POLL: Do you use your HSA funds to pay for medical expenses?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Do you currently use your HSA funds to pay for eligibles medical expenses?

Poll ended at Sat Jan 18, 2014 2:00 pm

No, I don't have an HSA.
28
20%
No, I have HSA funds, but I use taxable funds instead.
75
54%
Yes, I use my HSA funds, but I'm not investing in taxable anyway.
15
11%
Yes, I use my HSA funds, even though I'm also investing in taxable.
22
16%
 
Total votes: 140

Topic Author
natureexplorer
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POLL: Do you use your HSA funds to pay for medical expenses?

Post by natureexplorer »

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.
Source: http://www.bogleheads.org/wiki/HSA
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mhc
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by mhc »

For me it is not a big deal to keep receipts. I just file them away a few times a year. Even if I lost the receipts or didn't keep them, I would still want to keep my HSA for retirement so that I can minimize taxes. From everything I have heard, one of the biggest expenses in retirement can be medical expenses. The HSA can be used to cover qualified expenses in retirement. If I do not have qualified medical expenses in retirement, then my other accounts will be more than enough to live off of. I do not see any risk in holding the funds in an HSA until retirement. If you don't want to hang onto receipts, then don't. Probably, not a big deal. I keep my receipts because it is easy, and it serves as another layer of my emergency fund.
SeaB
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by SeaB »

It was my understanding that after age 65, an HSA essentially becomes an IRA, in that you can use it for non-medical expenses. Is this not correct?
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by BuckyBadger »

I include my HSA as part of our long term retirement money and include it in my long term asset allocation.

I do keep some receipts, but I figure that once I'm past 65 I can use it for medical expenses that will be much higher than what we have right now. I'm not worried about being able to spend it. If we ever have a BIG bill I'll make sure to keep it, but we probably spend less than $500 a year out of pocket between the two of us.

We max 2 backdoor Roths, 2 401k/403bs, the HSA, and add something to taxable each year. I would decrease our taxable contributions before I would use the HSA money.
letsgobobby
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by letsgobobby »

It increases our Roth IRA space by more than 50% per year. Not going to waste that on medical expenses if I don't have to.
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natureexplorer
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by natureexplorer »

SeaB wrote:It was my understanding that after age 65, an HSA essentially becomes an IRA, in that you can use it for non-medical expenses. Is this not correct?
Yes, but you should always keep those receipts as withdrawals for medical expenses are tax-free. Withdrawals that aren't backed by medical expenses are taxable. Depending on tax rates and capitals gains, a taxable account can beat an HSA or IRA account.
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natureexplorer
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by natureexplorer »

Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?

So far 3 people () have "Yes, I use my HSA funds, even though I'm also investing in taxable.". Why?

2014 will be my first year with an HSA and I'm leaning towards the "Yes, I use my HSA funds, even though I'm also investing in taxable." strategy, because the record keeping seems daunting. Losing receipts could translate to a fairly substantial loss.
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LH
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by LH »

natureexplorer wrote: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.
Source: http://www.bogleheads.org/wiki/HSA
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)
Last edited by LH on Thu Dec 19, 2013 6:03 pm, edited 2 times in total.
crumbgrabber
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by crumbgrabber »

My wife and I both have HSAs that get some employer match. Mine is at Fidelity and has excellent investment options (basically anything), hers is much more limited (just basic savings account). I keep track of all medical bills paid in a spreadsheet, scan the receipts and also keep them in a folder. We charge medical expenses to whichever credit card gives us the best rewards at the time. Once a year we drain her account to reimburse our expenses, starting with small bills first, just to reduce record-keeping hassles. We never touch my account.

I plan on continuing this strategy until we get caught up on our bills or they change the HSA laws, at which point I can immediately pay all outstanding expenses from my HSA.

The record-keeping isn't really that much of a hassle once you have a system--we just had a baby this year so we had tons of bills and it wasn't too bad. If you can manage to get enough in your HSA to compound it could really be an impressive account...
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?

So far 3 people () have "Yes, I use my HSA funds, even though I'm also investing in taxable.". Why?

