Health Savings Account

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raamakoti
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Health Savings Account

Post by raamakoti » Thu Aug 10, 2017 1:17 pm

Our employer health benefits are not that great, so I have the cheapest plan with high deductible and max out the HSA annual limit. for 2017 I chose to save $6750 in HSA.
We as a family are fairly health and don't use much of HSA. Now HSA balance is hovering around $20k
Should I keep contributing maximum every year till retirement which is about 23 year from now or just start backing up annual contribution.

Thanks for your help

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flamesabers
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Re: Health Savings Account

Post by flamesabers » Thu Aug 10, 2017 1:43 pm

So long as you have the available funds, I think maxing out your HSA is an excellent way to reduce your tax liabilities. Even though your family is fairly healthy, you never know when someone might have an injury or illness to deal with.

neilpilot
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Re: Health Savings Account

Post by neilpilot » Thu Aug 10, 2017 1:48 pm

Once you contribute enough to get employer's full 401k match, I view HSA contributions as preferable to both 401k/tIRA and Roth.
Last edited by neilpilot on Thu Aug 10, 2017 7:54 pm, edited 1 time in total.

PrettyCoolWorkshop
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Re: Health Savings Account

Post by PrettyCoolWorkshop » Thu Aug 10, 2017 1:48 pm

The optimal use of an HSA is as a stealth retirement account. Research on http://www.madfientist.com to learn more about this strategy. I would invest your HSA balance if possible and pay your healthcare costs out of your taxable accounts (keep your receipts!).

aristotelian
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Re: Health Savings Account

Post by aristotelian » Thu Aug 10, 2017 2:06 pm

You can withdraw the funds penalty free for any purpose in retirement. So you should max it out just like a 401k or Traditional IRA. Worst case scenario, you have to pay taxes on the withdrawal at your marginal rate in retirement. Best case scenario, you use it tax free for major health expenses down the line. It is a great benefit and you should absolutely max it out if possible.

Nate79
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Re: Health Savings Account

Post by Nate79 » Thu Aug 10, 2017 5:06 pm

Are you investing the HSA funds or just sitting in cash? I'm not sure I would value maxing out an HSA just to have the funds sit in cash. So if you aren't already make sure and invest your HSA funds.

mervinj7
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Re: Health Savings Account

Post by mervinj7 » Thu Aug 10, 2017 5:09 pm

I keep one year's worth of deductible as cash in the HSA and invest the rest according to my AA.

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willthrill81
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Re: Health Savings Account

Post by willthrill81 » Thu Aug 10, 2017 5:37 pm

neilpilot wrote:Once you contribute enough to get employer's full IRA match, I view HSA contributions as preferable to both tIRA and Roth.
+1 Without a shadow of a doubt.

The only potential drawbacks of an HSA over a TIRA are that you must be 65 before you can withdraw funds for non-medical expenses without a penalty and the penalty if you do is 20% instead of 10%. Beyond that, it's a slam dunk.

And I've heard from multiple sources that current retirees can expect to spend about $250k during their retirement on medical expenses not covered by Medicare. It will take a while to get to that inflation-adjusted level when you can only contribute $6,750 per year, even with respectable growth.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Nicolas
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Re: Health Savings Account

Post by Nicolas » Thu Aug 10, 2017 5:51 pm

Keep putting in the max as long as you can. I wasn't eligible for an HSA until 2010 and as of this year I'm no longer eligible, but I put in the max every year and saved 60K. I wish I'd had more years to save.

ved
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Re: Health Savings Account

Post by ved » Thu Aug 10, 2017 6:10 pm

neilpilot wrote:Once you contribute enough to get employer's full IRA match, I view HSA contributions as preferable to both tIRA and Roth.
You mean 401k match?
I have not known about any employers that match IRA

Ostentatious
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Re: Health Savings Account

Post by Ostentatious » Thu Aug 10, 2017 6:26 pm

Nicolas wrote:Keep putting in the max as long as you can. I wasn't eligible for an HSA until 2010 and as of this year I'm no longer eligible, but I put in the max every year and saved 60K. I wish I'd had more years to save.
+1

TravelforFun
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Re: Health Savings Account

Post by TravelforFun » Thu Aug 10, 2017 7:04 pm

No question HSA is the best way to invest your money. Money goes in and comes out tax-free both way if you use it to pay medical costs. Invest in it long enough and it would become your long term care insurance.

