HSAs and "Saving Medical Receipts"

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Small Law Survivor
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HSAs and "Saving Medical Receipts"

Post by Small Law Survivor » Sun Jun 11, 2017 8:21 am

I have over $80,000 in my HSA at age 66, and I am still contributed to it. My "plan" is to hold for 10 years, at which point it will be $160,000 (if I can get 7% - who knows?). Whatever it is, in our mid-70s I will begin using it for for Medicare premiums for my wife and myself and other qualified expenses.

However, Medicare premiums alone won't be enough to deplete this account, and other medical expenses are uncertain, so I'm planning/hoping to withdraw money for non-medical expenses, based on medical expenses incurred during years in which we have "saved receipts".

But, this whole concept -- "save your receipts" -- is very vague to me. For example, what if we deducted medical expenses that year? How does the IRS know that we didn't get reimbursed by the insurer in some manner (this happens - mistakes re deductible).

Will this HSA/"save your receipts" method actually work, or am I kidding myself?

Is there is any document/website/BH thread that discusses this topic in depth?

Thanks, Small Law Survivor
Last edited by Small Law Survivor on Sun Jun 11, 2017 8:34 am, edited 2 times in total.

gvsucavie03
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Re: HSAs and "Saving Medical Receipts"

Post by gvsucavie03 » Sun Jun 11, 2017 8:29 am

You are reimbursing yourself for qualified medical expenses you paid out of pocket prior to age 65 while you had the HSA. If it is a reimbursement, the money comes out tax free. If not, it is ordinary income after age 65.

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tadamsmar
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Re: HSAs and "Saving Medical Receipts"

Post by tadamsmar » Sun Jun 11, 2017 8:59 am

My understanding is that you need to be able to substantiate your claims in the case of an IRS audit. This is sometimes called the HSA shoebox rule.

I saved everything connected with qualified expenses payments, cash flow, reimbursement, tax deductions like receipts, EOBs, HSA records when I had an HSA. I never bothered to organize the mess and I never needed it.

Perhaps everyone should keep these records to the end of the year anyway, since you might need it if you have big unplanned medical expenses in a year that allow tax deductions. But, you might need to keep them a long time for HSA tax avoidance.

jebmke
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Re: HSAs and "Saving Medical Receipts"

Post by jebmke » Sun Jun 11, 2017 9:04 am

This has been discussed before. First, like many things on the tax return, this part is largely on the honor system. That said, I have had two returns examined - one requested all docs for Schedule A and Form 8889 and another requested all docs supporting Schedule A. On the first one I have a pretty good idea what they were looking for because I had a very large six-figure deduction of claim of right and they wanted to validate that. But once they question an entry they often issue the "round up the usual suspects" guidance and ask for everything on the form.

The easiest thing to do is keep two files - put the receipt in the HSA file or the Schedule A file and never the twain should meet.
When you discover that you are riding a dead horse, the best strategy is to dismount.

annielouise
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Re: HSAs and "Saving Medical Receipts"

Post by annielouise » Sun Jun 11, 2017 9:56 am

You can also scan receipts, just be sure you have a fail proof back up system.

Spirit Rider
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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Sun Jun 11, 2017 11:39 pm

One other thing you should do is keep physical or electronic copies of EOBs to show your insurance reimbursements.

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Re: HSAs and "Saving Medical Receipts"

Post by kaneohe » Sun Jun 11, 2017 11:51 pm

Spirit Rider wrote:One other thing you should do is keep physical or electronic copies of EOBs to show your insurance reimbursements.
Seems like you need copies of all the receipts you have an interest in to prove they were legitimate expenses, copies of all the EOBs to prove that you were not reimbursed for any of those expenses; and copies of all your tax returns to prove that you didn't deduct any of those expenses.
Also you might want to research what happens if you vanish from this earth before claiming these expenses......can spouse claim them and will they
know what to do and where all the stuff is.

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Artful Dodger
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Re: HSAs and "Saving Medical Receipts"

Post by Artful Dodger » Mon Jun 12, 2017 7:22 am

Small Law Survivor wrote:I have over $80,000 in my HSA at age 66, and I am still contributed to it. My "plan" is to hold for 10 years, at which point it will be $160,000 (if I can get 7% - who knows?). Whatever it is, in our mid-70s I will begin using it for for Medicare premiums for my wife and myself and other qualified expenses.

However, Medicare premiums alone won't be enough to deplete this account, and other medical expenses are uncertain, so I'm planning/hoping to withdraw money for non-medical expenses, based on medical expenses incurred during years in which we have "saved receipts".

But, this whole concept -- "save your receipts" -- is very vague to me. For example, what if we deducted medical expenses that year? How does the IRS know that we didn't get reimbursed by the insurer in some manner (this happens - mistakes re deductible).

Will this HSA/"save your receipts" method actually work, or am I kidding myself?

Is there is any document/website/BH thread that discusses this topic in depth?

Thanks, Small Law Survivor
Just checking, since you say you're 66. Did you decline Part A Medicare, because if you didn't, you won't be eligible to make a contribution to an HSA.