2014 will be my first year with an HSA and I'm leaning towards the "Yes, I use my HSA funds, even though I'm also investing in taxable." strategy, because the record keeping seems daunting. Losing receipts could translate to a fairly substantial loss.
The record keeping can be a hassle. One strategy that I used was to download EOBs and drug purchase records from our HDHP provider. They kept the past 18 months of records online. Each year I downloaded the a year's records so I could have a long-term electronic record of these. That and some backing up gave me a pretty secure set of computer records without much work.

But I kept all the paper records that seemed to be applicable because I was not sure what might be required in an IRS audit. I had a few cubit feet of paper records in just a few years and I never came up with a way to keep those secure. I just had a pile on a shelf. And, we are pretty healthy.

I also kept records of FSA transactions since I could not double dip into the HSA.

I finally liquidated all our HSAs when I had enough qualified expenses. I had to create a spreadsheet from the electronic records to figure out how much I had in qualified expenses.

Our HSAs never got very big, and my wife reached Medicare age and we could no longer contribute, and I did not think it was worth the effort to manage them long-term as an investment.

You only need the records for an audit, so you could take your chances and make tax-free withdrawals even if you lose them. Also, many doctors and hospitals can provided duplicates.
Last edited by tadamsmar on Thu Dec 19, 2013 3:54 pm, edited 1 time in total.
Topic Author
natureexplorer
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by natureexplorer »

LH wrote:I have a single credit card that I use for all medical expenses, (its not the HSA card). I save all medical bills each year, staple then together, and then put them in a box, along with the year end credit card reciept.
That sounds like a good strategy, thanks for sharing. But what safe guard do you have towards losing those receipts? Houses burn down I imagine.

Losing $10,000 worth of medical receipts would translate to a loss of $2,500 loss if the HSA withdrawal is done while in the 25% tax bracket. I imagine some families will accumulate much more than that over decades of medical expenses. It seems like there is quite a bit of risk in return for a strategy that is only likely to save a relatively small amounts.
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webslinger
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by webslinger »

Yes, we use our HSA to pay for our qualifying bills and use our year end insurance summary as the receipt for our out of pocket medical expenses. We enjoy the immediate tax advantage (as we are still employed and in a high tax bracket) and carry over "excess funds" into the future.
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natureexplorer
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by natureexplorer »

tadamsmar wrote:The record keeping can be a hassle. One strategy that I used was to download EOBs and drug purchase records from our HDHP provider. They kept the past 18 months of records online. Each year I downloaded the a year's records so I could have a long-term electronic record of these. That and some backing up gave me a pretty secure set of computer records without much work.

But I kept all the paper records that seemed to be applicable because I was not sure what might be required in an IRS audit. I had a few cubit feet of paper records in just a few years and I never came up with a way to keep those secure. I just had a pile on a shelf. And, we are pretty healthy.

I also kept records of FSA transactions since I could not double dip into the HSA.

I finally liquidated all our HSAs when I had enough qualified expenses. I had to create a spreadsheet from the electronic records to figure out how much I had in qualified expenses.

Our HSAs never got very big, and my wife reached Medicare age and we could no longer contribute, and I did not think it was worth the effort to manage them long-term as an investment.

You only need the records for an audit, so you could take your chances and make tax-free withdrawals even if you lose them. Also, many doctors and hospitals can provided duplicates.
Thanks for sharing!
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by pshonore »

To be on the safe side, in addition to receipts, you may also want to keep all you old tax returns to prove you did not take a medical expense deduction on Schedule A.
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

We also had a habit of submitting everything to the HDHP provider. All the dental even if we knew it was not covered. That way, more qualified expenses ended up generating EOB that I saved every year.

BTW, qualified expenses include more than what you might think:

http://www.irs.gov/pub/irs-pdf/p502.pdf

Another hassle is that figuring out what qualifies can be a head scratcher.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by gotlucky »

natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
I used to scan them, but that was a PITA. Now I just take pictures. I figure if that's good enough for a bank to make payable on a check today, it'll be good enough for the IRS 30+ years from now.

