1. 850 Cassatt Road, Suite 310 Berwyn, PA 19312 610.251.0670
401(k) & HSA, “Better Together”
850 Cassatt Road, Suite Berwyn, PA

2. Main Line Association for Continuing Education
401(k) & HSA, “Better Together”
MACE
Main Line Association for Continuing Education
Thursday, September 28, 2017
8:30 am
Penn State, Great Valley
850 Cassatt Road, Suite Berwyn, PA

3. 401(k)’s and HSA’s: Better Together
Look for our cover story in the fall issue of Plan Consultant Magazine
401(k)’s and HSA’s: Better Together
Live Well. Retire Comfortably.

4. 401(k) & HSA, Better Together.
Your Guide Today…..
Kelton Collopy
VP, TPA Services
Tycor Benefit Administrators, Inc.
Joe Luscavage
VP, Employee Benefit Services
Tycor Benefit Administrators, Inc.
For our latest updates, insights & articles connect with!

5. Welcome

6. Todays Objectives….  Overview 401(k) and Health Savings Accounts
 Stimulate you with ideas and practical stories
 Inspire you to plan and think about tax effectives

7. It is not our intention…
 To make you retirement or benefits experts
 Provide you with an individualized road map to your success

8. 401(k) & HSA, Better Together.
The 401(k)
overview

9. Why Save? People are living longer and healthier lives
401(k) & HSA, Better Together.
Why Save?
People are living longer and healthier lives
You could spend 15, 20, 25 years or more in retirement
The retirement income guideline: replace 75% - 85% of your current income
You want work to be a choice
Your financial independence is a necessity

10. Using a 401(k) to Save Higher Limits Immediate Tax Savings
401(k) & HSA, Better Together.
Using a 401(k) to Save
Higher Limits
Immediate Tax Savings
Roth availability not limited by income
Protection from creditors claims

11. Roth After-tax Contributions
401(k) & HSA, Better Together.
Traditional Pretax vs. Roth After-Tax Contributions
Benefit
Traditional
Pretax
Roth After-tax Contributions
Tax-deferred Contributions?
Yes* No
Treatment of Plan Earnings?
Tax Deferred*
Tax Free**
Tax-free Distributions?
Yes**
*When taking withdrawals from a tax-deferred plan before age 59 ½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
**Earnings withdrawn before age 59 ½, and before the end of the five -year holding period may be subject to income tax and a 10% federal penalty tax.

12. Chris takes home $180 more due to the lower taxes!
401(k) & HSA, Better Together.
The Pretax Savings Advantage
Example
Chris
Pat
Gross Income
$24,000
Less Pretax Contribution (5%)
-$1,200 $
Gross Income on W-2
$22,800
Federal Income Tax
-$3,420
-$3,600
Adjusted Income After Taxes
$19,380
$20,400
Less After Tax Savings
-$0
Total Take Home Pay
$19,200
Chris takes home $180 more due to the lower taxes!
Assumes single individual, Federal income tax rate of 15%, and does not consider standard deductions or personal exemptions

13. Contributions Your Contributions
401(k) & HSA, Better Together.
Contributions
Your Contributions
Up to $18,000 in pre-tax and/or Roth 401(k) deferrals for 2017
Catch-up contributions for those age 50 and older $6,000 for 2017
Employer may contribute match and/or profit shareing on behalf of Employees

14. The High Deductible Health Plan Overview
401(k) & HSA, Better Together.
The
High Deductible
Health Plan
Overview

15. Qualified High Deductible Health Plan
401(k) & HSA, Better Together.
Qualified High Deductible Health Plan
Defined under §223(c)(2)(A) as a health plan with an annual deductible that is (2018): Deductibles Not Less than: $1,350 for self-only coverage or $2,700 for family coverage Out of Pocket Maximums (deductibles, co-payments, and other amounts) do not exceed: $6,550 for self-only coverage or $13,300 for family coverage (in network).
* The deductible must apply to all medical expenses (including prescriptions) covered by the plan. PPACA requires plans to pay for certain “preventive care” services on a first-dollar basis (before the deductible). These are more commonly referred to as “essential benefits.” Premiums are not included in Out of Pocket Maximums.