As Jebmike noted, keep your receipts separate. Those already used for tax relief, aren't eligible to be used again. Also, depending on what Medicare Supp / Advantage plan, you may have enough expenses to deplete your account. Med Supp plan F High Deductible is a good option for those with large HSA balances.

Small Law Survivor
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Re: HSAs and "Saving Medical Receipts"

Post by Small Law Survivor » Mon Jun 12, 2017 7:42 am

Just checking, since you say you're 66. Did you decline Part A Medicare, because if you didn't, you won't be eligible to make a contribution to an HSA.

As Jebmike noted, keep your receipts separate. Those already used for tax relief, aren't eligible to be used again. Also, depending on what Medicare Supp / Advantage plan, you may have enough expenses to deplete your account. Med Supp plan F High Deductible is a good option for those with large HSA balances.
Yes, I am aware of/good on the Part A rule, thanks. That is a Medicare "trap" for people eligible for HSA contributions.

I'm not familiar enough with Medicare to be familiar with Plan F, will have to look into that, thanks for the recommendation.
Seems like you need copies of all the receipts you have an interest in to prove they were legitimate expenses, copies of all the EOBs to prove that you were not reimbursed for any of those expenses; and copies of all your tax returns to prove that you didn't deduct any of those expenses.
I have receipts and tax returns, but I do not have all the EOBs. Bit of a problem there, perhaps.
Also you might want to research what happens if you vanish from this earth before claiming these expenses......can spouse claim them and will they
know what to do and where all the stuff is
Spouse stands in my shoes with respect to HSA - after all, she was covered by it just as I was. She knows where the receipts and tax returns are.

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Re: HSAs and "Saving Medical Receipts"

Post by jebmke » Mon Jun 12, 2017 7:56 am

kaneohe wrote:Seems like you need copies of all the receipts you have an interest in to prove they were legitimate expenses, copies of all the EOBs to prove that you were not reimbursed for any of those expenses; and copies of all your tax returns to prove that you didn't deduct any of those expenses.
Also you might want to research what happens if you vanish from this earth before claiming these expenses......can spouse claim them and will they
know what to do and where all the stuff is.
This second point is why I went from saving to annual reimbursement. Spouse could handle it but I decide to make this one thing less on her plate.

As for docs, one of my TaxAide colleagues is a former IRS agent and also ran one of the fraud teams. He said that in general, when they request documents from individuals they look for reasonableness and make an assessment whether the taxpayer appears in compliance. I keep a reconciliation spreadsheet for every year with the batch of receipts. When they asked for docs, I gave them the spreadsheet and copies of the docs (no EOBs, nothing else). The easier you make it for them to say "looks good" the better off you are. Some people thump their chest and claim they will send a grocery bag full of receipts and challenge the IRS to prove something. That is the worst thing you can do in an audit.

One thing I do to simplify things is get an annual statement from a few providers that list all the charges, reimbursements and payments. That way I have one doc that covers multiple charges. Most pharmacies will provide an annual statement (I get mine online from CVS).
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: HSAs and "Saving Medical Receipts"

Post by kaneohe » Mon Jun 12, 2017 8:55 am

Small Law Survivor wrote:....................................

.....................................................
Also you might want to research what happens if you vanish from this earth before claiming these expenses......can spouse claim them and will they
know what to do and where all the stuff is
Spouse stands in my shoes with respect to HSA - after all, she was covered by it just as I was. She knows where the receipts and tax returns are.
The question is about your old unreimbursed expenses. Spouse can cover her old unreimbursed expenses but are yours wasted?

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Re: HSAs and "Saving Medical Receipts"

Post by jebmke » Mon Jun 12, 2017 9:29 am

kaneohe wrote:The question is about your old unreimbursed expenses. Spouse can cover her old unreimbursed expenses but are yours wasted?
I seem to recall that this came up in an old thread. It could be that there is a window after date of death to clear these through the HSA but I don't think it is open ended. At some point, the institution will have to deal with the individual account that is in his name. I would be surprised if one can simply re-title it to the spouse. I've never looked into this.

Excellent question though.

In my case, the size of the account isn't enough to make it worth the complexity - hence, I just flush the receipts through every year. I'd have to check my records but I think the IRS inquiry I received was for the year where I made the decision to change from saving receipts to annual reimbursement and did several years at once. The large entry on form 8889 probably caused them to include this with the other part of their examination. That reinforced my decision. My spouse is certainly capable of handling such an IRS inquiry but would not be amused.
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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Mon Jun 12, 2017 10:46 am

kaneohe wrote:The question is about your old unreimbursed expenses. Spouse can cover her old unreimbursed expenses but are yours wasted?
Upon death with a spouse as beneficiary, the spouse assumes ownership of the HSA as their own with all the rights therein. An HSA owner can reimburse any unremibursed qualified medical expenses for themselves, their spouse and their dependents. There is an indefinite time frame to make those reimbursements (IRS Notice 2004-50). The qualification of that expense occurs on the date of service, this is not changed by death of a spouse/dependent or a child being no longer a dependent. Therefore, a beneficiary spouse can reimburse the deceased spouse's unreimbursed qualified medical expenses.