I'm also pretty confident that my expenses will generally increase as a I get older and will likely exceed the value of my HSA in the latter years of life. While I do try to be diligent and record everything, I'm definitely not keeping track of every $10 co-pay that I make, the $2.50 I paid to park to pick up a prescription, or the 5 miles I drove to the dentists office.

Right now I'd say my expenses-to-date are less than 1% the value of my HSA. I'm hoping a lot of tax is paid on that account when I die. That'll mean I didn't spend a lot on healthcare in my last few years of life and I never needed to tap the money.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by VictoriaF »

As much as I like to think of myself as a contrarian, in this poll I am with the majority. My HSA plays the role of an after-tax/tax-deferred/tax-free-withdrawal IRA.

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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by adam1712 »

Currently, I haven't even bothered to save receipts since I think my medical expenses are probably <$100 per year. I've always figured there'd be bigger expenses down the road. I am starting to think I should get a plan together about how I'm going to organize receipts though.
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doug91
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by doug91 »

natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
WorkToLive
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by WorkToLive »

LH wrote:
I have a single credit card that I use for all medical expenses, (its not the HSA card). I save all medical bills each year, staple then together, and then put them in a box, along with the year end credit card reciept.
^^ This is what I do.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by WorkToLive »

doug91 wrote:
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
^^ It's a good idea to scan medical receipts. I think I will do this. I keep an Excel file of each medical expense, so I can just attach the receipts to that and save annually.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by englishgirl »

I find this a difficult question to answer in a poll format.

I don't normally have any medical expenses, except maybe $70 for a skin check at the dermatologist. I don't take any prescriptions and don't visit the doctor regularly. Mostly I just go in for the preventative visits that are now free. If I do have an extra doctor visit, then I'll pay cash for that. But I'm not saving receipts for eons for charges of $70 or $100 once every year or two. So, in an average-for-now year, I pay cash. I assume that in future there'll be plenty of medical receipts to go around.

I did use all of my HSA funds a couple of years ago to pay for braces. Should I have, or should I have paid out of savings? I think it was an acceptable use of my funds, as it was something I'd wanted to do for a while. If I have a major medical expense again, then I will use my HSA again. My deductible for next year is $6300. I don't even have that amount built back up in the account yet, but if it's the type of year when I need to spend the deductible, then it will be coming out of the HSA first.

If I developed a chronic condition where paying out the deductible was the norm, then I'd have to rethink. I currently don't have the income or enough other savings to want to pay cash for major medical expenses just to keep the tax free space.
Last edited by englishgirl on Thu Dec 19, 2013 4:56 pm, edited 1 time in total.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by abuss368 »

I voted for "yes" I use my HSA funds and invest in taxable.

Hard to answer the poll. I have mixed feelings on HSAs. On one hand we have tried to build up the HSA account and use it for major expenses and possibly retirement health care expenses. One the other hand, HSAs are not around long and can change by law. I think back to 10 - 15 years ago with FSAs and now they are cut in half from a contributions standpoint and probably will be gone in due time.

A lot tougher than an IRA which has been around since the 1970s.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by curmudgeon »

For us, I don't expect this to be a long-term process of saving receipts. Maybe 5-8 years at the outside before we actually start drawing from it. Right now we don't have much in the way of qualifying expenses anyway. I'm not a fan of having a bunch of various accounts spread around, but given our current tax brackets, I live with it.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by letsgobobby »

gotlucky wrote:I'm also pretty confident that my expenses will generally increase as a I get older and will likely exceed the value of my HSA in the latter years of life. While I do try to be diligent and record everything, I'm definitely not keeping track of every $10 co-pay that I make, the $2.50 I paid to park to pick up a prescription, or the 5 miles I drove to the dentists office.
I think this is key. I plan to use my HSA in 40 years on a nursing home stay, not on a $4 copay from when I was 38 years old. There's no need to keep every little receipt, we just keep the actual doc visits (generally, things $100 and up).
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hoppy08520
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by hoppy08520 »

doug91 wrote:
natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
Interesting. I will start an HSA this coming January 1, so I'm curious how this works. Are you saying that you can submit and record the expenses with your HSA now, get them approved, but defer the reimbursement into the future when you feel like withdrawing it? If this is the case, then you could essentially build up a "to-be-reimbused-balance" in your HSA that could sit there and just wait for you to withdraw it. This would be ideal because then you wouldn't need to keep track of your receipts for decades.