Too bad I don't have a high deductible plan at work.

Also, money sitting in HSA and Roth accounts should be 100% stock. Use your 401K, IRA, or taxable accounts to achieve your overall asset allocation.

neilpilot
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Re: Health Savings Account

Post by neilpilot » Thu Aug 10, 2017 7:51 pm

ved wrote:
neilpilot wrote:Once you contribute enough to get employer's full IRA match, I view HSA contributions as preferable to both tIRA and Roth.
You mean 401k match?
I have not known about any employers that match IRA
Yes, that's what I meant. Corrected above.

michaeljc70
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Re: Health Savings Account

Post by michaeljc70 » Thu Aug 10, 2017 7:57 pm

raamakoti wrote:Our employer health benefits are not that great, so I have the cheapest plan with high deductible and max out the HSA annual limit. for 2017 I chose to save $6750 in HSA.
We as a family are fairly health and don't use much of HSA. Now HSA balance is hovering around $20k
Should I keep contributing maximum every year till retirement which is about 23 year from now or just start backing up annual contribution.

Thanks for your help
Yes! I have $78k in my HSA. I've never tapped it. Invested in an index fund. Better to pay from other funds if you can and let it grow tax free. I figure it will cover medical expenses in retirement.

raamakoti
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Re: Health Savings Account

Post by raamakoti » Fri Aug 11, 2017 4:37 am

Thank you for all your suggestions

msj16
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Re: Health Savings Account

Post by msj16 » Fri Aug 11, 2017 9:08 am

What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?

dcabler
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Re: Health Savings Account

Post by dcabler » Fri Aug 11, 2017 10:00 am

msj16 wrote:What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?
I just started work at a company with an HSA - my first one. Was contemplating that myself, but I did see that somebody else posted that in their HSA they hold the deductible in cash and invest the rest. I can see the logic in that.

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Artsdoctor
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Re: Health Savings Account

Post by Artsdoctor » Fri Aug 11, 2017 10:05 am

msj16 wrote:What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?
This is dependent on your own personal situation. It will really comes down to three obvious categories:

1. You're going to use your HSA for current medical expenses.
2. You're going to use your HSA strictly for investment purposes and would only take distributions at a later date.
3. You're going to use your HSA to do both.

Currently, #2 is a tiny minority of HSA holders just because many people don't understand the value of HSA investing and/or they cannot afford to pay for all medical expenses out of pocket in real time.

Some have mentioned that HSAs might be superior to a Roth. On one hand, the logic is clear: you put money in pre-tax, the investments grow tax-free, and you withdraw tax-free. It's a triple win.

Just one thing to remember. Although your spouse can inherit your HSA without any tax consequences. No one else can. You cannot use it as an estate planning entity for other family members since it loses its tax-preferred status with everyone else except your spouse.

neilpilot
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Re: Health Savings Account

Post by neilpilot » Fri Aug 11, 2017 10:06 am

dcabler wrote:
msj16 wrote:What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?
I just started work at a company with an HSA - my first one. Was contemplating that myself, but I did see that somebody else posted that in their HSA they hold the deductible in cash and invest the rest. I can see the logic in that.
It's preferable if you can invest your entire HSA and plan to pay the deductible out of pocket. Alternatively, invest the entire HSA and, if you need to withdraw HSA funds to cover medical expenses, just divest a portion of the HSA investment.

