have an HSA. This means that together you can contribute up to the family limit.
However, you can’t each contribute up to the family limit.
- If you each have a self-only plan, then you can each contribute up to the self-only limit to your respective HSA.
- If you have a family plan with a deductible for each person, you can still contribute only up to the family limit. For example, you have a $6,000 deductible for each person. You and your spouse are on the plan. The contribution limit for the two of you is the family limit for the year. Between the two of you, you can contribute up to that amount.
However, if you and your spouse are filing jointly and either of you have a family coverage plan, you are both considered to have the family coverage plan (even if one of you has a self-only plan).
2018 HSA Contribution Rules
The 2018 annual contribution limit that individuals with single medical coverage can contribute to a health saving account is $3,450, an increase of $50 from 2017. The annual HSA contribution limit is $6,900 for those covered under qualifying family medical plans (up from $6,750 in 2017). But if you’re 55 or older in 2018, you can contribute an additional $1,000, or total of $4,450 to an HSA for singles and $7,900 for families per year.
How does an HSA work?
Think of an HSA as a bank account that you can open if you have an HDHP. You can contribute money to this account, tax free. That money can be invested so that it grows and compounds over time, tax free. If you need to pay for a qualified medical expense (QME), you can withdraw money from your HSA, tax free. The self-directed tax specialists will assist you with this process.
Benefits of using an HSA
There are numerous benefits of HSA plans compared to regular health insurance. You save money each month because the premiums are lower, and you are still insured against catastrophe. Your HSA savings account is highly tax advantaged as the funds grow tax-deferred. The HSA is also a great savings plan that can be used for medical expenses, emergencies, job loss, or retirement.
In general, below are some of the main benefits of establishing an HSA:
- Ability to claim a deduction for contributions you make that are not pre-tax or made by your employer, even if you don’t itemize your deductions on Schedule A.
- NEVER taxed when used for qualified medical expenses.
- Contributions made on your behalf by your employer, including any pre-tax contributions you make through a cafeteria plan, are generally not taxable.
- Unused contributions remain in your account from year to year.
- Interest, income, and gains earned on the account is usually tax-free.
- Distributions used to pay for qualified medical expenses are tax-free.
- Your account stays with you even if you leave your employer.
Withdrawing Funds from an HSA
In general, any funds you withdraw for non-qualified medical expenses will be taxed at your income-tax rate, plus 20% if you’re under 65.
How to set up an HSA?
Establish a self-directed HSA account with IRA Financial Trust Company. Remember, one can open an HSA if you have a qualifying high deductible health plan. One can contribute to the plan annually on a tax-free basis through your employer, or you contribute on your own and receive a tax deduction on Form 1040, line 25. As you need the funds to pay medical expenses, you receive distributions from the account.
Taking a distribution is quick and easy. As long as the distributions are used to pay medical expenses, there is no tax effect. Simply complete an HSA Distribution Request form and the distribution will be sent to you ASAP. The beauty of the plan is that you get the tax benefit up-front when you contribute to the plan. Any unused funds carry over from year-to-year until you need them.
- Used to meet your deductible.
- Tax deductible off of gross income.
- Grow tax-deferred.
- Self-directed options – real estate, notes, private business, options, cryptocurrencies & more.
- Roll over year after year – no “use it or lose it”.
- Portable, goes with you wherever you go.
- Health insurance premiums when you’re between jobs.
- Qualified long-term care premiums.
- Medicare premiums and out-of-pocket expenses.
- Living expenses after age 65 (pay ordinary income taxes).
What Investments are Prohibited with an HSA?
The Internal Revenue Code does not describe what a Self-Directed IRA or Solo 401(k) Plan can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of retirement accounts for accumulation of retirement savings and to prohibit those in control of retirement accounts from taking advantage of the tax benefits for their personal account.
In general, as long as one does not use the HSA funds to buy life insurance, collectibles, or engage in any transaction that directly or indirectly involves or benefits a disqualified person, the transaction will not violate the IRS prohibited transaction rules.
Can I get Checkbook Control with an HSA?
Yes. With a “Checkbook Control” Self-Directed HSA, the HSA holder (you) will have total control over your HSA funds and you will no longer have to get each investment approved by the custodian of your account like in a custodian controlled Self-Directed HSA. Instead, all decisions are truly yours. When you find an investment that you want to make with your HSA funds, simply write a check or wire the funds straight from your Self-Directed HSA LLC bank account to make the investment.
Under the checkbook control format, the HSA is set up as a self-directed account that’s capitalized by funds rolled over from your current retirement account. Then, a limited liability company (LLC) is created in which your new HSA purchases all the membership units/interests. Now, your money is held in an LLC and you are ready to invest at your discretion. A “Checkbook Control” Self-Directed HSA allows you to eliminate the delays associated with an HSA custodian, enabling you to act quickly when the right investment opportunity presents itself.
With a Self-Directed HSA, when you find an investment that you want to make with your HSA funds, simply write a check or wire the funds straight from your Self-Directed HSA LLC bank account to make the investment.