I understand that not all HSA plans might offer the same features.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by dad2000 »

I have an electronic dossier of all financial/tax/medical/estate-planning documents including medical EOBs. Once every 6 months, I go online and download everything from my various providers to it. This takes me about 4 hours every 6 months.

This dossier is stored in an encrypted file system (a Truecrypt container), and electronically stored in multiple locations.

Thankfully, everyone has standardized on xls or pdf files, which are easy to search and index. This will make it relatively easy to retrieve prior medical expenses.
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LH
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by LH »

natureexplorer wrote:
LH wrote:I have a single credit card that I use for all medical expenses, (its not the HSA card). I save all medical bills each year, staple then together, and then put them in a box, along with the year end credit card reciept.
That sounds like a good strategy, thanks for sharing. But what safe guard do you have towards losing those receipts? Houses burn down I imagine.

Losing $10,000 worth of medical receipts would translate to a loss of $2,500 loss if the HSA withdrawal is done while in the 25% tax bracket. I imagine some families will accumulate much more than that over decades of medical expenses. It seems like there is quite a bit of risk in return for a strategy that is only likely to save a relatively small amounts.

(risk of house burning down)(risk of audit after house burns down) = risk of storing HSA in house only with no backup

then you can make it relative. chance of being struck by lightening, chance of dying in a car wreck over 30 years. etc.
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

doug91 wrote:
natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
I had an HSA. What do you mean by "allow recording of expense"? Funding and tax-free withdrawals from an HSA had nothing to do with expense records, there was no requirement except for an IRS audit. Did the HSA save the record for you or something? Please explain.
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doug91
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by doug91 »

tadamsmar wrote:
doug91 wrote:
natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
I had an HSA. What do you mean by "allow recording of expense"? Funding and tax-free withdrawals from an HSA had nothing to do with expense records, there was no requirement except for an IRS audit. Did the HSA save the record for you or something? Please explain.
Sorry, that wasn't very precise language on my part. The website set up by my HSA administrator (Chase) to manage my HSA account has a "Healthcare Spending Manager" tool built into it. When I have a medical expense that I've paid out of pocket, I can manually enter the details on the website and scan & upload my receipt (or cancelled check) to create a record of that expense. Then, if I choose to reimburse myself for healthcare spending that I've done out of pocket (which I've never done), I can just click on that record to reimburse myself for the exact amount that I spent. If I spent anything directly out of my HSA via a debit card or HSA check (which I've also never done), it would add that expense to the Spending Manager automatically as well.
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doug91
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by doug91 »

hoppy08520 wrote:
doug91 wrote:
natureexplorer wrote:Wow, so far 10 people (45%) have voted "No, I have HSA funds, but I use taxable funds instead.". Could you please elaborate on your record keeping and strategy?
My HSA allows recording of each expense and attachment of a scanned receipt image. If it didn't, I'd probably have giant folders and go on a scanning binge at irregular intervals.
Interesting. I will start an HSA this coming January 1, so I'm curious how this works. Are you saying that you can submit and record the expenses with your HSA now, get them approved, but defer the reimbursement into the future when you feel like withdrawing it? If this is the case, then you could essentially build up a "to-be-reimbused-balance" in your HSA that could sit there and just wait for you to withdraw it. This would be ideal because then you wouldn't need to keep track of your receipts for decades.

