HSA money, use it or save it for later

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wolingfeng
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HSA money, use it or save it for later

Post by wolingfeng »

Hi,

Just trying to get some opinions on how you view it, so this year family will have some medical expense due to medical elective procedure, which costs several thousands. In a situation where you have more than enough emergency fund and enough fund in HSA for full reimbursement, it is better save the HSA fund and use for later, or just submit the cost and get the money out?

Thanks.
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Nate79
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Re: HSA money, use it or save it for later

Post by Nate79 »

wolingfeng wrote: Sat May 29, 2021 11:07 am Hi,

Just trying to get some opinions on how you view it, so this year family will have some medical expense due to medical elective procedure, which costs several thousands. In a situation where you have more than enough emergency fund and enough fund in HSA for full reimbursement, it is better save the HSA fund and use for later, or just submit the cost and get the money out?

Thanks.
Are you already maxing out retirement accounts?
runner3081
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Re: HSA money, use it or save it for later

Post by runner3081 »

Honestly, it is a personal choice. We are going to use it later and just cash-flow current expenses.
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RickBoglehead
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Re: HSA money, use it or save it for later

Post by RickBoglehead »

Assuming the HSA is invested in the market (vs. low interest savings), save it.
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Mike Scott
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Re: HSA money, use it or save it for later

Post by Mike Scott »

I cash out expenses with receipts once a year and keep the remainder in index funds.
EdTheYellowJacket
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Re: HSA money, use it or save it for later

Post by EdTheYellowJacket »

If you have the money outside of the HSA pay with that but save the receipts. You can then use the receipts to get the money out of the HSA at a later time after it has grown if you need it at that time.
sailaway
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Re: HSA money, use it or save it for later

Post by sailaway »

Hybrid: if we can, we cash flow. If we have to sell off something with capital gains, we will prefer the HSA. In reality, DH pays most of the medical bills (because he incurs them), and as often as not grabs the HSA card, then apologizes afterwards.
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wander
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Re: HSA money, use it or save it for later

Post by wander »

We rather use them now than later. But even so, our HSA amount is reaching $100k.
invest4
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Re: HSA money, use it or save it for later

Post by invest4 »

My whole purpose of funding the HSA is to let it grow and fund future medical costs. Barring current medical expenses that would create an extraordinary strain my existing finances, I'm paying it now.
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Re: HSA money, use it or save it for later

Post by lazynovice »

We opened ours with the thought of using it later but then we lost the ability to fund it due to change in plan. The amount is so small that it is a pain to keep up so we are spending it down.
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TJat
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Re: HSA money, use it or save it for later

Post by TJat »

The triple tax advantage of HSAs is awesome. Barring a catastrophe, my goal is to fund the max each year of my working life and treat as retirement assets after age 65.

I’d probably use any liquid asset that I could withdraw without penalty before touching the HSA.
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Re: HSA money, use it or save it for later

Post by MrJones »

What does the bogleheads wiki say?
tonyclifton
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Re: HSA money, use it or save it for later

Post by tonyclifton »

We are using cash to pay for medical expenses and then saving the receipts to later deduct against the HSA. Setup a folder on our network that contains a spreadsheet of the expenses and PDF copies of the receipts. The folder is on a network attached storage device. Our all-in-one copier scans right to the folder. Not sure if the technology for this setup will work until retirement but it works great right now.
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Re: HSA money, use it or save it for later

Post by Polymorphic »

My strategy is to contribute to the HSA up to the annual maximum and try to pay medical expenses out-of-pocket. If we got hit with a huge medical expense (in the ballpark of our HDHP's out-of-pocket maximum), then we would give ourselves permission to raid the HSA, but otherwise, we are going to let it ride.
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Elsebet
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Re: HSA money, use it or save it for later

Post by Elsebet »

We are saving it for later. In our HSA account I keep our annual deductible as cash just in case of a a major issue, the rest is invested. If we needed more than our deductible for some reason I have plenty of receipts to redeem from prior years.
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Re: HSA money, use it or save it for later

Post by grabiner »

MrJones wrote: Sat May 29, 2021 1:55 pm What does the bogleheads wiki say?
HSA: How to use the plan says that you should pay current expenses from the HSA if you are not maxing out your retirement accounts, and save the HSA for later use if you are maxing out.