The only time a window occurs is when there is a non-spouse beneficiary. With a non-spouse beneficiary, the account ceases to be an HSA on the date of death, the full value of the account is included as ordinary income of the beneficiary for that tax year. However, the non-spouse beneficiary can offset on Form 8889 line 15 any qualified medical expenses paid by that beneficiary within one year of death.

What is not clear for a non-spouse beneficiary and has never been clarified by the IRS, is how IRS Notice 2004-50 interacts with the non-spouse beneficiary rules. Can the unreimbursed medical expenses be entered on line 15 or not???
Last edited by Spirit Rider on Mon Jun 12, 2017 11:08 am, edited 1 time in total.

kaneohe
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Re: HSAs and "Saving Medical Receipts"

Post by kaneohe » Mon Jun 12, 2017 11:06 am

Spirit Rider wrote:
kaneohe wrote:The question is about your old unreimbursed expenses. Spouse can cover her old unreimbursed expenses but are yours wasted?
Upon death with a spouse as beneficiary, the spouse assumes ownership of the HSA as their own with all the rights therein. An HSA owner can reimburse any unremibursed qualified medical expenses for themselves, their spouse and their dependents. There is an indefinite time frame to make those reimbursements. The qualification of that expense occurs on the date of service, death or a depedent no longer being a dependent does not change this.
Do you have a link that discusses this? The problem in my mind is that when a surviving spouse inherits the HSA,the survivor has no spouse so it is not obvious to me that the deceased spouse's expenses would be covered. There is some discussion that when a non-spouse inherits the HSA, that there can be a deduction for the deceased expenses paid within a yr after the death. But old bills would have been paid long ago.

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Re: HSAs and "Saving Medical Receipts"

Post by furwut » Mon Jun 12, 2017 11:21 am

A couple of financial bloggers I read are taking the "good enough" approach of claiming HSA expenses every year and retaining the receipts, for however long, with their tax return.

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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Mon Jun 12, 2017 11:34 am

kaneohe wrote:Do you have a link that discusses this? The problem in my mind is that when a surviving spouse inherits the HSA,the survivor has no spouse so it is not obvious to me that the deceased spouse's expenses would be covered. There is some discussion that when a non-spouse inherits the HSA, that there can be a deduction for the deceased expenses paid within a yr after the death. But old bills would have been paid long ago.
I am not aware of any discussion of this. I think this is because it is pretty clear cut. This is typical inference (B because of A) in the IRC and IRS CFR.

I will give you an example without a beneficiary example:
  1. Spouse A has a valid HSA account and can reimburse the unreimbursed medical expenses of Spouse B without regard to Spouse B's HSA eligibility.
  2. Spouse B dies.
  3. Spouse A can without a doubt reimburse Spouse B's unreimbursed qualified medical expenses no matter how long ago as long as the dates of service were after the opening of Spouse A's first HSA, assuming the continuity rule has been followed.
Now change it and it was Spouse B's HSA:
  1. Spouse B dies with Spouse A as the beneficiary
  2. Spouse A assumes ownership of the HSA as if it was their own with all rights therein
  3. Line 3 from above, still most definitely applies
26 U.S. Code § 223 - Health savings accounts, (f) Tax treatment of distributions, (8) Treatment after death of account beneficiary, (A) Treatment if designated beneficiary is spouse
If the account beneficiary’s surviving spouse acquires such beneficiary’s interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings account shall be treated as if the spouse were the account beneficiary.

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tadamsmar
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Re: HSAs and "Saving Medical Receipts"

Post by tadamsmar » Mon Jun 12, 2017 11:37 am

Does it make any difference if a non-spouse beneficiary could use the deceased qualified expenses?

Either way, the beneficiary inherits the money in the HSA, with no obligation to pay income tax and an obligation to pay any applicable inheritance taxes, if I understand correctly.

Does make a difference for the spouse since they really inherit the HSA itself.

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Re: HSAs and "Saving Medical Receipts"

Post by jebmke » Mon Jun 12, 2017 11:44 am

tadamsmar wrote:Does it make any difference if a non-spouse beneficiary could use the deceased qualified expenses?

Either way, the beneficiary inherits the money in the HSA, with no obligation to pay income tax and an obligation to pay any applicable inheritance taxes, if I understand correctly.

Does make a difference for the spouse since they really inherit the HSA itself.
I believe if the beneficiary is not the spouse then the HSA becomes income to the beneficiary. I don't know what happens vis a vis estate taxes or inheritance taxes (these are state taxes - I don't think there is a Federal inheritance tax).
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tadamsmar
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Re: HSAs and "Saving Medical Receipts"

Post by tadamsmar » Mon Jun 12, 2017 11:59 am

jebmke wrote:
tadamsmar wrote:Does it make any difference if a non-spouse beneficiary could use the deceased qualified expenses?

Either way, the beneficiary inherits the money in the HSA, with no obligation to pay income tax and an obligation to pay any applicable inheritance taxes, if I understand correctly.

Does make a difference for the spouse since they really inherit the HSA itself.
I believe if the beneficiary is not the spouse then the HSA becomes income to the beneficiary. I don't know what happens vis a vis estate taxes or inheritance taxes (these are state taxes - I don't think there is a Federal inheritance tax).
You are right, it becomes ordinary income to the non-spouse beneficiary, subject to income taxes but not to estate or inheritance taxes. So that can make a big difference. If you withdraw the funds tax-free before you die and they were inherited by a non-spouse then the taxes would typically be lower.