I understand that not all HSA plans might offer the same features.
Minus the "get them approved" part, yes: the HSA doesn't require any approval before-the-fact for spending or reimbursement, so it's really just a bookkeeping system that allows me to know (and prove, in the case of an audit) exactly how much I've spent on reimbursable expenses. My HSA is with Chase, I don't know how common the feature is, but as you say, it's really nice to know exactly what my eligible-to-be-reimbursed total is in case I ever do end up in a cash crunch.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by ChrisC »

I was going to jump in myself about the great tool that Chase HSA has with the Healthcare Spending Manager feature online for plan participants. Seems someone already beat me to the punch. Chase's Healthcare Spending Manager makes life so much easier; prior to having this application available, I recorded my expenses in an Excel spreadsheet and kept hard copies of the actual expenses. With Healthcare Spending Manager, I don't have to do that but I haven't uploaded/scanned the receipts/EOBs or medical invoices to Manager. Starting in 2014, I'll probably use all features of Manager. The entire array of payment tools provided by Chase HSA makes it easy to keep account of your HSA and all transactions, including investments. And the Chase HSA is like a supercharged banking/investment account with Manager itself hyperlinked to your regular healthcare online portal, in my case Aetna Navigator.

We have around 65K in my HSA accounts (included is my wife's modest HSA funded by catch-up contributions) since we started in 2008. I started drawing from my account in June when I retired, electronically paying our monthly LTCi premium because it was so convenient to do so. Our plan is to start more draw downs (by electronically paying ourselves for prior expenses) when we become enrolled in Medicare in a few years from now, at which time we'll no longer be able to have an HDHP.
letsgobobby
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by letsgobobby »

Contributions to a Roth IRA may be withdrawn any time for any reason without tax or penalty. How often do people do that?

To me, using an HSA for medical expenses today is no different than withdrawing Roth IRA contributions during the accumulation phase. It's legal, but absolutely a missed opportunity. The obvious exception to this is if you cannot afford not to pay for your medical expenses from your HSA.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by goaties »

So, if everyone is using their HSA as just another flavor of IRA, how long before the government notes this and changes the rules? I can't imagine it was designed for people to squirrel away money, untouched and taxfree, for 30 years, but that is exactly what some of us are doing.

And, thanks Bogleheads, for alerting me to the fact that you can pay yourself for long-ago medical expenses out of your HSA. I didn't even know this. I just figured I'd have plenty of current medical expenses to spend it on when I'm old and sick (especially since I view Medigap policies as a waste of money).
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

Expenses do not have to be approved when you make a tax-free withdrawal from an HSA, they don't have be be approved when you report the withdrawal on your tax form. The only time they would get "approved" is if your tax form was audited, that is when you would need records of the expenses.
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

goaties wrote:So, if everyone is using their HSA as just another flavor of IRA, how long before the government notes this and changes the rules? I can't imagine it was designed for people to squirrel away money, untouched and taxfree, for 30 years, but that is exactly what some of us are doing.

And, thanks Bogleheads, for alerting me to the fact that you can pay yourself for long-ago medical expenses out of your HSA. I didn't even know this. I just figured I'd have plenty of current medical expenses to spend it on when I'm old and sick (especially since I view Medigap policies as a waste of money).
Your executor can pay for long ago expenses after you say "rosebud", and sometimes it's worth him/her doing that.
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kingsnake
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by kingsnake »

In January 2014 I will put $6550 into the HSA and it will then top the $25,000. I will then, via HSA bank, open up a TD Ameritrade account and put all he money in a Vanguard ETF. Right now the money is just sitting getting minimal interest. The sum is now large enough for me to make some effort to get it into the market and a take a small hit on the fees accured in doing so. I did pay for a child birth a couple years ago out of pocket and save the receipts. So far in 2013 none of us has incurred medical expenses and thankful for that.
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VictoriaF
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by VictoriaF »

letsgobobby wrote:Contributions to a Roth IRA may be withdrawn any time for any reason without tax or penalty. How often do people do that?

To me, using an HSA for medical expenses today is no different than withdrawing Roth IRA contributions during the accumulation phase. It's legal, but absolutely a missed opportunity. The obvious exception to this is if you cannot afford not to pay for your medical expenses from your HSA.
It's an excellent way to look at it. I think the difference is that the main-stream information about IRAs recommends leaving them alone, whereas the main-stream information about HSAs emphasizes how to use them for on-going expenses, and so the implied defaults are different.