The reason is that you have already gotten the extra tax benefit from the HSA once you made the contribution.
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Re: HSA money, use it or save it for later

Post by Vanguard Fan 1367 »

Since I moved my money to Fidelity I like to save the money
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AllMostThere
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Re: HSA money, use it or save it for later

Post by AllMostThere »

DW & I cash flow all annual medical expenses and fully invest our Fidelity HSA's in index funds. DW has majority with max + $1K (over 55) via employer and I have $1K (over 55) annual inputs. Our strategy is to save all current & past medical receipts should we need HSA cash in future, but overall plan is to grow the funds for use once we are on Medicare with potential increase in medical expenses and/or LTC..... :annoyed
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Re: HSA money, use it or save it for later

Post by furwut »

The prospect of paying for medical treatment 100% out of pocket may lead some to defer or neglect care. This may be penny wise and pound foolish. In theory a HDHP is supposed to lower costs as it is supposed the consumer will shop around for the most affordable care. In practice HDHPs save money because the consumer avoids care.

I recommend one contribute to an HSA and keep it in cash until one has reached the maximum deductible amount. Freely use this amount to pay for medical expenses as they occur. Tell yourself your medical costs (if any) for the year have been prepaid so there’s never a financial hesitancy in seeking it.

Once you have more in the HSA then the deductible that portion can be invested for growth.
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Re: HSA money, use it or save it for later

Post by JonnyDVM »

wander wrote: Sat May 29, 2021 12:22 pm We rather use them now than later. But even so, our HSA amount is reaching $100k.
Are you me? We use it but yes, there is still a significant amount accruing.
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JoeRetire
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Re: HSA money, use it or save it for later

Post by JoeRetire »

wolingfeng wrote: Sat May 29, 2021 11:07 amIn a situation where you have more than enough emergency fund and enough fund in HSA for full reimbursement, it is better save the HSA fund and use for later, or just submit the cost and get the money out?
Save it for later.
Just remember: it's not a lie if you believe it.
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Re: HSA money, use it or save it for later

Post by winterfan »

invest4 wrote: Sat May 29, 2021 1:01 pm My whole purpose of funding the HSA is to let it grow and fund future medical costs. Barring current medical expenses that would create an extraordinary strain my existing finances, I'm paying it now.
We are too, but this year is the first time it became available to us and we want to accumulate as much as possible in the beginning. We are paying everything out of pocket. I'll admit that our bills haven't been outrageous yet (a dental bill and eye doctor charge).
tenkuky
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Re: HSA money, use it or save it for later

Post by tenkuky »

Every year I repay myself for the previous year’s healthcare costs from the HSA.
The rest I move to Fidelity HSA for long term growth (100% equities).
I can’t bring myself to accumulate receipts :|
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Re: HSA money, use it or save it for later

Post by Wellfleet »

furwut wrote: Sat May 29, 2021 8:36 pm The prospect of paying for medical treatment 100% out of pocket may lead some to defer or neglect care. This may be penny wise and pound foolish. In theory a HDHP is supposed to lower costs as it is supposed the consumer will shop around for the most affordable care. In practice HDHPs save money because the consumer avoids care.

I recommend one contribute to an HSA and keep it in cash until one has reached the maximum deductible amount. Freely use this amount to pay for medical expenses as they occur. Tell yourself your medical costs (if any) for the year have been prepaid so there’s never a financial hesitancy in seeking it.

Once you have more in the HSA then the deductible that portion can be invested for growth.
Agree with this. Spouse and I have a discussion annually during open enrollment whether we felt HDHP caused us to avoid care. If so it will be dumped for HMO option.

We’ve had it for a few years and spent it all in first couple years and now have deductible saved in cash option and will invest beyond that.

At this point I seek reimbursement for appx. >$500 expenses.
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Re: HSA money, use it or save it for later

Post by Pops1860 »

We accumulated $$ in HSA while working, but could only do this for a few years (joined as soon as employer offered it as an option). But then we spent it down after retirement started, mostly for Medicare premiums (the ones that are allowed).

But remember what happens when you pass.

If your spouse is the beneficiary, it remains an HSA for him/her.

If somebody other than your spouse is the beneficiary of your HSA, the account is no longer an HSA. It just becomes a regular taxable account, and the full value of the account is taxable as income to the beneficiary in the year of your death.