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Re: HSAs and "Saving Medical Receipts"

Post by dodecahedron » Mon Jun 12, 2017 12:01 pm

tadamsmar wrote:Does it make any difference if a non-spouse beneficiary could use the deceased qualified expenses?
What happens with nonspouse beneficiaries is sufficiently muddled that I have chosen to designate my donor advised fund (DAF) the beneficiary of my HSA (with my daughters set up as successor advisers to my DAF and leaving an informal non-binding letter of guidance with suggestions as to where to direct grants from the DAF.) They will have enough other things to deal with after my passing that this simplifies things greatly for them. I don't want them to spend a lot of energy trying to figure out the applicable tax laws, digging through old receipts, etc.

If I need expensive LTC while I am still alive, they have instructions to use funds from my HSA first to pay for that care, then to take distributions from my tax-deferred retirement balances. If not needed for that purpose, the funds stay there and go to charity (via my DAF) after my death (along with my profound gratitude for not needing LTC.)

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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Mon Jun 12, 2017 1:04 pm

Getting back to the original question here is what IRS Notice 2004-50 says about documentation for unreimbursed qualifed medical expenses.

However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year.

So I believe to be completely safe, you should have three (3) items of proof:
  1. Itemized bills/receipts to prove they are "qualfied medical expenses"
  2. Payment records and EOBs to prove they were not "paid or reimbursed by another source"
  3. Tax returns to prove that they were not used as "itemized deductions"

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Re: HSAs and "Saving Medical Receipts"

Post by inbox788 » Mon Jun 12, 2017 5:37 pm

That's a lot saved up already. I'm surprised you've gotten so much into the HSA. When did you begin? How much are contributions vs gains?

I'm skeptical of the receipts method, and it's a lot of hassle for me, so I'm more inclined to simply spend it. Too bad it's not useful for medigap insurance. I don't understand why. It would be a simpler way to figure out the maximum amount to save up. Do you plan to buy medigap? Without medigap and a large HSA, you can probably afford to self insure the gap, and might need a large amount to cover expenses, but if you are luck and avoid the medical expense, then it can be used for long term care needs. I figured there's a fair chance funds will get used up before I (or heirs) need to figure out inheritance issues with HSA. With all these other factors, I'm hoping to avoid having to worry about or track receipts for many decades.

BTW, using the receipts method, do the kids that are covered by the HSA need to be claimed while they're still covered, or could it still be postponed for 30 years later?

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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Mon Jun 12, 2017 10:33 pm

The point is that you still need to keep the same three proofs even if you pay/reimiburse from the HSA in a timely manner. The three year clock starts ticking from the tax filing deadline for the tax year of reimbursement. So the only difference is how long you have to keep the proofs. With current technology, does that really matter whether it is 3 or 33 years.

The best way to solve the problem of Medicare Supplement premiums not being qualified medical expenses is not to self-insure Medicare Part B/D out-of-pocket entirely. Better to constrain the risk while gaining most of the benefit by enrolling in Plan F high-deductible and self-insuring just the deductible (2017 = $2,200).
inbox788 wrote:BTW, using the receipts method, do the kids that are covered by the HSA need to be claimed while they're still covered, or could it still be postponed for 30 years later?
The determination of whether medical expenses are qualified, is always based on you, your spouse's or dependent's status on the date of service. The fact that your spouse might be your ex-spouse or deceased or your dependent is no longer your dependent when reimbursed is irrelevant.

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Re: HSAs and "Saving Medical Receipts"

Post by dodecahedron » Mon Jun 12, 2017 11:37 pm

Spirit Rider wrote:The point is that you still need to keep the same three proofs even if you pay/reimiburse from the HSA in a timely manner. The three year clock starts ticking from the tax filing deadline for the tax year of reimbursement. So the only difference is how long you have to keep the proofs. With current technology, does that really matter whether it is 3 or 33 years.
Yes, it does. Imagine if the IRS challenges an expense for something like dermatology, plastic surgery, or orthodontia, saying you have no proof that it was not cosmetic. If the expense was incurred three years ago, the medical records to document the justification for the expense are more likely to be still available. That's a lot dicier 33 years later.

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BL
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Re: HSAs and "Saving Medical Receipts"

Post by BL » Mon Jun 12, 2017 11:40 pm

If you are paying Medicare Part B, you can pay that from HSA. I waited and collected lump sum for an amount already paid .

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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Tue Jun 13, 2017 12:07 am

dodecahedron wrote:
Spirit Rider wrote:The point is that you still need to keep the same three proofs even if you pay/reimiburse from the HSA in a timely manner. The three year clock starts ticking from the tax filing deadline for the tax year of reimbursement. So the only difference is how long you have to keep the proofs. With current technology, does that really matter whether it is 3 or 33 years.
Yes, it does. Imagine if the IRS challenges an expense for something like dermatology, plastic surgery, or orthodontia, saying you have no proof that it was not cosmetic. If the expense was incurred three years ago, the medical records to document the justification for the expense are more likely to be still available. That's a lot dicier 33 years later.
If you save the EOB, there should be no problem in either case.