16. Health Savings Account
401(k) & HSA, Better Together.
The
Health Savings Account
Overview

17. 401(k) & HSA, Better Together.
HSA Features
Contributions from employer and/or policy holder, through payroll or direct*
Do not require minimum distributions at age 70 ½
A “pure tax shelter” – No income limits or earned income requirements
Triple tax advantaged when used for medical expenses
Contributions are in addition to 401(k) and/or IRA/Roth contributions
* Not to exceed IRS annual limits

18. 401(k) & HSA, Better Together.
Contributions…..
The HSA account is the policy holders account (no joint accounts)
Contributions can be made by employer and/or by policy holder (calendar year)
Must not exceed:
Single $ 3, Single $ 3,450
Family $ 6, Family $ 6,900
Over 55 Catch-up…$1,000* Over 55 Catch-up…$1,000*
Not counted as taxable income to the policy/account holder!
Contributions to your HSA can be made by you, your employer, or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return.
You can make a contribution to your HSA each year that you are eligible. The maximum contributions are:
2016 Single……$ 3,350 Family……$ 6,750 Over 55 Catch-up……$ 1,000
2017 Single……$ 3,400 Family……$ 6,750 Over 55 Catch-up……$ 1,000
These amounts are adjusted annually for inflation
* Separate accounts are typically required by HSA banking institutions

19. Account Owner Can Not Fund Their HSA….. …and be enrolled in Medicare!
401(k) & HSA, Better Together.
Account Owner
Can Not Fund Their HSA…..
…and be enrolled in Medicare!
…or be claimed as a dependent on someone else’s tax return!
Qualifying Rules to Contribute to an HSA:
• The individual must have coverage under an HSA-qualified “high deductible health plan” (HDHP)
• The individual must have no other first-dollar medical group coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long term care insurance are permitted).
• The individual must not be enrolled in Medicare.
• The individual must not be claimed as a dependent on someone else’s tax return.
Contributions to the Health Savings Account must stop once you no longer are enrolled in an HDHP or are enrolled in any other health insurance plan including Medicare. However, you can keep the money in your account and use it pay for medical expenses tax-free.

20. 401(k) & HSA, Better Together.
Contributions to the Health Savings Account must stop once the person is no longer enrolled in an HDHP or are enrolled in any other health insurance plan including Medicare. The money in a subscribers account(s) is available to pay for medical expenses tax-free.

21. Can I contribute to an HSA?
401(k) & HSA, Better Together.
Can I contribute to an HSA?
Are you insured under a QHDHP?
Yes No
PPO/HMO/ Medicare/No Insurance
No Contributions to HSA Allowed!
Contributions to HSA
Your HSA Account

22. As You Approach Retirement….
401(k) & HSA, Better Together.
As You Approach Retirement….
PLANNING REQUIRED
You cannot contribute to an HSA in any month that you are enrolled in Medicare.
If you retire at your target year (currently 66) you can make pro-rated contributions up to that month.
If you retire more than 6 months after your target retirement social security provides 6 months of “back pay” it also means it will back date part A Medicare.
Warning for when you retire: You cannot contribute to an HSA in any month that you are enrolled in Medicare. And there’s a pitfall inherent in that rule that you need to be aware of. When you finally sign up for Social Security retirement benefits—probably when you’re on the point of retirement—and if you’re already at least six months beyond your full retirement age (currently 66)—Social Security will give you six months of “back pay” in retirement benefits. It’s a generous gesture, but it means that your enrollment in Part A will also be backdated by six months. Under IRS rules, that leaves you liable to pay six months’ of tax penalties on your HSA. To avoid the penalties, you need to stop contributing to your account six months before you apply for Social Security retirement benefits.
Patricia Barry is a senior editor at the AARP Bulletin. for AARP Integrated Media and the author of “Medicare For Dummies” (Wiley/AARP, October 2013).

