How much is too much in an HSA?

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CnC
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How much is too much in an HSA?

Post by CnC » Thu Nov 07, 2019 4:12 pm

Or is there such a thing as too much?

We are very new to the whole hsa concept, I just started an HSA this year and put ±3000 in it.

My wife's nice high quality low cost insurance went down the tubes finally this year.

Her company held on and continued offering wonderful coverage at low costs for quite a few years despite the ACA but now they finally they folded and now offer their employees the junky bronze silver and gold options.

They do atleast offer a $2000 dollar for dollar match for her on an employee and family option.

So this upcoming year we will be saving close to the 7100 maximum in our HSA accounts. We have no expectations that it will ever get better again and assume we are stuck from here on out.

Is it best practice just just make sure we max it out every year and then pay all medicine bills out of pocket?

Or is there a point where you have "enough" in the HSA account and start using it/ or stop trying to max it out?

I realize it's certainly more than the ±10k we will have in it by end of next year but I'm not sure if we should just budget 7k+ on our budget from here on out.

Also assuming early retirement (50±) can you fund it and take that money off your taxes out of a pension?

KingRiggs
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Re: How much is too much in an HSA?

Post by KingRiggs » Thu Nov 07, 2019 4:15 pm

Since a recent study showed that an average married couple can spend up to $250k on healthcare in retirement, I'd say just keep socking it away.
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goodenyou
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Re: How much is too much in an HSA?

Post by goodenyou » Thu Nov 07, 2019 4:17 pm

I doubt you can save your way to a surplus. Save away!
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runner3081
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Re: How much is too much in an HSA?

Post by runner3081 » Thu Nov 07, 2019 4:19 pm

Considering they have not been around very long and the very low annual contribution limits, I think it would be hard to have "too much".

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simplesimon
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Re: How much is too much in an HSA?

Post by simplesimon » Thu Nov 07, 2019 4:23 pm

I think $100k is when I might start to think I have "enough", but I am 30 years from Medicare...impossible to know what healthcare costs will be at that point.

I would guess a very small number of Bogleheads have $100k in their HSA.
Last edited by simplesimon on Thu Nov 07, 2019 4:25 pm, edited 2 times in total.

aristotelian
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Re: How much is too much in an HSA?

Post by aristotelian » Thu Nov 07, 2019 4:24 pm

Since you can use it as a pretax IRA in the very worst case scenario, I would say you can never have too much.

Keep in mind you can use it for Medicare premiums and Long Term Care insurance.

H-Town
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Re: How much is too much in an HSA?

Post by H-Town » Thu Nov 07, 2019 4:29 pm

Here I thought that the HSA annual max limitation is extremely low. If they let me put away 50k in HSA annualy, I would do it in a heartbeat.

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Re: How much is too much in an HSA?

Post by HomeStretch » Thu Nov 07, 2019 4:36 pm

IMO it would be hard to save too much long-term in an HSA especially if you save a lifetime of qualified medical expense receipts in order to substantiate distributions. While qualified medical expenses are likely low when you are younger, expense levels later on can increase (for example, if you have dependents and/or self-paid healthcare premiums in retirement or due to job loss).

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Re: How much is too much in an HSA?

Post by deltaneutral83 » Thu Nov 07, 2019 4:45 pm

There are several threads on BH about horror stories from the ER where insurance companies don't want to pick up the tab on out of network services provded by medical people in the ER who aren't in network. Think 50 grand just to get the ball rolling. Of course you will fight it out with the insurance company but I can't think that an HSA balance can be too high.

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Svensk Anga
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Re: How much is too much in an HSA?

Post by Svensk Anga » Thu Nov 07, 2019 4:53 pm

It may be too much if you are foregoing company 401k matching dollars in order to be able to fund it. If getting your match is not an issue, it is at least as good as a 401k/traditional IRA, but more likely better if you can manage to take your withdrawals tax-free at some point.

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Re: How much is too much in an HSA?

Post by Chrono Triggered » Thu Nov 07, 2019 5:00 pm

No such thing as too much. Keep receipts for major medical expenses so you can withdraw here and there if you need to, but even if you still don't touch it, you can access it penalty free when you turn 65. At that point, it's similar to a traditional IRA, but without the RMDs.