Victoria
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by pshonore »

tadamsmar wrote:
goaties wrote:So, if everyone is using their HSA as just another flavor of IRA, how long before the government notes this and changes the rules? I can't imagine it was designed for people to squirrel away money, untouched and taxfree, for 30 years, but that is exactly what some of us are doing.

And, thanks Bogleheads, for alerting me to the fact that you can pay yourself for long-ago medical expenses out of your HSA. I didn't even know this. I just figured I'd have plenty of current medical expenses to spend it on when I'm old and sick (especially since I view Medigap policies as a waste of money).
Your executor can pay for long ago expenses after you say "rosebud", and sometimes it's worth him/her doing that.
Good point; on the other hand, only a Spouse can "inherit" an HSA and treat it as their own. Others who inherit must liquidate the HSA, pay tax and possibly a 20% penalty.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by Draak »

delete
Last edited by Draak on Sun Mar 16, 2014 2:25 am, edited 1 time in total.
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tadamsmar
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by tadamsmar »

pshonore wrote:
tadamsmar wrote:
goaties wrote:So, if everyone is using their HSA as just another flavor of IRA, how long before the government notes this and changes the rules? I can't imagine it was designed for people to squirrel away money, untouched and taxfree, for 30 years, but that is exactly what some of us are doing.

And, thanks Bogleheads, for alerting me to the fact that you can pay yourself for long-ago medical expenses out of your HSA. I didn't even know this. I just figured I'd have plenty of current medical expenses to spend it on when I'm old and sick (especially since I view Medigap policies as a waste of money).
Your executor can pay for long ago expenses after you say "rosebud", and sometimes it's worth him/her doing that.
Good point; on the other hand, only a Spouse can "inherit" an HSA and treat it as their own. Others who inherit must liquidate the HSA, pay tax and possibly a 20% penalty.
The executor move would move the money from the HSA to the estate. Sometimes that's a good move, but I don't know the details. In some cases, execution of the estate is the last opportunity to use the old qualified expenses to make tax-free withdrawals.

If the wife inherits the HSA, I don't know if she "inherits" all of the deceased's qualified expenses from the distant past. I would guess that she does.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by natureexplorer »

tadamsmar wrote:Expenses do not have to be approved when you make a tax-free withdrawal from an HSA, they don't have be be approved when you report the withdrawal on your tax form. The only time they would get "approved" is if your tax form was audited, that is when you would need records of the expenses.
What's the difference?

Would you make a withdrawal for an expense, which you did incur, but you no longer have documentation for?
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by abuss368 »

This has been a very beneficial thread showing a lot of different strategies to use with regards to Health Savings Accounts.

Thank you Bogleheads!
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by Spirit Rider »

It doesn't have to be all or nothing. You could pay small bills with the HSA and large bills with taxable. This minimizes the number of receipts to keep long term, while deferring the majority of the assets long term.

For someone who doesn't have the funds to contribute to their HSA and also pay all qualified medical expenses out of pocket, they can do the opposite. Pay the large bills with the HSA and the small bills with taxable. This might allow them to maximize the tax/FICA benefits and use those savings to defer some amount.

Or any other scheme that might fit someone's goals. Remember, not everyone can afford to make the max contribution and not everyone can then afford to pay all expenses out of taxable.

This forum has the tendency to advocate taking the maximum advantage of all tax deferred opportunities. We need to keep in mind that not everyone has the resources to do so. However, the tax/FICA benefit is so great, that should be the first priority, with long term accrual for those with the resources and willingness to do so.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by Spirit Rider »

tadamsmar wrote:
pshonore wrote:
tadamsmar wrote:
goaties wrote:So, if everyone is using their HSA as just another flavor of IRA, how long before the government notes this and changes the rules? I can't imagine it was designed for people to squirrel away money, untouched and taxfree, for 30 years, but that is exactly what some of us are doing.

And, thanks Bogleheads, for alerting me to the fact that you can pay yourself for long-ago medical expenses out of your HSA. I didn't even know this. I just figured I'd have plenty of current medical expenses to spend it on when I'm old and sick (especially since I view Medigap policies as a waste of money).
Your executor can pay for long ago expenses after you say "rosebud", and sometimes it's worth him/her doing that.
Good point; on the other hand, only a Spouse can "inherit" an HSA and treat it as their own. Others who inherit must liquidate the HSA, pay tax and possibly a 20% penalty.
The executor move would move the money from the HSA to the estate. Sometimes that's a good move, but I don't know the details. In some cases, execution of the estate is the last opportunity to use the old qualified expenses to make tax-free withdrawals.