Pax
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Re: Health Savings Account

Post by Pax » Fri Aug 11, 2017 10:26 am

TravelforFun wrote:No question HSA is the best way to invest your money. Money goes in and comes out tax-free both way if you use it to pay medical costs. Invest in it long enough and it would become your long term care insurance.

Too bad I don't have a high deductible plan at work.

Also, money sitting in HSA and Roth accounts should be 100% stock. Use your 401K, IRA, or taxable accounts to achieve your overall asset allocation.
Could you explain, why money in the HSA and ROTH should be 100% stock? I have my HSA still in cash ($22K) and my Personal ROTH ($90K) using by AA.
I might need update my Investment Policy Statement (IPS). Thanks

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susa
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Re: Health Savings Account

Post by susa » Fri Aug 11, 2017 4:11 pm

Learned something new on HSA's

Scenario : Spouse with HSA is 65, hubby is 35 .... all premiums for both can be paid from HSA

...
Expanded Benefits After Age 65
At 65, you will also gain some new benefits with your HSA. Certain insurance premiums can be paid tax free with HSA distributions after you reach age 65 and enroll in Medicare. You can pay for all Medicare premiums except Medigap. Employee payments of premiums for employer health insurance plans also qualify. You may also pay premiums for your spouse as long as you are age 65.

Distributions that you take from your HSA after age 65 are never subject to penalty. What you use the funds for does not matter. All HSA distributions after age 65 are penalty free, even if the funds are not used for qualified health expenses. However, if you take a distribution that is not used for qualified medical expenses, it will be taxable.

msj16
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Re: Health Savings Account

Post by msj16 » Fri Aug 11, 2017 6:04 pm

Thanks to all for the great advice.

ved
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Re: Health Savings Account

Post by ved » Fri Aug 11, 2017 6:30 pm

Pax wrote:
TravelforFun wrote:No question HSA is the best way to invest your money. Money goes in and comes out tax-free both way if you use it to pay medical costs. Invest in it long enough and it would become your long term care insurance.

Too bad I don't have a high deductible plan at work.

Also, money sitting in HSA and Roth accounts should be 100% stock. Use your 401K, IRA, or taxable accounts to achieve your overall asset allocation.
Could you explain, why money in the HSA and ROTH should be 100% stock? I have my HSA still in cash ($22K) and my Personal ROTH ($90K) using by AA.
I might need update my Investment Policy Statement (IPS). Thanks
HSA (if the distributions are used for medical expenses0 and Roth distributions are never taxed. And stocks are expected to have long-term appreciation better than bonds. So, if you have several years to decades before you plan to withdraw, chances are that a 100% stock fund will have more gains than any other asset allocation. To compensate and achieve your overall asset allocation, you allocate more bonds in other types of accounts (401k, taxable, etc)

At least, I think that's the rationale.

Tamarind
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Re: Health Savings Account

Post by Tamarind » Sat Aug 12, 2017 8:00 am

mervinj7 wrote:I keep one year's worth of deductible as cash in the HSA and invest the rest according to my AA.
+1

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willthrill81
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Re: Health Savings Account

Post by willthrill81 » Sat Aug 12, 2017 10:31 am

mervinj7 wrote:
Thu Aug 10, 2017 5:09 pm
I keep one year's worth of deductible as cash in the HSA and invest the rest according to my AA.
I take a similar, though somewhat more aggressive, approach. I'm currently building a stake in Vanguard's Wellesley Income big enough to cover two years of our out-of-pocket maximum for our health insurance. Beyond that, all of my contributions will be going into SCV and MCV.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Spirit Rider
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Re: Health Savings Account

Post by Spirit Rider » Sat Aug 12, 2017 11:16 am

Artsdoctor wrote:
Fri Aug 11, 2017 10:05 am
msj16 wrote:What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?
This is dependent on your own personal situation. It will really comes down to three obvious categories:

1. You're going to use your HSA for current medical expenses.
2. You're going to use your HSA strictly for investment purposes and would only take distributions at a later date.
3. You're going to use your HSA to do both.