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Re: HSAs and "Saving Medical Receipts"

Post by dodecahedron » Tue Jun 13, 2017 12:22 am

Spirit Rider wrote:
dodecahedron wrote:
Spirit Rider wrote:The point is that you still need to keep the same three proofs even if you pay/reimiburse from the HSA in a timely manner. The three year clock starts ticking from the tax filing deadline for the tax year of reimbursement. So the only difference is how long you have to keep the proofs. With current technology, does that really matter whether it is 3 or 33 years.
Yes, it does. Imagine if the IRS challenges an expense for something like dermatology, plastic surgery, or orthodontia, saying you have no proof that it was not cosmetic. If the expense was incurred three years ago, the medical records to document the justification for the expense are more likely to be still available. That's a lot dicier 33 years later.
If you save the EOB, there should be no problem in either case.
There may not always be an EOB or the EOB may not clarify whether the procedure was cosmetic or not. E.g., if you don't have dental insurance that covers orthodontia, there isn't going to be an EOB for orthodontia. If the EOB from your HMO denies a claim for dermatology or plastic surgery because you went out of network, the EOB is not going to tell the IRS anything about whether the expense was for cosmetic or medical purposes. Even if the EOB shows that your insurance coverage paid for part of the cost (or counted it towards your deductible), the IRS might not be satisfied that the insurance company's determination of "medically necessary vs cosmetic" matches theirs.

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Re: HSAs and "Saving Medical Receipts"

Post by Spirit Rider » Tue Jun 13, 2017 12:43 am

dodecahedron wrote:There may not always be an EOB or the EOB may not clarify whether the procedure was cosmetic or not. E.g., if you don't have dental insurance that covers orthodontia, there isn't going to be an EOB for orthodontia. If the EOB from your HMO denies a claim for dermatology or plastic surgery because you went out of network, the EOB is not going to tell the IRS anything about whether the expense was for cosmetic or medical purposes. Even if the EOB shows that your insurance coverage paid for part of the cost (or counted it towards your deductible), the IRS might not be satisfied that the insurance company's determination of "medically necessary vs cosmetic" matches theirs.
I think you are really trying to go down a Non Sequitur Fallacy rat hole. Suffice to say if you have such a rare situation, it is on you to make sure you contemporaneously obtain the proof necessary to justify the reimbursement whenever it might occur.

Let's return to our regular programming of practical issues.

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Re: HSAs and "Saving Medical Receipts"

Post by tadamsmar » Tue Jun 13, 2017 12:53 am

inbox788 wrote:That's a lot saved up already. I'm surprised you've gotten so much into the HSA. When did you begin? How much are contributions vs gains?

I'm skeptical of the receipts method, and it's a lot of hassle for me, so I'm more inclined to simply spend it. Too bad it's not useful for medigap insurance. I don't understand why. It would be a simpler way to figure out the maximum amount to save up. Do you plan to buy medigap? Without medigap and a large HSA, you can probably afford to self insure the gap, and might need a large amount to cover expenses, but if you are luck and avoid the medical expense, then it can be used for long term care needs. I figured there's a fair chance funds will get used up before I (or heirs) need to figure out inheritance issues with HSA. With all these other factors, I'm hoping to avoid having to worry about or track receipts for many decades.

BTW, using the receipts method, do the kids that are covered by the HSA need to be claimed while they're still covered, or could it still be postponed for 30 years later?
Qualified expenses are covered for a qualifying child. The expenses don't become unqualified because the child ages out. Heck, they can age out before you get the darn medical bill. Say the kid becomes unqualified on Dec 31 and you get the bill later (the IRS used the year end date, not the birth date to determine the cutoff for a qualifying child). Check IRS form 502 for the definition of qualifying child.

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tadamsmar
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Re: HSAs and "Saving Medical Receipts"

Post by tadamsmar » Tue Jun 13, 2017 12:58 am

I'm skeptical of the receipts method, and it's a lot of hassle for me, so I'm more inclined to simply spend it.
You should save the records for a while for possible audits anyway. Is it really a hassle to not throw away records that you have already saved?

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Re: HSAs and "Saving Medical Receipts"

Post by FIREchief » Tue Jun 13, 2017 1:26 am

Small Law Survivor wrote: For example, what if we deducted medical expenses that year? How does the IRS know that we didn't get reimbursed by the insurer in some manner (this happens - mistakes re deductible).
If you deducted medical expenses on either your state or federal returns, I don't believe you can withdraw the funds from your HSA without paying taxes. You have been "partially reimbursed" already.
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: HSAs and "Saving Medical Receipts"

Post by Artsdoctor » Tue Jun 13, 2017 5:32 pm

Small Law Survivor wrote:I have over $80,000 in my HSA at age 66, and I am still contributed to it. My "plan" is to hold for 10 years, at which point it will be $160,000 (if I can get 7% - who knows?). Whatever it is, in our mid-70s I will begin using it for for Medicare premiums for my wife and myself and other qualified expenses.

However, Medicare premiums alone won't be enough to deplete this account, and other medical expenses are uncertain, so I'm planning/hoping to withdraw money for non-medical expenses, based on medical expenses incurred during years in which we have "saved receipts".