Only pay for medical bills out of pocket if you are maxing out all your available tax-deferred space.

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Artsdoctor
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Re: How much is too much in an HSA?

Post by Artsdoctor » Thu Nov 07, 2019 5:01 pm

CnC,

In absolute terms, I don't think you can save too much in your HSA. It's pretax savings, your gains are tax-free, and you pull it out tax-free for medical (and dental) expenses.

However, you have to be aware of potential opportunity costs. If you're saving plenty in all of the other investment vehicles, then by all means, max out your HSA. The more complicated question becomes apparent when you have to choose which type of investment vehicle you want to use if options are limited.

Whatever you ultimately decide to do, make sure you understand not just the tax implications of your decision but the estate-planning ramifications as well (the HSA is probably one of the worst estate planning accounts but there are ways to turn the lemons into lemonade).

anon_investor
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Re: How much is too much in an HSA?

Post by anon_investor » Thu Nov 07, 2019 5:01 pm

As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).

czaj
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Re: How much is too much in an HSA?

Post by czaj » Thu Nov 07, 2019 5:02 pm

I was listening in on an HSA Bank webinar recently, and the host claimed they had 6 accounts with balances over 1M. Assuming this is true, I wonder what these people were invested in.

But I would say if you have less than 1M, you don’t have too much. :)

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Re: How much is too much in an HSA?

Post by Darth Xanadu » Thu Nov 07, 2019 5:31 pm

Artsdoctor wrote:
Thu Nov 07, 2019 5:01 pm

Whatever you ultimately decide to do, make sure you understand not just the tax implications of your decision but the estate-planning ramifications as well (the HSA is probably one of the worst estate planning accounts but there are ways to turn the lemons into lemonade).
Indeed, this is a good point. For my spouse and I, the surviving spouse will, upon the passing of the other, immediately withdraw the balance of the HSA up to the limit of previously incurred qualified expenses, so as to preserve and lock in the tax-advantaged treatment of the account.
"A courageous teacher, failure is."

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Re: How much is too much in an HSA?

Post by FIREchief » Thu Nov 07, 2019 5:33 pm

anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: How much is too much in an HSA?

Post by anon_investor » Thu Nov 07, 2019 5:50 pm

FIREchief wrote:
Thu Nov 07, 2019 5:33 pm
anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
True. But that would require an unexpected death or poor planning...

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Re: How much is too much in an HSA?

Post by Artsdoctor » Thu Nov 07, 2019 6:03 pm

FIREchief wrote:
Thu Nov 07, 2019 5:33 pm
anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
If you're charitably inclined and plan to leave something to a non-profit anyway, the non-profit could be perfect beneficiary to your HSA. In doing so, you'd "free up" other money in various accounts to pass on to heirs in a more efficient manner.

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Re: How much is too much in an HSA?

Post by MrBeaver » Fri Nov 08, 2019 8:31 am

Artsdoctor wrote:
Thu Nov 07, 2019 6:03 pm
[quote=FIREchief post_id=4828854 time=<a href="tel:1573165994">1573165994</a> user_id=112118]
[quote=anon_investor post_id=4828791 time=<a href="tel:1573164104">1573164104</a> user_id=148993]
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
[/quote]

If you're charitably inclined and plan to leave something to a non-profit anyway, the non-profit could be perfect beneficiary to your HSA. In doing so, you'd "free up" other money in various accounts to pass on to heirs in a more efficient manner.
[/quote]

This is exactly why my plan is:

1. Keep socking away the max I can and save receipts.
2. Withdrawal from previous expenses once the projected balance at Medicare age is > ~$500k (today’s dollars) which would cover $15k/year for part A and B beneficiaries at a 4% withdrawal rate.
3. Once retired and before SS, use HSA money (with deferred receipts if I have any) to pay Roth conversion tax, or to live on instead of IRA withdrawals if I don’t need to do Roth conversions.
4. In retirement, if the projected end of life sum of my HSA account is greater than the amount I want to leave to charity and I’d rather leave more in Roth, taxable, or IRA to heirs, gradually withdrawal and convert to taxable account.

I’m actually pretty close to #2 now: 155k balance today (been contributing max since they started in 2003). At 60.5 when I could start withdrawing penalty free, that would be:

5% returns after inflation:
440k with continual contributions, 300k with no additional contributions (if HSAs go away or I lose access to a HSA qualified account).