23. The HSA Bank Accounts Bank Fees Accrued Interest Claim Substantiation
401(k) & HSA, Better Together.
The HSA Bank Accounts
Bank Fees
Accrued Interest
Claim Substantiation
-Investments
Bank fees vary: $4.00 per month to $6.00 per month
Interest (Low now) but not taxable
Pairing accounts with carriers HDHP (Rolling over account balances)

24. Distributions from HSA accounts
401(k) & HSA, Better Together.
Distributions from HSA accounts
IRS Section 213(d) and Publication 502
QUALIFIED MEDICAL EXPENSES

25. IRS Section 213(d) Distributions Examples of Qualified Expenses:
401(k) & HSA, Better Together.
Distributions
IRS Section 213(d)
Examples of Qualified Expenses:
Long-term Care
Medicare Parts B, C & D Premium *
Private Hospital Rooms
Acupuncture
Viagra
COBRA Premiums
Executive Physicals
Dental and Vision – Alternative way to fund dental and vision care
*Not Part C, yes to certain supplement plans
Medical Travel
Dental Care
Chiropractic
Infertility/in vitro
Durable Medical Equipment
Hearing Aids & Batteries
Rx Sun Glasses, Designer Frames & Contact Lenses
* Excludes Medicare supplemental plans

26. IRS Section 213(d) Distributions from HSA accounts
401(k) & HSA, Better Together.
Distributions from HSA accounts
IRS Section 213(d)
Specific on what is not a qualified expense
Non-medically necessary procedures…i.e. without a Rx
Gym memberships/personal trainer
Anything of a cosmetic nature
Over the counter drugs without an Rx
Private carrier insurance premiums
Expenses that are merely beneficial to general health.
Dental and Vision – Alternative way to fund dental and vision care

27. IRS Penalties for NON-QUALIFIED distributions
401(k) & HSA, Better Together.
IRS Penalties for NON-QUALIFIED distributions
Any amounts used for purposes other than to pay for “qualified medical expenses” are:
Under Age 65, Subject to a 20% tax penalty & taxed as ordinary income.
Age 65 and older, Taxed as ordinary income but the 20% penalty does not apply.
Disabled per Medicare Definition, Taxed as ordinary income, the 20% penalty does not apply.

28. Never choose a HDHP and not fund the
401(k) & HSA, Better Together.
Never choose a HDHP and not fund the
HSA at least to the level of your deductible!

29.  An FSA (Flexible Spending Account)
401(k) & HSA, Better Together.
It is NOT….
 An Insurance Plan
 An FSA (Flexible Spending Account)
 An HRA (Heath Reimbursement Account)
 Short term

30. Taxable* It is also NOT…. * IRS rules apply
401(k) & HSA, Better Together.
It is also NOT….
Taxable*
* IRS rules apply

31. Any Questions? Here is your dollar in payroll……
401(k) & HSA, Better Together.
Here is your dollar in payroll……
Here is your dollar in the HSA*…..
Any Questions?
* IRS rules apply

32. The Working/Savings Years
401(k) & HSA, Better Together.
The Working/Savings Years
Investment Growth
Investment Growth
Investment Growth
Investment Growth
Investment Growth
Investment Growth
401(k)
Age 50“Catch Up”
Age 50“Catch Up”
Age 50“Catch Up”
Contribution
Contribution
Contribution
Contribution
Contribution
Contribution
Match
Match
Match
Match
Match
Match
age 19 or 24/26
First Job
Management, Marriage &/or Family
Career Instability
Retirement
Career Maturity
Deduct
Deduct
Deduct
Deduct
Deduct
Deduct
Deduct
Deduct
HSA
OOP Max
OOP Max
OOP Max
OOP Max
OOP Max
OOP Max
OOP Max
HSA starter
Kit
Coverage at
Lowest cost
Cost Efficient
Family Premiums
“ Age 55 Catch Up”
“ Age 55 Catch Up”
Self-insuring
voluntary benefits
(Dental & Vision)
The COBRA
“kitty”
Maximizing Tax
Deductions & age 55
catch up..
Investment
Growth
The
“Medical 401(k)”
*20% IRS Penalty for Distributions from HSA not in accordance with IRC 213(d)