Currently, #2 is a tiny minority of HSA holders just because many people don't understand the value of HSA investing and/or they cannot afford to pay for all medical expenses out of pocket in real time.
I was using #2 and have since come around to using #3. I know full well the value of HSA investing and can certainly pay OOP.

However, I noticed 80% - 90% of my receipts only represented 10% - 20% of the total amount of my yearly qualified medical expenses. So expenses < $100 (used to be $50) now get paid with the HSA debit card or online bill pay. This averages with me deferring about 85% of qualified medical expenses and saving < 10% of the number of receipts.

This greatly minimizes the receipts I have to save and does not substantially affect the long term HSA account growth. To me it is a small price to pay to simplify the overall process.

sophie1
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Re: Health Savings Account

Post by sophie1 » Sat Aug 12, 2017 12:57 pm

HSAs are a no-brainer, especially in high-tax locations. I'm amazed that anyone at my company with my marginal tax rate goes for higher cost, non-HSA health insurance options. I save over $200/month in pre-tax insurance plan deductions, plus the HSA contributions are pre-tax AND pre-FICA, since it's done via a paycheck deduction. I don't believe the FICA will ever have to be repaid.

The high deductible is offset by the savings in tax costs and deductibles, so the extra costs are effectively less than the "silver"-type non-HSA insurance options, before you even consider the tax-free compounding in HSA investments. As long as I plan to keep the money for medical expenses, this calculus is a good way to look at HSAs. Also, the HSA plan for my company is the only one that does not require PMD referrals. This saves money and time, since I can go straight to a specialist without having to waste a visit to a PMD in order to get a piece of paper that says "yes".

Spirit Rider, I get what you mean about record keeping, but I just print out the year-end summary from the online insurance account and this includes a precise accounting of who paid what. I just make sure to submit everything so they have the records.

cas
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Re: Health Savings Account

Post by cas » Sat Aug 12, 2017 2:05 pm

sophie1 wrote:
Sat Aug 12, 2017 12:57 pm
plus the HSA contributions are pre-tax AND pre-FICA, since it's done via a paycheck deduction. I don't believe the FICA will ever have to be repaid.
Well, yes and no about not "repaying" the FICA. True, you will never have to repay the FICA tax as FICA tax. But, eventually, for most (not all) people, less lifetime FICA tax leads to an eventual reduced monthly Social Security payment.

The details of how much (or if) the eventual social security payment will be reduced gets complicated. (It gets into the "bendpoints" social security calculations). And whether people should care about the eventual reduced SS payment opens another whole can of worms.

In the wiki, David Grabiner says this:
With Social Security and Medicare as the only tax benefit, payroll deduction for a Health Savings Account is close to break-even if you have high income but are under the Social Security maximum taxable income, as computed above. If you do not have high income for your career, do not use payroll deduction for your HSA; if you are over the Social Security maximum, there is a small but clear benefit.
Source: https://www.bogleheads.org/wiki/Payroll ... gs_Account - more context available on the page.

Threads pop up debating the pros and cons periodically. Here is a sample: viewtopic.php?t=210839

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Artsdoctor
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Re: Health Savings Account

Post by Artsdoctor » Sat Aug 12, 2017 4:47 pm

Spirit Rider wrote:
Sat Aug 12, 2017 11:16 am
Artsdoctor wrote:
Fri Aug 11, 2017 10:05 am
msj16 wrote:What about current medical expenses? Is there some guideline as to when that would negate the value of a HSA?
This is dependent on your own personal situation. It will really comes down to three obvious categories:

1. You're going to use your HSA for current medical expenses.
2. You're going to use your HSA strictly for investment purposes and would only take distributions at a later date.
3. You're going to use your HSA to do both.

Currently, #2 is a tiny minority of HSA holders just because many people don't understand the value of HSA investing and/or they cannot afford to pay for all medical expenses out of pocket in real time.
I was using #2 and have since come around to using #3. I know full well the value of HSA investing and can certainly pay OOP.