6% returns after inflation:
700k with continual contributions, 500k with no additional contributions (if HSAs go away or I lose access to a HSA qualified account).

It’s a good problem to have, but I hope it gradually shrinks as a portion of my net worth. Currently it’s about 30% of my non-home equity net worth.

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 12:12 pm

aristotelian wrote:
Thu Nov 07, 2019 4:24 pm
Since you can use it as a pretax IRA in the very worst case scenario, I would say you can never have too much.

Keep in mind you can use it for Medicare premiums and Long Term Care insurance.
Huh? It can only be used for qualified medical expenses.

How is it a pretax ira?

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Re: How much is too much in an HSA?

Post by KingRiggs » Fri Nov 08, 2019 12:14 pm

CnC wrote:
Fri Nov 08, 2019 12:12 pm
aristotelian wrote:
Thu Nov 07, 2019 4:24 pm
Since you can use it as a pretax IRA in the very worst case scenario, I would say you can never have too much.

Keep in mind you can use it for Medicare premiums and Long Term Care insurance.
Huh? It can only be used for qualified medical expenses.

How is it a pretax ira?
HSA withdrawals for non-medical expenses after age 65 are penalty-free. You would pay ordinary income on them, just like an IRA.
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Nate79
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Re: How much is too much in an HSA?

Post by Nate79 » Fri Nov 08, 2019 12:16 pm

$500k for a couple in my mind is maybe the max I would want in an HSA.

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Re: How much is too much in an HSA?

Post by MrBeaver » Fri Nov 08, 2019 12:20 pm

CnC wrote:
Fri Nov 08, 2019 12:12 pm
aristotelian wrote:
Thu Nov 07, 2019 4:24 pm
Since you can use it as a pretax IRA in the very worst case scenario, I would say you can never have too much.

Keep in mind you can use it for Medicare premiums and Long Term Care insurance.
Huh? It can only be used for qualified medical expenses.

How is it a pretax ira?
https://www.irs.gov/publications/p969#e ... 1000204092
Additional tax.
There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR.

Exceptions. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.
Because of the estate planning implications, HSA balances at death when there are no spousal beneficiaries are highly taxed unless they are to a tax-exempt (charitable) organization. This is why Artsdoctor suggested using them as part of your charitable giving strategy within your estate plan.
Last edited by MrBeaver on Fri Nov 08, 2019 12:21 pm, edited 1 time in total.

music_man
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Re: How much is too much in an HSA?

Post by music_man » Fri Nov 08, 2019 12:21 pm

I would argue there is virtually no amount that's too much to have in an HSA. You'll likely have health expenses to be able to use it when you get older. If not, it is almost functionally equivalent to an IRA when you turn 65, except better:
  • You can still withdraw tax free for qualified health care expenses
  • You can withdraw for non health care expenses and tax is just ordinary income (identical to an IRA)
  • No RMD

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 12:23 pm

KingRiggs wrote:
Fri Nov 08, 2019 12:14 pm
CnC wrote:
Fri Nov 08, 2019 12:12 pm
aristotelian wrote:
Thu Nov 07, 2019 4:24 pm
Since you can use it as a pretax IRA in the very worst case scenario, I would say you can never have too much.

Keep in mind you can use it for Medicare premiums and Long Term Care insurance.
Huh? It can only be used for qualified medical expenses.

How is it a pretax ira?
HSA withdrawals for non-medical expenses after age 65 are penalty-free. You would pay ordinary income on them, just like an IRA.

O ok thanks that does make it better then, I suppose there really is no downside then.


I just was Invisioning a time where you could hit 5-10x max out of pocket and never be able to spend it down.

Right now my employer have a very unique hsa plan. 100% self insurance to 3k then 100% employer coverage after that.

If that plan doesn't change even accounting for inflation I should have more than 10x my yearly maximum within 10 years and possibly 30x out of pocket maximum by the time I retire.

I just didn't want to be stuck with a bunch of money I couldn't touch.

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Re: How much is too much in an HSA?

