HSA: How much in your account is enough

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tonsofthorns
Posts: 31
Joined: Sat Feb 11, 2012 1:22 pm

HSA: How much in your account is enough

Post by tonsofthorns »

Hello Fellow Bogleheads,

Background:
Married, 47, two kids, HSA balance of $110K. Pay for all health care expenses outside of HSA and contribute the family maximum each year. Money is diversified for the long haul.
Recently learned that before I die, I should make sure there is no money left in this account because it will be taxed when inherited. Kept all receipts for health care and could pull all or most out at anytime.

Questions:
How much is enough money for an HSA?
Is there a strategy to have wife to pull out money before/when I die, since it is in my name?
Was thinking it could be a play for long term care for me or wife if needed in our older years. Any thoughts?

Appreciate your help and thoughts!
rockstar
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Joined: Mon Feb 03, 2020 6:51 pm

Re: HSA: How much in your account is enough

Post by rockstar »

I always keep enough to cover my deductible and max out what I'm allowed to put into this account each year. I don't want to mix emergency funds with healthcare costs.
Lee_WSP
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Location: Arizona

Re: HSA: How much in your account is enough

Post by Lee_WSP »

I think HSA > taxable and probably better than traditional past employer match because it is more or less treated like a traditional account if you don't use it for medical.
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Svensk Anga
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Re: HSA: How much in your account is enough

Post by Svensk Anga »

Fidelity annually publishes a number for out of pocket costs for a retired couple. It is about $250,000 - $300,000 now, in today’s dollars. You might shoot for that plus whatever your stack of receipts totals when you retire. Medicare premiums, dental, vision, hearing aids, deductibles, and copays will add up. You are in a position to potentially cover all of that with tax free funds.

Using it for long term care introduces the risk that your heirs will get a tax bomb, if you spend little time in a LTC facility or if the HSA is not managed well while you are of diminished capacity. You probably should work it down earlier.

Living on the HSA funds backed up by your receipts while doing Roth conversions early in retirement might work out quite well.
Spirit Rider
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Re: HSA: How much in your account is enough

Post by Spirit Rider »

tonsofthorns wrote: Sat Feb 08, 2020 5:15 pm
  1. How much is enough
  2. money for an HSA?
  3. Is there a strategy to have wife to pull out money before/when I die, since it is in my name?
  4. Was thinking it could be a play for long term care for me or wife if needed in our older years. Any thoughts?
  1. It is difficult to estimate how much is too much. Based on Fidelity's projections for 2019, an average 65 year old couple retiring in 2019 would spend $285K on healthcare not including LTC in 2019 dollars. You would need to project what balance you would need by age 65 to generate risk adjusted returns >= the healthcare inflation rate.
  2. A spouse beneficiary assumes full ownership of your HSA upon your death. That gives her full tax-free distribution rights of all unreimbursed qualified medical expenses. It probably makes sense for the surviving spouse to take those distributions upon the death of the other spousebe
  3. It can be used for LTC care for one or both of you.
Also, in retirement you should always take HSA tax-free distributions of your unreimbursed qualified medical expenses before you take Roth distributions. You would be exchanging HSA balances with strings to Roth balances with no strings.
OffGridder
Posts: 101
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Location: Eastern WA.

Re: HSA: How much in your account is enough

Post by OffGridder »

Svensk Anga wrote: Sat Feb 08, 2020 5:43 pm
Living on the HSA funds backed up by your receipts while doing Roth conversions early in retirement might work out quite well.
We are in retirement and making Roth conversions up to the top of the 12% bracket. We use funds from our taxable account at the zero percent capital gains rate to pay for medical expenses in lieu of withdrawals from our HSA. Yes this increases our AGI and thus reduces our Roth Conversions headspace. However, it would cost us 12% to replace the tax free amount withdrawn from our HSA with a Roth conversion of the same amount.. Yes, the Roth funds will have no strings attached, but we fully intend to use the HSA funds tax free for medical expenses once we complete our planned Roth conversions in 5-6 years. I guess a counter argument could be made that using the HSA funds now for medical expenses might shorten the timeframe required to complete our planned Roth Conversions,
Last edited by OffGridder on Sat Feb 08, 2020 10:24 pm, edited 3 times in total.
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brennok
Posts: 235
Joined: Wed Jun 01, 2016 10:18 pm

Re: HSA: How much in your account is enough

Post by brennok »

tonsofthorns wrote: Sat Feb 08, 2020 5:15 pm Hello Fellow Bogleheads,

Background:
Married, 47, two kids, HSA balance of $110K. Pay for all health care expenses outside of HSA and contribute the family maximum each year. Money is diversified for the long haul.
Recently learned that before I die, I should make sure there is no money left in this account because it will be taxed when inherited. Kept all receipts for health care and could pull all or most out at anytime.

Questions:
How much is enough money for an HSA?
Is there a strategy to have wife to pull out money before/when I die, since it is in my name?
Was thinking it could be a play for long term care for me or wife if needed in our older years. Any thoughts?

Appreciate your help and thoughts!
Unless something changed, i thought it is only taxable if not left to the spouse.
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firebirdparts
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Re: HSA: How much in your account is enough

Post by firebirdparts »

tonsofthorns wrote: Sat Feb 08, 2020 5:15 pm
Is there a strategy to have wife to pull out money before/when I die, since it is in my name?
I just don't see any benefit at all to trying to avoid spending it. FWIW.

I would avoid having some sort of close shave at the end. I don't think mathematically it makes any sense at all. If you think I'm wrong, then surely in 5 minute with a spreadsheet you can decide.
A fool and your money are soon partners
pasadena
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Location: Washington State

Re: HSA: How much in your account is enough

Post by pasadena »

tonsofthorns wrote: Sat Feb 08, 2020 5:15 pm
Is there a strategy to have wife to pull out money before/when I die, since it is in my name?
There is no need. The HSA is not taxed if inherited by a spouse. If you die before she does, and you designate her as you beneficiary, then she will be able to keep the account as-is, and use it as a regular HSA (she can only contribute to it if she's eligible at that time).

IRS publication 969
IRS pub 969 wrote:Death of HSA Holder
You should choose a beneficiary when you set up your HSA. What happens to that HSA when you die depends on whom you designate as the beneficiary.

Spouse is the designated beneficiary. If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA after your death.
Spouse isn’t the designated beneficiary. If your spouse isn’t the designated beneficiary of your HSA:
The account stops being an HSA, and
The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die.
If your estate is the beneficiary, the value is included on your final income tax return.
Note: the publication in question is dated 2018. I did not find anything more recent.
Northern Flicker
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Re: HSA: How much in your account is enough

Post by Northern Flicker »

Lee_WSP wrote: Sat Feb 08, 2020 5:25 pm I think HSA > taxable and probably better than traditional past employer match because it is more or less treated like a traditional account if you don't use it for medical.
+1
If you actually didn’t have enough medical expenses to consume all of an HSA (which most people think is unlikely, but let’s suppose it happens) then it more or less behaves like a traditional IRA.

Some differences relevant to the situation of not being able to use all HSA funds for healthcare expenses are:

1. HSAs are not subject to RMDs.

2. Penalty-free withdrawals from HSA for non-healthcare usage don’t start until age 65 instead of 59.5.

3. HSAs are fully liquidated, distributed, and taxed when inherited by a non-spouse beneficiary.
Risk is not a guarantor of return.
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