If the wife inherits the HSA, I don't know if she "inherits" all of the deceased's qualified expenses from the distant past. I would guess that she does.
There has been no guidance or rulings from the IRS regarding the inheritance of HSA accounts. This is what the law and regulations plain language say:

With a non-spouse beneficiary, the HSA stops being an HSA on the date of death. The entire balance is distributed as a non-qualified distribution, but there is no penalty. The beneficiary may claim qualified distributions for expenses incurred, but not yet paid. There is no provision for expenses paid, but not yet distributed. It is an open question.

With a spouse beneficiary, the HSA becomes the HSA of the spouse to treat as her own for future expenses. What is not clear, are expenses not paid or not distributed available for distribution? It would certainly seem that a spouse would have at least the rights of a non-spouse beneficiary and be able to submit qualified distributions for bills not paid at time of death. It would also seem, that a spouse should have more rights and be able to submit qualified distributions for expenses paid, but not yet distributed.

The only time an executor should get involved should be if the estate is named as the beneficiary or there is no beneficiary. There is precedence in IRAs to suggest that if the spouse is the only beneficiary of the estate that the spouse might be able to take ownership of the HSA in that case also.

Hopefully, the IRS will provide clear guidance or rulings on the HSA inheritance issue. It is certainly something to think about. Especially if you have a non-spouse beneficiary. It is also probably prudent if advance notice is available to submit all pending qualified distributions before death.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by wander »

Yes, I use HSA fund for what it is design for and don't need to save paper until 65. If I have unused fund in retirement, then I will withdraw it as from a retirement account but I rather use it now.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by letsgobobby »

VictoriaF wrote:
letsgobobby wrote:Contributions to a Roth IRA may be withdrawn any time for any reason without tax or penalty. How often do people do that?

To me, using an HSA for medical expenses today is no different than withdrawing Roth IRA contributions during the accumulation phase. It's legal, but absolutely a missed opportunity. The obvious exception to this is if you cannot afford not to pay for your medical expenses from your HSA.
It's an excellent way to look at it. I think the difference is that the main-stream information about IRAs recommends leaving them alone, whereas the main-stream information about HSAs emphasizes how to use them for on-going expenses, and so the implied defaults are different.

Victoria
frame matters, eh?
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VictoriaF
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by VictoriaF »

letsgobobby wrote:
VictoriaF wrote:
letsgobobby wrote:Contributions to a Roth IRA may be withdrawn any time for any reason without tax or penalty. How often do people do that?

To me, using an HSA for medical expenses today is no different than withdrawing Roth IRA contributions during the accumulation phase. It's legal, but absolutely a missed opportunity. The obvious exception to this is if you cannot afford not to pay for your medical expenses from your HSA.
It's an excellent way to look at it. I think the difference is that the main-stream information about IRAs recommends leaving them alone, whereas the main-stream information about HSAs emphasizes how to use them for on-going expenses, and so the implied defaults are different.

Victoria
frame matters, eh?
I sense a budding behavioral economist,

Victoria
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stoptothink
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by stoptothink »

I have had an HSA for a little over 2yrs and have yet to have a single healthcare expense, so I guess I'll let you know. Depending on the expense I am definitely leaning towards not using HSA funds.
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Re: POLL: Do you use your HSA funds to pay for medical expen

Post by jaxxmjd »

natureexplorer wrote:
tadamsmar wrote:Expenses do not have to be approved when you make a tax-free withdrawal from an HSA, they don't have be be approved when you report the withdrawal on your tax form. The only time they would get "approved" is if your tax form was audited, that is when you would need records of the expenses.
What's the difference?

Would you make a withdrawal for an expense, which you did incur, but you no longer have documentation for?
If I felt that my chances of being audited were minimal, yes.
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