Post by MrBeaver » Fri Nov 08, 2019 12:29 pm

CnC wrote:
Fri Nov 08, 2019 12:23 pm
Right now my employer have a very unique hsa plan. 100% self insurance to 3k then 100% employer coverage after that.

If that plan doesn't change even accounting for inflation I should have more than 10x my yearly maximum within 10 years and possibly 30x out of pocket maximum by the time I retire.

I just didn't want to be stuck with a bunch of money I couldn't touch.
Remember that HSA funds can be used to pay Medicare premiums:

https://www.irs.gov/publications/p969#e ... 1000204086
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for:
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
I have heard that OOP costs plus Medicare part B, C, and D premiums can run $5-15k/year for a retired couple depending on your coverage amount chosen. So at retirement, your effective 'OOP Maximum' that you could pay from an HSA without any tax may be much higher than your current 3k/year.

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 1:54 pm

MrBeaver wrote:
Fri Nov 08, 2019 12:29 pm
CnC wrote:
Fri Nov 08, 2019 12:23 pm
Right now my employer have a very unique hsa plan. 100% self insurance to 3k then 100% employer coverage after that.

If that plan doesn't change even accounting for inflation I should have more than 10x my yearly maximum within 10 years and possibly 30x out of pocket maximum by the time I retire.

I just didn't want to be stuck with a bunch of money I couldn't touch.
Remember that HSA funds can be used to pay Medicare premiums:

https://www.irs.gov/publications/p969#e ... 1000204086
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for:
Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
I have heard that OOP costs plus Medicare part B, C, and D premiums can run $5-15k/year for a retired couple depending on your coverage amount chosen. So at retirement, your effective 'OOP Maximum' that you could pay from an HSA without any tax may be much higher than your current 3k/year.

Right and who knows how long our 3 k a year maximum oop will last even indexed for inflation.

The important things that I didn't think about is back charging for past medical bills and the idea that you can take the money out penalty free (just tax) after 65.



One more question, my HR department said that I can cover my wife and children's medical bills out of my HSA even if they are not covered by my insurance. (wife had her own this year that was not HSA eligible)

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FiveK
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Re: How much is too much in an HSA?

Post by FiveK » Fri Nov 08, 2019 2:14 pm

CnC wrote:
Fri Nov 08, 2019 1:54 pm
One more question, my HR department said that I can cover my wife and children's medical bills out of my HSA even if they are not covered by my insurance. (wife had her own this year that was not HSA eligible)
Sometimes, as here, HR gets it right. ;)

From https://www.irs.gov/pub/irs-pdf/p969.pdf:
Qualified medical expenses are those incurred by the following persons.
1.You and your spouse.
2.All dependents you claim on your tax return.
3.Any person you could have claimed as a dependent on your return except that:
a.The person filed a joint return,
b.The person had gross income of $4,150 or more, or
c.You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2018 return.

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Re: How much is too much in an HSA?

Post by bowest » Fri Nov 08, 2019 2:24 pm

Pretty much no amount is too much. You can bank current medical spending and withdraw tax free at later date. HSA can be used to cover insurance premiums under COBRA as well as Medicare premiums. After 65 you can withdraw without penalty with traditional IRA rules applying if you don't have qualified medical expenses. Fill her up.

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Re: How much is too much in an HSA?

Post by Wiggums » Fri Nov 08, 2019 2:27 pm

I agree. I don’t think you will be able to save too much in the HSA.

For many, many years, my employer medical insurance premiums were almost zero. With each merger and acquisition of my former company, my retiree medical goes up and up each year.

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Re: How much is too much in an HSA?

Post by Winthorpe » Fri Nov 08, 2019 2:38 pm

Rember that you can use it like a traditional IRA in retirement (age 65 I think?) for non-medical distributions, too.

So, not too likely your HSA will get too large.

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Re: How much is too much in an HSA?

Post by Spirit Rider » Fri Nov 08, 2019 2:41 pm

KingRiggs wrote:
Thu Nov 07, 2019 4:15 pm
Since a recent study showed that an average married couple can spend up to $250k on healthcare in retirement, I'd say just keep socking it away.
Fidelity's latest estimate is that an average 65 year old couple will spend $285K (2019 dollar$) in medical expenses, not including over the counter, vision, dental and LTC expenses.

