by John Darer CLU ChFC MSSC CeFT RSP CLTC
It has been suggested that using a structured settlement annuity is an alternative to Health Savings Account. While I respect the author of the suggestion, in
my opinion such assertion cannot be applied categorically and each situation should be looked at indepedently. This blog explores the question below.
What is a Health Saving Account (HSA)?
A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). A high deductible health plan requires a minimum deductible of $1,400 ($2,800 family) and maximum out of pocket limit of $6,900 ($13,800 family).
- Contributions are tax deductible
- Withdrawals from the HSA to pay qualified medical expenses are tax-free.
- If you claim a family member on your taxes, you can use your HSA money for their qualified medical expenses – even if you just have single coverage.
- Interest grows tax-free
- Unused funds roll over annually if not used
- Contributions to an HSA reduce your Modified Adjusted Gross Income, which determines eligibility of subsidy under the Affordable Care Act (ACA)
- HSA accounts are liquid and portable.
Is a structured settlement a viable alternative to an HSA in 2020?
- An allocation of damages from a settlement involving personal physical injury settlement proceeds used to fund a structured settlement annuity also grows income tax-free. In contrast to an HSA, claimants can use structured settlement annuity payments for medical and non-medical costs.
- Structured settlement annuities, while fixed, do not have any usage stipulations. The injured claimant can use the payments to cover out-of-pocket medical costs, or any range of other expenses, from daily living expenses to longer-term costs, like college tuition or retirement.
- No ongoing fees
- Structured settlement annuities have no contribution limits, so injured claimants have complete control over the amount they want to contribute to the annuity.... HOWEVER
- Money cannot be withdrawn from a structured settlement annuity like it can with an HSA. If there is a timing mismatch, the only way to get liquidity is a confiscatory sale of structured settlement payment rights via a structured settlement factoring transaction for pennies on the dollar. The liquidity from a structured settlement is such cases may take 90 days and is subject to a judge's approval. Being dinged for a monthly fee from an HSA bank account is far less than the structured settlement factoring "penalty"
- That being said, research shows that the best HSA accounts offer low fees, easy access, and excellent investment options. For example
The monthly cost to own a Lively HSA is $0. Account opening fee; $0. Account closing fee; $0. Debit card fee (up to 3 cards per account); $0.
The account is also FDIC insured and it currently yields the following interest rate (varies depending on balance size):
Less than $2,500 0.25% APY
$2,500 – $4,999 0.35% APY
$5,000 – $14,999 0.45% APY
$15,000+ 0.60% APY
And if you’re an investor, all accounts are attached to the TD Ameritrade platform. And as luck would have it, TD Ameritrade recently changed their fee structure, and all stock trades now cost $0.00. Source: DoughRoller.Net
What are the HSA Contribution Limits for 2020?
The HSA contribution limits for 2020 are $3,550 for individuals and $7,100 for families. The catch-up contribution limit for those over age 55 is an additional at $1,000. If both spouses are 55 or older and not enrolled in Medicare, each spouse’s contribution limit is increased by the additional contribution. Each spouse must make the additional contribution to his or her own HSA.
Each situation must be looked at on its own merit. Given a 360 degree look, structured settlements and HSAs are complemenary financial tools that can be used to serve a client's needs.