33. The Retirement Years 401(k) HSA Medicare
401(k) & HSA, Better Together.
The Retirement Years
Your Retirement Income
Your Retirement Income
Your Retirement Income
401(k)
Your Retirement Income
Your Retirement Income
Medicare
Social Security Retirement Age
Age 70 ½
Estate Strategies
HSA
HSA
HSA
HSA
HSA
HSA
Avoids Probate
Beneficiary
Spouse
Other
No beneficiary named
Non-Medical distributions
at regular tax
OOP Retirement
Medical Expenses
(Ex: Dental,
Vision, Hearing Aids)
No minimum distribution
required
Post Retirement
Parts B, C & D Medicare
Rx Donut hole

34. Pause for a moment & think about this:
401(k) & HSA, Better Together.
The average American will face $260,000 in out-of-pocket expenses not covered by Medicare 1.
Pause for a moment & think about this:
Assumptions:
Starting at age 27
Married at age 35
20% Utilization for Medical Out of Pocket Spend
$1000 catch up at age 55
40% composite tax (state, county, federal etc.…)
8 $3,400/year = $27,000 (Income to save: $37,880 post tax)
20 $6,750/year = $135,000 (income to save: $189,000 post tax)
10 $6,750/year + 2 over 55 $1,000 catch ups = $87,500 (income to save: $122,500 post tax)
Sub Totals: $249,500 HSA $349,380 Post Tax Earnings
Medical Utilization: $49,900
Some Social Security recipients are subject to the highest marginal income tax rates in the country, 55% in some cases 3 — depending on their other sources of retirement income in a given year.

35. $377,000 gross earnings/retirement
401(k) & HSA, Better Together.
$351,000 gross earnings or
$91,000 in taxes
35% (composite) tax rate
$377,000 gross earnings/retirement
disbursement Or
$117,000 in taxes
45% 2 (composite) tax rate (retired)

36. Leverage the tax benefits (estimate 30% composite tax rate)
401(k) & HSA, Better Together.
Leverage the tax benefits
(estimate 30% composite tax rate)
it could be $182,000 in savings!

37. 401(k) & HSA, Better Together.
For 2016 Bureau of Labor Statistics Reports that on average American’s spend more on Taxes than Food & Clothing Combined! 4
BLS: Americans Spend More on Taxes Than Food and Clothing Combined
Chart Courtesy of CSNews.com 5

38.  Discipline Pre-Condition for Success: Fund Them
401(k) & HSA, Better Together.
Pre-Condition for Success:
 Discipline
Fund Them
Leave it alone! NO LOANS.
Use the HSA for IRS Approved Spending
Trusted Advisor….

39. Where are you on the Continuum?
Baby Boomers…..Maximization those Tax Advantages!
X & Y Generations….Use the “catch up provisions” & focus on retirement, it’s coming!
Millennials…. Save, scoop up employer matching funds, invest, understand the difference in value of a post and a pre tax dollar & take advantage of changes to the tax code when they arise.

40. 401(k) & HSA, Better Together.

41. Call us if you have any questions.
401(k) & HSA, Better Together.
Don’t go it alone!
Call us if you have any questions.
Read about new opportunities and changes by linking to us

42. For additional information or questions contact
Live Well. Retire Comfortably.
For additional information or questions contact
Joe Luscavage

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