Note: One significant expense in retirement included in that estimate, but not reimbursable from an HSA are Medicare Supplement premiums. If you have a significant HSA balance, you can use Plan F*/G a high-deductible plan and use the HSA to self-insure the deductible.

*Not available for newly eligible recipients after 12/31/2019.

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Re: How much is too much in an HSA?

Post by CoastalWinds » Fri Nov 08, 2019 2:46 pm

KingRiggs wrote:
Thu Nov 07, 2019 4:15 pm
Since a recent study showed that an average married couple can spend up to $250k on healthcare in retirement, I'd say just keep socking it away.
+1. And that’s in today’s dollars. Will probably double in 15 years (given higher inflationary rates of med costs).

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Re: How much is too much in an HSA?

Post by illumination » Fri Nov 08, 2019 2:46 pm

It's more of an estate planning concern than anything when you get "too much". Basically that the dollars would get better tax treatment for the heirs had they been in something else, even a taxable account.

But if you did get to the retirement years and say had a million dollars in an HSA, I could see a good case being made you start drawing it down just like another IRA and not just using it for medical expenses. In which case its taxed just like a 401k or IRA, so no harm.

The way an HSA is structured though is such a sweet deal that it really makes sense to plow as much in there as possible and keep receipts and hope you have this problem.

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Re: How much is too much in an HSA?

Post by Artsdoctor » Fri Nov 08, 2019 3:08 pm

Spirit Rider wrote:
Fri Nov 08, 2019 2:41 pm
KingRiggs wrote:
Thu Nov 07, 2019 4:15 pm
Since a recent study showed that an average married couple can spend up to $250k on healthcare in retirement, I'd say just keep socking it away.
Fidelity's latest estimate is that an average 65 year old couple will spend $285K (2019 dollar$) in medical expenses, not including over the counter, vision, dental and LTC expenses.

Note: One significant expense in retirement included in that estimate, but not reimbursable from an HSA are Medicare Supplement premiums. If you have a significant HSA balance, you can use Plan F*/G a high-deductible plan and use the HSA to self-insure the deductible.

*Not available for newly eligible recipients after 12/31/2019.
I realize this is "mental accounting," but I'm keeping all of our receipts for healthcare-related expenses during working years and allowing HSA assets to grow. When we start Medicare, the premiums, Part D, and co-pays/deductibles will be paid out of the HSAs. However, if we're not working, I can tap the HSA assets to "pay" for the supplemental insurance--but in the form of reimbursing me for past, "unreimbursed" medical expenses.

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 4:32 pm

FiveK wrote:
Fri Nov 08, 2019 2:14 pm
CnC wrote:
Fri Nov 08, 2019 1:54 pm
One more question, my HR department said that I can cover my wife and children's medical bills out of my HSA even if they are not covered by my insurance. (wife had her own this year that was not HSA eligible)
Sometimes, as here, HR gets it right. ;)

From https://www.irs.gov/pub/irs-pdf/p969.pdf:
Qualified medical expenses are those incurred by the following persons.
1.You and your spouse.
2.All dependents you claim on your tax return.
3.Any person you could have claimed as a dependent on your return except that:
a.The person filed a joint return,
b.The person had gross income of $4,150 or more, or
c.You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2018 return.
Wow first time for everything.

Thanks.

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FIREchief
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Re: How much is too much in an HSA?

Post by FIREchief » Fri Nov 08, 2019 4:42 pm

anon_investor wrote:
Thu Nov 07, 2019 5:50 pm
FIREchief wrote:
Thu Nov 07, 2019 5:33 pm
anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
True. But that would require an unexpected death or poor planning...
I was merely clarifying what a "worst case scenario" would be. Unexpected deaths certainly can and do occur, and they can hardly be planned for.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: How much is too much in an HSA?

Post by FIREchief » Fri Nov 08, 2019 4:44 pm

Artsdoctor wrote:
Thu Nov 07, 2019 6:03 pm
FIREchief wrote:
Thu Nov 07, 2019 5:33 pm
anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, I think the "worst case" is when neither you or your spouse uses it and it winds up in the second to die's estate. There, a tIRA can be inherited and stretched but an HSA becomes immediately taxable.
If you're charitably inclined and plan to leave something to a non-profit anyway, the non-profit could be perfect beneficiary to your HSA. In doing so, you'd "free up" other money in various accounts to pass on to heirs in a more efficient manner.
Yes, this is the best way to mitigate the "risk" that I outlined (assuming a person is planning to leave some amount to a charity).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 4:47 pm

Ok one more question.