But, this whole concept -- "save your receipts" -- is very vague to me. For example, what if we deducted medical expenses that year? How does the IRS know that we didn't get reimbursed by the insurer in some manner (this happens - mistakes re deductible).

Will this HSA/"save your receipts" method actually work, or am I kidding myself?

Is there is any document/website/BH thread that discusses this topic in depth?

Thanks, Small Law Survivor
Your plan is good and the reasoning is right on-point. You can do all of that but it's really about bookkeeping at that point.

Your records become extremely valuable so you'd really want to protect them. An EOB is helpful but not always essential; if you have the medical bill, for example, which lists the service and reimbursement, you'd then also document the amount you paid, when you paid it, and how you paid it. Everyone has their own way of documenting.

I agree that having a Form 8889 in addition to medical expenses declared on your Schedule A could raise a letter of clarification from the IRS but if you have the documentation, you should be fine. As a matter of completeness, I always attach a copy of my Schedule A with my medical receipts for any given year just to verify to anyone who's interested that no medical deductions were taken.

At some point, you'll probably reach a threshold where you don't want to hassle of some many receipts and you'll start reimbursing yourself. Personally, I'd start doing it now but could understand your reasoning to do otherwise.

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 6:20 pm

Spirit Rider wrote:
dodecahedron wrote:There may not always be an EOB or the EOB may not clarify whether the procedure was cosmetic or not. E.g., if you don't have dental insurance that covers orthodontia, there isn't going to be an EOB for orthodontia. If the EOB from your HMO denies a claim for dermatology or plastic surgery because you went out of network, the EOB is not going to tell the IRS anything about whether the expense was for cosmetic or medical purposes. Even if the EOB shows that your insurance coverage paid for part of the cost (or counted it towards your deductible), the IRS might not be satisfied that the insurance company's determination of "medically necessary vs cosmetic" matches theirs.
I think you are really trying to go down a Non Sequitur Fallacy rat hole. Suffice to say if you have such a rare situation, it is on you to make sure you contemporaneously obtain the proof necessary to justify the reimbursement whenever it might occur.

Let's return to our regular programming of practical issues.
I agree with dodecahedron. I've found it difficult to get the required documents more often that not. Medical providers are simply not going to provide the needed documents. For this reason, I've decided to go with annual reimbursement for that year's expenses, and hope that what I've got is good enough, and if not I find out soon.

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Re: HSAs and "Saving Medical Receipts"

Post by ChrisC » Tue Jun 13, 2017 6:50 pm

*3!4!/5! wrote:
Spirit Rider wrote:
dodecahedron wrote:There may not always be an EOB or the EOB may not clarify whether the procedure was cosmetic or not. E.g., if you don't have dental insurance that covers orthodontia, there isn't going to be an EOB for orthodontia. If the EOB from your HMO denies a claim for dermatology or plastic surgery because you went out of network, the EOB is not going to tell the IRS anything about whether the expense was for cosmetic or medical purposes. Even if the EOB shows that your insurance coverage paid for part of the cost (or counted it towards your deductible), the IRS might not be satisfied that the insurance company's determination of "medically necessary vs cosmetic" matches theirs.
I think you are really trying to go down a Non Sequitur Fallacy rat hole. Suffice to say if you have such a rare situation, it is on you to make sure you contemporaneously obtain the proof necessary to justify the reimbursement whenever it might occur.

Let's return to our regular programming of practical issues.
I agree with dodecahedron. I've found it difficult to get the required documents more often that not. Medical providers are simply not going to provide the needed documents. For this reason, I've decided to go with annual reimbursement for that year's expenses, and hope that what I've got is good enough, and if not I find out soon.
I agree with Spirit Rider, now there's that. :D I haven't found it difficult to obtain or keep documentary evidence of allowable medical or dental expenses. I had some acupuncture treatments a few years ago and have sufficient documentation from my medical providers (and insurance carrier) that establish my entitlement to HSA reimbursement. My wife gets prescribed medical treatments for hair loss from an unusual condition that mainly affects black women -- I'm sure we have enough documentation through EOBs and Medicare Statements to establish an entitlement to reimbursement as a medical, not cosmetic expense. And what about hearing aids -- Medicare and most insurance do not cover this (and I'm not a Vet so I don't have VA benefits to cover this as well), but I'm sure I'll need them and I'm sure I'll be able to reimburse myself from my HSA much the same way prescription eyeglasses can be reimbursed from an HSA.

I think there are sound reasons for not keeping medical receipts for a long period of time, but difficulty in proving an entitlement to HSA reimbursement is not one of them. If you can prove entitlement today, you should be able to prove that 10 or 20 years later if you keep a good head on your shoulders and keep the requisite records.

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 8:06 pm

If the IRA audits and find your documents insufficient, it's much easier to fix if they're from 1 year ago rather than 30 years ago. That's a pretty major point.

It's essentially impossible to really get the documents that would prove everything, so just gather what you've got and hope the IRS is reasonable. 99.x% of the time, there's no audit, so reimburse the same year, and keep the documents a few years (3?) then toss them. That's the best method.

