Based on the wiki, I see that in an effort to maximize tax-advantaged space, it is technically advantageous to pay eligible medical expenses with taxable money and keeping the receipts rather than paying for them directly with HSA money. One would then make the withdrawal from the HSA only once one has run out of taxable money or when a withdrawal is advantageous based on the tax situation (likely only after 65 years of age). Such a withdrawal will be tax-free up to the amount that it matches the eligible medical expenses for which one has kept receipts and documentation. However, keeping receipts and documentation for possibly decades seems like quite a task for a lot of different and smaller medical expenses. Therefore, I ask:
Do you actually make use of this strategy (not touch HSA funds, keep records, and use taxable money instead for medical expenses)?
Isn't it a documentation nightmare having keep track of all of those expenses? What if they get lost in a fire or flood?
It seems a lot easier to just use the HSA debit card now. On the other hand, the added taxable space is nothing to sneeze at.
If you have $1,000 in medical bills, paying them from your taxable account leaves the $1,000 in the HSA to grow tax-free (and keeps the right to withdraw $1,000 tax-free in a future year), while paying them from the HSA leaves $1,000 in your taxable account, which will grow subject to taxes since you do not have any room for tax-sheltered contributions.
Once you have retired, you can withdraw from the HSA an amount equal to your past medical expenses plus any current expenses tax-free, and withdraw from your other accounts for non-medical expenses. HSAs can be used to pay medicare premiums and other medical expenses in retirement.
I have a single credit card that I use for all medical expenses, (its not the HSA card), we put nothing else on this card. I basically told my wife initially it was the HSA card as a shorthand. She saves all medical bills each year, staple them together, and then put them in a box, along with the year end credit card reciept. my wife just does a tab each year, sums it up, and makes a sheet that is stapled to the year packet as well.
Now, if 30 years later, it comes down to it, I will have all that. I will have the running totals. If they want to audit, fine. I can dump the whole deal on their desk. : )
I think it would be a brief audit perhaps.
but have the medical bills, the credit card summary of payments, yearly summary sheets. Should work out fine. Although if I am missing anything, please let me know.
I have 42K in my HSA, all in vanguard aggregate bond fund (which I probably will split up some just for diversity sake, which is another question, intra subset diversity of ones overall asset allocation, needed or not? at 42K, I think its starting to be worth it to diversify it some)