Say we both have HSA plans. But 5 years from now our employers both decide to be kind and give us great low cost high coverage insurance that is not longer "high deductible" can we still use that has money even if we are "covered" by non HSA eligible insurance?

Or do our expenses need to be from years we are covered by high deductible plans?

I have looked up that we can not contribute to our HSA. But, can we still claim expenses.

From what I have read from the first day we start our HSA all medical expenses are eligible to be paid for regardless of the amount of money we have put in to date. Is that correct?


Example we have 7 k in 2020 go to a non HSA eligible plan from 2021-2025 and incur 25k worth of qualified medical procedures.

We then rejoin a HSA eligible plan from 2026 on and in 2040 we wish to reimburse the 25k worth of expenses incurred after we set up our HSA but while we were not on a hsa-eligible plan and did not have 25k in our HSA when the expenses occured can we do that?

From what I read I think we can. But I am not certain.

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FiveK
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Re: How much is too much in an HSA?

Post by FiveK » Fri Nov 08, 2019 5:04 pm

CnC wrote:
Fri Nov 08, 2019 4:47 pm
From what I read I think we can. But I am not certain.
Yes, you can. Pub. 969 (linked previously), for an IRS publication, is quite readable. In there one finds "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 5:07 pm

FiveK wrote:
Fri Nov 08, 2019 5:04 pm
CnC wrote:
Fri Nov 08, 2019 4:47 pm
From what I read I think we can. But I am not certain.
Yes, you can. Pub. 969 (linked previously), for an IRS publication, is quite readable. In there one finds "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."
Even if we did not have the funds in the HSA " at the time of occurrence"?

That was my sticking point.

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Re: How much is too much in an HSA?

Post by Small Law Survivor » Fri Nov 08, 2019 5:38 pm

simplesimon wrote:
Thu Nov 07, 2019 4:23 pm
I think $100k is when I might start to think I have "enough", but I am 30 years from Medicare...impossible to know what healthcare costs will be at that point.

I would guess a very small number of Bogleheads have $100k in their HSA.
Approaching $120,000 here. Close to the end of this accumulation, plan to start spending it on Medicare premiums, dental, eye-care, various out of pocket medicals in 2021. Don't think it's too much - wish it were larger.
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

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Re: How much is too much in an HSA?

Post by Jags4186 » Fri Nov 08, 2019 5:41 pm

HSA is the best account you can have:

1) Tax deferred going in
2) Tax free coming out (with substantiated expenses, or at ordinary income tax if you don’t have substantiated expenses)
3) Lowers your Social Security and Medicare wages (if you’re under the wage limit this is a nice 7% savings on taxes)

So for most wage earning folks, unless you’re getting a 7% or better match for 401k, your HSA should be the very first account you fund, over and above 401k with match.

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FiveK
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Re: How much is too much in an HSA?

Post by FiveK » Fri Nov 08, 2019 6:09 pm

CnC wrote:
Fri Nov 08, 2019 5:07 pm
FiveK wrote:
Fri Nov 08, 2019 5:04 pm
CnC wrote:
Fri Nov 08, 2019 4:47 pm
From what I read I think we can. But I am not certain.
Yes, you can. Pub. 969 (linked previously), for an IRS publication, is quite readable. In there one finds "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."
Even if we did not have the funds in the HSA " at the time of occurrence"?
Yes. E.g., if you establish the HSA ("establish" usually means "contribute money to") by depositing $1 in Jan. 2020 and have a $20K unreimbursed medical expense in Feb. 2020, you can withdraw that $1 right away, and the remaining $19,999 can be used to justify withdrawing that amount of future contributions.

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Re: How much is too much in an HSA?

Post by Artsdoctor » Fri Nov 08, 2019 7:11 pm

CnC wrote:
Fri Nov 08, 2019 5:07 pm
FiveK wrote:
Fri Nov 08, 2019 5:04 pm
CnC wrote:
Fri Nov 08, 2019 4:47 pm
From what I read I think we can. But I am not certain.
Yes, you can. Pub. 969 (linked previously), for an IRS publication, is quite readable. In there one finds "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."
Even if we did not have the funds in the HSA " at the time of occurrence"?