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Re: HSAs and "Saving Medical Receipts"

Post by whodidntante » Tue Jun 13, 2017 8:15 pm

Receipts can fade and become unreadable after a few years, so a durable copy is a good idea. I take pictures and back them up.

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 8:24 pm

And another point: HSAs are generally tiny compared to other tax-advantaged space, so withdrawing expenses each year barely dents tax-advantaged space. And you get to pay for the medical expenses with untaxed dollars regardless, (without itemizing) which is the main HSA benefit for most people.

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Re: HSAs and "Saving Medical Receipts"

Post by ChrisC » Tue Jun 13, 2017 9:24 pm

*3!4!/5! wrote:If the IRA audits and find your documents insufficient, it's much easier to fix if they're from 1 year ago rather than 30 years ago. That's a pretty major point.
I beg to differ that this is really a major point. I don't think one should be in a position "to fix" your claim to reimbursement -- you either have the documents and evidence for the claim or don't; if you don't think you have sufficient information, evidence or documents for the claim, you shouldn't be claiming it or trying to fix it after you made the claim. BTW, the scant reports that's been posted in this forum about IRS audits of HSA distributions have not been alarming.
*3!4!/5! wrote: It's essentially impossible to really get the documents that would prove everything, so just gather what you've got and hope the IRS is reasonable. 99.x% of the time, there's no audit, so reimburse the same year, and keep the documents a few years (3?) then toss them. That's the best method.
"Prove everything" -- since when did that become the standard? I think you're being asked to prove that your claim is correct based on the applicable rules and documents and evidence you have to substantiate your claim of reimbursement.

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 9:37 pm

ChrisC wrote:
*3!4!/5! wrote:If the IRA audits and find your documents insufficient, it's much easier to fix if they're from 1 year ago rather than 30 years ago. That's a pretty major point.
I beg to differ that this is really a major point. I don't think one should be in a position "to fix" your claim to reimbursement -- you either have the documents and evidence for the claim or don't; if you don't think you have sufficient information, evidence or documents for the claim, you shouldn't be claiming it or trying to fix it after you made the claim. BTW, the scant reports that's been posted in this forum about IRS audits of HSA distributions have not been alarming.
*3!4!/5! wrote: It's essentially impossible to really get the documents that would prove everything, so just gather what you've got and hope the IRS is reasonable. 99.x% of the time, there's no audit, so reimburse the same year, and keep the documents a few years (3?) then toss them. That's the best method.
"Prove everything" -- since when did that become the standard? I think you're being asked to prove that your claim is correct based on the applicable rules and documents and evidence you have to substantiate your claim of reimbursement.

Okay this is getting ridiculous. You are simply not going to get the documents you need, unless you devote a significant amount of time and effort to extract them from the medical providers, who will fight tooth and nail to not give you what you need. There's no point getting into that fight unless you really need to.

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Re: HSAs and "Saving Medical Receipts"

Post by ChrisC » Tue Jun 13, 2017 9:51 pm

*3!4!/5! wrote:
ChrisC wrote:
*3!4!/5! wrote:If the IRA audits and find your documents insufficient, it's much easier to fix if they're from 1 year ago rather than 30 years ago. That's a pretty major point.
I beg to differ that this is really a major point. I don't think one should be in a position "to fix" your claim to reimbursement -- you either have the documents and evidence for the claim or don't; if you don't think you have sufficient information, evidence or documents for the claim, you shouldn't be claiming it or trying to fix it after you made the claim. BTW, the scant reports that's been posted in this forum about IRS audits of HSA distributions have not been alarming.
*3!4!/5! wrote: It's essentially impossible to really get the documents that would prove everything, so just gather what you've got and hope the IRS is reasonable. 99.x% of the time, there's no audit, so reimburse the same year, and keep the documents a few years (3?) then toss them. That's the best method.
"Prove everything" -- since when did that become the standard? I think you're being asked to prove that your claim is correct based on the applicable rules and documents and evidence you have to substantiate your claim of reimbursement.

Okay this is getting ridiculous. You are simply not going to get the documents you need, unless you devote a significant amount of time and effort to extract them from the medical providers, who will fight tooth and nail to not give you what you need. There's no point getting into that fight unless you really need to.
I agree this is ridiculous. Doth protest too much. I've said enuff, now and you can have the last word.

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 9:53 pm

You agree. Good, you understand it now.

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Re: HSAs and "Saving Medical Receipts"

Post by FIREchief » Tue Jun 13, 2017 10:18 pm

*3!4!/5! wrote:If the IRA audits and find your documents insufficient, it's much easier to fix if they're from 1 year ago rather than 30 years ago. That's a pretty major point.

It's essentially impossible to really get the documents that would prove everything, so just gather what you've got and hope the IRS is reasonable. 99.x% of the time, there's no audit, so reimburse the same year, and keep the documents a few years (3?) then toss them. That's the best method.
I think there is a middle ground here.

a) Minor expenses such as prescriptions and doctor co-pays: retain the insurance company EOB and payment receipt
b) Moderate expenses such as eye glasses or fees for tests: retain the insurance company EOB, itemized provider invoice and payment receipt(s)
c) Major expenses: retain insurance company EOB, itemized invoice(s), payment receipt(s) and copy of bank or credit card statement

I've been doing this for several years and once organized properly it becomes a very simple habit to follow. I scan everything and summarize/cross-reference on a spreadsheet (properly backed up). Spreadsheet shows date, provider, type of service, address of provider and calculated mileage for transportation reimbursement. I won't be withdrawing from my HSA for years, and when I do I'll get both the tax free benefit on the expenditures plus the growth in funds within the HSA.
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: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Tue Jun 13, 2017 10:38 pm

Often EOBs don't exist.