However, I noticed 80% - 90% of my receipts only represented 10% - 20% of the total amount of my yearly qualified medical expenses. So expenses < $100 (used to be $50) now get paid with the HSA debit card or online bill pay. This averages with me deferring about 85% of qualified medical expenses and saving < 10% of the number of receipts.

This greatly minimizes the receipts I have to save and does not substantially affect the long term HSA account growth. To me it is a small price to pay to simplify the overall process.
Yes, I've come around to #3 as well. I started reimbursing myself for medical expenses which are > 10 years old because, frankly, I was just sick of keeping those receipts. Like you, I've realized that there is some value in simplification. I don't need to eke out every last penny (although I must admit that I take a transporation expense for every healthcare-related expense that I can, so I'm guilty of OCD behavior in some aspects here . . .).

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FIREchief
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Re: Health Savings Account

Post by FIREchief » Sat Aug 12, 2017 11:21 pm

willthrill81 wrote:
Thu Aug 10, 2017 5:37 pm
neilpilot wrote:Once you contribute enough to get employer's full IRA match, I view HSA contributions as preferable to both tIRA and Roth.
+1 Without a shadow of a doubt.

The only potential drawbacks of an HSA over a TIRA are that you must be 65 before you can withdraw funds for non-medical expenses without a penalty and the penalty if you do is 20% instead of 10%. Beyond that, it's a slam dunk.
I used to agree with most of this, but have learned of a scenario where contributing to an HSA can be worse than contributing to a tIRA. It occurs when somebody dies, without a surviving spouse, with funds in their HSA. If those funds were in a tIRA, they could be left to a non-spouse beneficiary and the withdrawals stretched over that person's life expectancy (i.e. the "stretch IRA"). If those same funds were instead in an HSA, they would be immediately taxable to the beneficiary in the year of death (if no beneficiary, they would be immediately taxable on the final tax return). In both cases, the tax implications would likely be far worse than having the funds in a tIRA.

Of course, this doesn't apply to most situations, but for somebody with $100,000 or more in an HSA, it is worth at least keeping in mind.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

lynneny
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Re: Health Savings Account

Post by lynneny » Sat Aug 12, 2017 11:38 pm

If I were going to contribute to an HSA for 30 or 40 years, I'd definitely use the HSA to pay for the smaller ongoing healthcare expenses rather than keeping a stack of receipts for decades.

But I was already in my 50s when our company started offering a high-deductible plan/HSA option, so I only have 10 years to contribute about $4,400/yr to my HSA (I'm single) before I have to stop when I sign up for Medicare. Given those limits, I don't plan to touch the HSA until after I retire.

ddurrett896
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Re: Health Savings Account

Post by ddurrett896 » Sun Aug 13, 2017 7:14 am

My employers HSA forces you to use it or lose it by the end of the year.

Is there an option, outside of employer that offers a HSA account (similar to a 529)? Thanks!

Ostentatious
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Re: Health Savings Account

Post by Ostentatious » Sun Aug 13, 2017 7:22 am

ddurrett896 wrote:
Sun Aug 13, 2017 7:14 am
My employers HSA forces you to use it or lose it by the end of the year.

Is there an option, outside of employer that offers a HSA account (similar to a 529)? Thanks!
Are you sure that is not an FSA - Flexible Spending Account? The laws governing these are federal. Your employer cannot change the rules arbitrarily. This topic is about HSA-Health Savings Account.

Traveler
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Re: Health Savings Account

Post by Traveler » Sun Aug 13, 2017 9:09 am

As a single person with few medical expenses, I wish I could put more into my HSA (and 401K for that matter). The HSA is the most tax efficient vehicle I've found and at some point I will have more medical expenses. I pay for my limited medical expenses out of pocket and let my HSA grow. I have the non-cash (I think mine requires me to keep something like $2000 in cash) portion invested in a three fund portfolio that has done quite well the last couple years. I say keep maxing out the HSA - you can't find a better vehicle to put money that will never get taxed.