That was my sticking point.
Just to clarify: You establish the HSA on July 1 with a $50 contribution. On July 2 you have a $2,000 expense. Is this what you mean? If so, you can reimburse yourself at any time from the HSA whenever the balance allows for the July 2 expense. (Conversely, you cannot reimburse yourself for expenses incurred in June before you opened your HSA.)

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ram
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Re: How much is too much in an HSA?

Post by ram » Fri Nov 08, 2019 7:44 pm

https://www.healthaffairs.org/doi/full/ ... .2017.0174

The medical expense in last year of life is 80K. (see results from the linked article).
I believe that HSAs have not existed long enough to yet worry about having "too much"
Ram

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CnC
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Re: How much is too much in an HSA?

Post by CnC » Fri Nov 08, 2019 8:36 pm

FiveK wrote:
Fri Nov 08, 2019 6:09 pm
CnC wrote:
Fri Nov 08, 2019 5:07 pm
FiveK wrote:
Fri Nov 08, 2019 5:04 pm
CnC wrote:
Fri Nov 08, 2019 4:47 pm
From what I read I think we can. But I am not certain.
Yes, you can. Pub. 969 (linked previously), for an IRS publication, is quite readable. In there one finds "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."
Even if we did not have the funds in the HSA " at the time of occurrence"?
Yes. E.g., if you establish the HSA ("establish" usually means "contribute money to") by depositing $1 in Jan. 2020 and have a $20K unreimbursed medical expense in Feb. 2020, you can withdraw that $1 right away, and the remaining $19,999 can be used to justify withdrawing that amount of future contributions.
:thumbsup

Thanks looks like we will be keeping my wife's delivery bills for later.

Great info.

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Re: How much is too much in an HSA?

Post by 1789 » Sat Nov 09, 2019 2:01 am

This is one of the places you can’t really save enough. The fact that HSA account transforms to a traditional ira after 65 yrs, makes it even more superior to other investment vehicles.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: How much is too much in an HSA?

Post by dodecahedron » Sat Nov 09, 2019 4:42 am

anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, even in the worst case, it is still better than a traditional IRA in one important way because there are no RMDs, so you are not forced to take distributions in years when it would cause tax problems.

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Re: How much is too much in an HSA?

Post by Spirit Rider » Sat Nov 09, 2019 10:25 am

dodecahedron wrote:
Sat Nov 09, 2019 4:42 am
anon_investor wrote:
Thu Nov 07, 2019 5:01 pm
As others have said, worst case you end up using the HSA like a traditional IRA, I see no down side saving as much as possible (with the caveat that you actually invest your HSA funds, as opposed to just letting it sit in cash).
Actually, even in the worst case, it is still better than a traditional IRA in one important way because there are no RMDs, so you are not forced to take distributions in years when it would cause tax problems.
That is not the worst case.

With only non-spouse beneficiaries, the account ceases to be an HSA when you die. It must be distributed by the beneficiaries in the year of death with the net balance subject to ordinary income taxes that year. Only qualified medical expenses paid by a beneficiary within one year of death reduce that balance.

Unreimbursed qualified medical expenses can not be distributed tax free by beneficiaries. This is why I recommend an RMD-like distribution of unreimbursed qualified medical expenses if you only have non-spouse beneficiaries. If you are unfortunate to develop a known short life expectancy, you should use that period to distribute unreimbursed qualified medical expenses before your death.

On a different slant. Just because you can do something does not mean you should do something. Generally, you should not take non-qualified distributions from an HSA after age 65 unless you have no other pre-tax retirement accounts. Prioritizing distributions from those accounts reduces your future RMDs. The HSA still represents future tax-free distributions for qualified medical expenses.

However, as your journey in this life comes closer to the final destination, you find yourself with an excess HSA account and only non-spouse beneficiaries. It might make sense to start taking taxable non-qualified distributions. This will prevent a large lump sum taxable distribution to those beneficiaries and increase resulting inherited retirement account balances. The other option as previously mentioned. Is to prioritize any charitable bequests to come from the HSA account.

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