Also, you may be able to prove that you paid $X to provider Y, but it is virtually impossible to prove what item(s) correspond to what payment(s). Medical providers simply do not acknowledge that specific payment(s) were for specific item(s). There's just no way to match them, and so it's essentially impossible to compile the required documentation.

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Re: HSAs and "Saving Medical Receipts"

Post by FIREchief » Tue Jun 13, 2017 11:57 pm

*3!4!/5! wrote:Often EOBs don't exist.

Also, you may be able to prove that you paid $X to provider Y, but it is virtually impossible to prove what item(s) correspond to what payment(s). Medical providers simply do not acknowledge that specific payment(s) were for specific item(s). There's just no way to match them, and so it's essentially impossible to compile the required documentation.
I've been doing this for two and one half years, and have easily downloaded EOBs for everything both medical and dental. I haven't tried to obtain them for eye care, however I get an itemized receipt at each visit which outlines exactly what was provided. My payment receipts match the EOB "patient responsibility" numbers that come directly from my one and only medical insurance provider. The EOB documents the procedures that I was billed for and shows for each how much insurance paid the provider and what I owe. For more expensive bills, I also receive an itemized invoice from the medical provider (along with the bill) and keep that as well, although it always just parallels the EOB. Not sure what else I would ever have to provide to the IRS?

What EOBs have you been unable to obtain?
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: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Wed Jun 14, 2017 12:42 am

FIREchief wrote:What EOBs have you been unable to obtain?
This cannot possibly be a serious question.

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Re: HSAs and "Saving Medical Receipts"

Post by FIREchief » Wed Jun 14, 2017 2:45 am

*3!4!/5! wrote:
FIREchief wrote:What EOBs have you been unable to obtain?
This cannot possibly be a serious question.
It is absolutely a serious question. All of my medical expenses (Dr. visits, drugs, tests) are submitted to my insurance company. After they process them, they send the provider an EOB and also post it to my online account as a .pdf file. I simply download it to my electronic archive. I am really curious why you think this is difficult.
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: HSAs and "Saving Medical Receipts"

Post by ChrisC » Wed Jun 14, 2017 6:27 am

Hmmm, I've never had a problem with getting EOBs for the last 9 years I've had an HDHP-HSA. You kinda get these EOBs from your insurance company for every medical provider that submits a claim for services the provider has done for you -- you, the medical provider, and the insurance company need this paperwork to show coverage, network negotiated rates, co-payments and deductibles. Medicare also has the equivalent of EOBs as well.

Admittedly, this could be an issue for vision or dental work if you don't have insurance coverage there. I've been fortunate to have insurance there and I get very detailed EOBs from my separate dental insurance carrier.

Perhaps there are rare circumstances where EOBs are not provided such as medical or dental care in a foriegn country. But the idea that EOBs often don't exist is a baffling and extraordinary observation from my experience.

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Re: HSAs and "Saving Medical Receipts"

Post by Artsdoctor » Wed Jun 14, 2017 8:53 am

I will admit that being a physician gives me an advantage when it comes to tracking medical finances because I know the way the system works (unfortunately). I've really never had a problem getting an initial bill, the EOB, the follow-up balance due, and then documentation of payment. I'd like to think that the documentation would be sufficient for any audit.

All of that said, I'm just tired of all those receipts. I have receipts going back more than a decade and at this point in my life, I just want simplicity. Consequently, I just started reimbursing myself for expenses in 2005. The IRS suggests that you keep receipts for 3 years after the filing date of your income tax return, and that's what I've planned. After that, they're in the shredder.

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Re: HSAs and "Saving Medical Receipts"

Post by desiderium » Wed Jun 14, 2017 8:53 am

FIREchief wrote:
*3!4!/5! wrote:
FIREchief wrote:What EOBs have you been unable to obtain?
This cannot possibly be a serious question.
It is absolutely a serious question. All of my medical expenses (Dr. visits, drugs, tests) are submitted to my insurance company. After they process them, they send the provider an EOB and also post it to my online account as a .pdf file. I simply download it to my electronic archive. I am really curious why you think this is difficult.
My insurance company even has an app now where you can access this information on demand. Most of the time it's easy. I agree though that sometimes the reimbursement question (and therefore documentation for posterity) can get impossibly byzantine, especially when errors occur

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Re: HSAs and "Saving Medical Receipts"

Post by *3!4!/5! » Wed Jun 14, 2017 12:15 pm

It should be extremely obvious to anyone who puts a little thought to it, that there are a variety of situations where there is no EOB to be had.

Moreover, there are many other obstacles to compiling the needed documentation. If you actually bother to think about it, you'll realize that it's basically impossible to truly prove what needs to be proved.

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