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willthrill81
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Re: Health Savings Account

Post by willthrill81 » Sun Aug 13, 2017 9:53 am

FIREchief wrote:
Sat Aug 12, 2017 11:21 pm
willthrill81 wrote:
Thu Aug 10, 2017 5:37 pm
neilpilot wrote:Once you contribute enough to get employer's full IRA match, I view HSA contributions as preferable to both tIRA and Roth.
+1 Without a shadow of a doubt.

The only potential drawbacks of an HSA over a TIRA are that you must be 65 before you can withdraw funds for non-medical expenses without a penalty and the penalty if you do is 20% instead of 10%. Beyond that, it's a slam dunk.
I used to agree with most of this, but have learned of a scenario where contributing to an HSA can be worse than contributing to a tIRA. It occurs when somebody dies, without a surviving spouse, with funds in their HSA. If those funds were in a tIRA, they could be left to a non-spouse beneficiary and the withdrawals stretched over that person's life expectancy (i.e. the "stretch IRA"). If those same funds were instead in an HSA, they would be immediately taxable to the beneficiary in the year of death (if no beneficiary, they would be immediately taxable on the final tax return). In both cases, the tax implications would likely be far worse than having the funds in a tIRA.

Of course, this doesn't apply to most situations, but for somebody with $100,000 or more in an HSA, it is worth at least keeping in mind.
That's very true. I forgot to mention that, and it is indeed a drawback, as much as a receiving a lump sum of money is a drawback. :wink:

I doubt that many HSAs will ever have very large sums (i.e. > $1M) in them. And in retirement, while it might make sense to always leave some amount in the HSA, by the time a retiree is reaching their 80s, it's probably worthwhile to not leave too much in it if the survivor isn't your spouse.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Artsdoctor
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Re: Health Savings Account

Post by Artsdoctor » Sun Aug 13, 2017 11:11 am

The obvious workaround that many of us have integrated into estate planning is to leave the HSA to a charity. If you're going to have philanthropic beneficiaries in your will anyway, you may as well leave your HSA to them since THEY won't be taxed on the balance the same way a non-spouse would be taxed.

theplayer11
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Re: Health Savings Account

Post by theplayer11 » Sun Aug 13, 2017 3:19 pm

lynneny wrote:
Sat Aug 12, 2017 11:38 pm
If I were going to contribute to an HSA for 30 or 40 years, I'd definitely use the HSA to pay for the smaller ongoing healthcare expenses rather than keeping a stack of receipts for decades.

But I was already in my 50s when our company started offering a high-deductible plan/HSA option, so I only have 10 years to contribute about $4,400/yr to my HSA (I'm single) before I have to stop when I sign up for Medicare. Given those limits, I don't plan to touch the HSA until after I retire.
I've seen the keeping receipts for decades line a few times in regards to HSAs. Don't you think you might have large medical expenses when you get up there in age?.or use HSA funds for Medicare payments. I understand keeping receipts is a hassle, but most likely you will not need them. I plan on having the largest HSA account balance I can muster.

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FIREchief
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Re: Health Savings Account

Post by FIREchief » Sun Aug 13, 2017 3:45 pm

Artsdoctor wrote:
Sun Aug 13, 2017 11:11 am
The obvious workaround that many of us have integrated into estate planning is to leave the HSA to a charity. If you're going to have philanthropic beneficiaries in your will anyway, you may as well leave your HSA to them since THEY won't be taxed on the balance the same way a non-spouse would be taxed.
You are correct. I have considered this and even talked to the Fidelity DAF reps about how to designate them as a beneficiary. Unfortunately, the first person I talked to said it could not be done :oops: , and the second tier person who called me back said it could but he had never encountered the question before. :confused HSAs are still somewhat new, but not that new.
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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