Q&A

Q&A: Health savings account rules

October 10, 2022 By Liz Weston

Dear Liz: I established a health savings account when I was self-employed using an HSA-compliant healthcare plan. Now I am employed. My employer does not offer a health plan that was designated as an HSA, but my deductible is $7,000, higher than the minimum for an individual. Can I continue to contribute to my existing HSA?

Answer: Unfortunately, no. To contribute to an HSA, you must be covered by an HSA-compliant high-deductible healthcare plan, and you may not be covered by other health insurance, including Medicare.

HSAs were created as a way to encourage people to choose high-deductible health insurance plans, but many people use them as an additional way to save for retirement. HSAs have a rare triple tax break: contributions are pretax, the account can grow tax deferred and withdrawals are tax free if used to pay qualifying healthcare expenses.

Unlike flexible spending accounts, which are “use it or lose it,” HSAs allow people to roll unused balances over from year to year. Plus, balances can be invested for long-term growth. Many people value these tax advantages so highly that they pay medical expenses out of pocket, leaving their HSA balances to grow for the future.

But HSA-compliant health insurance policies must meet certain criteria, including a minimum deductible of $1,400 for individuals and $2,800 for families for 2022. (The average deductible in 2021 was $2,349 for individuals and $5,217 for families, according to KFF, the healthcare research organization formerly known as the Kaiser Family Foundation.) The maximum out-of-pocket limit — including deductibles and co-pays, but not premiums — is $7,050 for individuals or $14,100 for families in 2022.

As you can see, you’ve wound up with the worst of both worlds: a very high deductible with no option to save in an HSA. Perhaps your employer is compensating you so handsomely in other areas that you can overlook this deficit in your benefits. If not, it might be time to look for an employer who can offer more.

Q&A: Investigate a credit score drop

October 3, 2022 By Liz Weston

Dear Liz: I had an 836 credit score as of last week. I’m a business owner and have been using my company credit card to pay bills on a large project to get 2% cash back. I charged $52,000 of the $70,000 I have available on that one card. (I have about $175,000 available across the three business cards I have) and my credit score went down to 699! I pay my cards off within days of receiving my statements. Is this a bad use of my cards? How long do you think it will take to get my score back up? Side note: I don’t need any more credit, but my business line of credit is coming up for renewal and I am buying a new truck in two months. Do you think this will be an issue?

Answer: Lower scores could cause you to pay more for credit, so it’s worth fixing this issue promptly.

There’s nothing wrong with using your cards to get rewards, as long as you’re paying your balances in full and not using too much of your available credit. Ideally, you’d use less than 10% of the limit on any card at any given time. (Credit scoring formulas pay close attention to the amount of credit you’re using on each revolving account as well as how much of your available credit you’re using overall.)

If you need to use a lot more of your credit limit, consider making more than one payment a month. Some people make bi-weekly or even weekly payments to keep their balances low.

(The balances that factor into your scores are typically the amounts that you owe on your statement closing date.)

Credit card issuers typically report to the credit bureaus every month, so it shouldn’t take more than 30 days for lower balances to improve your scores.

It’s a little unusual, however, for a business credit card to affect your personal credit scores. Typically, business accounts don’t show up on your credit reports, even if you used your personal credit history to apply for the cards. You may want to pull your three credit reports from AnnualCreditReport.com to see if other problems may have contributed to your score drop.

Q&A: What a bear market really means for your 401(k)

October 3, 2022 By Liz Weston

Dear Liz: With the stock market tanking and no rebound likely in the near future, should I decrease the amount I am contributing toward my retirement? I earn a high-five-figure salary and currently contribute 25% of my pay to my company’s 401(k). The current balance is $450,000 with about two-thirds held in a 2030 target date fund and the remainder in a 2035 target date fund. I hope to retire at the end of 2030 at age 64. I have no other retirement accounts, but I am married and my husband collects Social Security and a pension.

It’s hard putting hundreds of dollars into my 401(k) every two weeks only to watch it seemingly disappear. Would it be smart to decrease the percentage I contribute by 5% to 7% and then use that extra money to pay down a $40,000 home equity line of credit? Or should I just stay the course, keep my percentage the same and ride out this bear market?

Answer: Since you’re within 10 years of retirement, it’s time to hire a fee-only financial planner to get specific, individualized advice about your situation. The decisions you make in the years immediately before and after retirement can have a huge impact on how long your money lasts. Mistakes made in this time frame can be difficult if not impossible to reverse.

Take, for example, this impulse to reduce your contribution rate. Your money isn’t disappearing; it’s being used to buy stocks at a discount. When the market rebounds, as it inevitably will, those shares you bought on sale will benefit from the growth.

A planner would tell you not to cut retirement contributions simply because stocks had entered a bear market. The logical response to a bear market is to invest more, not less.

That said, variable rate debt is getting more expensive thanks to Federal Reserve Bank rate hikes. Reducing your 401(k) contributions a few percentage points to pay off that debt faster could make sense, especially if you’re not giving up free money in the form of a company match and your reduced savings rate will still allow you to retire on time.

Again, a fee-only financial planner could help you weigh your options and recommend the best path.

Q&A: An online bank didn’t want this reader’s deposit. Now what?

September 26, 2022 By Liz Weston

Dear Liz: I recently tried to open a high-yield, one-year certificate of deposit at an online bank. I already have one CD with this bank, but when I went to submit the form for the new account, I got a message on the screen that the bank had denied my request. I called the bank’s customer service line, but the rep said she could not give me any reasons as to why they denied my application.

I checked my three credit reports and everything is in order. The only thing I can think of was that I recently had a balance on one credit card that went slightly over 30% of my credit availability, but I paid that off in full. I did some research online and another reason might be that withdrawals from other bank accounts are appearing on my credit report. I have made some regular withdrawals recently from one of my money market accounts.

Why would a bank deny a customer giving them a large amount of money, so they could loan it out at the higher interest rates and make money? If I knew the reason for the denial, I could fix it. Is there a federal banking rights organization where I can dispute this denial?

Answer: You can file a complaint with the Consumer Financial Protection Bureau, which promises to work with your bank to resolve your issue. You also could file a complaint with the bank’s regulator, but there’s no guarantee you’ll get a response.

The denial probably wasn’t due to the information in your credit reports. A bank may check your credit before allowing you to open a new account, but you wouldn’t be denied because you used more than 30% of your credit limit. Bank transactions typically aren’t recorded in your credit reports, so that wouldn’t be a reason for denial, either.

The bank is required to send you an “adverse action” notice if it used your credit report or another consumer database to deny your application. That notice should explain the reason why, and the database it used.

It’s possible you encountered a technical glitch, or were trying to deposit more than the bank allowed for that account. Another possibility is that there were typos or errors in your online application. Whatever the case, the CFPB complaint should prompt a clearer response from the bank about what happened and what you can do to resolve the problem.