You need to spend it down yourself (you/spouse) to get full tax advantage.
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IdRatherBeHiking
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Re: HSA money, use it or save it for later

Post by IdRatherBeHiking »

We fully contribute to our HSA with the intent of only pulling out after retirement and/or in a medical emergency. That said we are fortunate to be able to max out all other retirement accounts and if that changes then we'd likely use the HSA for ongoing health care expenses. But agree with much of above that the tax advantages of the HSA should encourage you to strongly consider to not touch it if you can afford not to.
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Re: HSA money, use it or save it for later

Post by getthatmarshmallow »

We spend out of it as needed. I share the above concern that one might defer medical care (rather than shop around),and I'm not convinced of the benefits of deferring withdrawal vs the cost of forgoing the immediate tax benefit by paying medical bills with post tax income.

We've had the HSA for three years, and we've used it as needed. Last year that meant a non elective surgery.
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Re: HSA money, use it or save it for later

Post by jebmke »

I had been filing receipts and waiting until I helped my wife handle a couple of estates (family members). Seeing the amount of paperwork to deal with I decided to not leave this administrative burden for her to deal with if I croaked or became incapacitated. I blew out the backlog of claims and then reimbursed annually to drain off the funds. Be forewarned -- the large withdrawal in the first year did trigger a CP letter from the IRS -- two years in a row.
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Re: HSA money, use it or save it for later

Post by neurosphere »

jebmke wrote: Sun May 30, 2021 8:23 am I had been filing receipts and waiting until I helped my wife handle a couple of estates (family members). Seeing the amount of paperwork to deal with I decided to not leave this administrative burden for her to deal with if I croaked or became incapacitated. I blew out the backlog of claims and then reimbursed annually to drain off the funds. Be forewarned -- the large withdrawal in the first year did trigger a CP letter from the IRS -- two years in a row.
I started out hoarding receipts, but then switched to immediate reimbursement for medical expenses for similar reasons.
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Re: HSA money, use it or save it for later

Post by Ole Red »

before I retired, we were in the 37% tax bracket. Using the HSA to pay medical bills gave us an instant 37% savings. I never put a pencil to it, but saving 37% seemed hard to beat, especially when I would be building a post tax portfolio with the post tax money I didn't spend. Now that I am retired, I am unsure what we will do.
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Re: HSA money, use it or save it for later

Post by grabiner »

Ole Red wrote: Sun May 30, 2021 9:01 am before I retired, we were in the 37% tax bracket. Using the HSA to pay medical bills gave us an instant 37% savings. I never put a pencil to it, but saving 37% seemed hard to beat, especially when I would be building a post tax portfolio with the post tax money I didn't spend. Now that I am retired, I am unsure what we will do.
You got the 37% tax savings the moment you made the contribution; every $1000 you put into the HSA cost you only $630 out of pocket. This made the HSA contribution a great use of your money.

But building a post-tax portfolio with the money you didn't spend was an inferior strategy. When you had a $1000 medical bill and $1000 in the bank, you could either pay $1000 from your HSA and put the bank money into stock, or pay the bill from your bank account and invest the HSA in stock. It's better to have stock inside the HSA rather than in a taxable account, since you avoid the 23.8% tax on the dividends, and the capital-gains tax if you sell the stock.

Now that you are retired, the situation changes somewhat; you want to use up your HSA before your death, as the HSA has an inferior tax treatment upon death.
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Re: HSA money, use it or save it for later

Post by NotWhoYouThink »

Medical billing is a pain, and using the HSA to pay bills and track expenses is a convenience for me, which I pay for in that the money used to pay current bills doesn't grow tax free to pay later bills. Still, I pay all that I can from the HSA, which is rarely very much. We had a big year last year and still contributed more than we spent. We contribute the max, so we'll have the account for a few years after retirement.
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Re: HSA money, use it or save it for later

Post by AnEngineer »

tenkuky wrote: Sun May 30, 2021 6:17 am Every year I repay myself for the previous year’s healthcare costs from the HSA.
The rest I move to Fidelity HSA for long term growth (100% equities).
I can’t bring myself to accumulate receipts :|
Note that the record keeping requirements are exactly the same if you reimburse now vs. later, it's just the length of time, how long you could be audited vs. that plus how long you wait to be reimbursed.
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Re: HSA money, use it or save it for later

Post by Nver2Late »

We pay expenses OOP, and save the HSA funds for future.

I consider the amount of tracked un-reimbursed medical expenses mentally as another potential source of emergency funding, however, since fully invested in total market, it would likely only be fully available for non-economy related unexpected expenses. Another bucket.
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Re: HSA money, use it or save it for later

Post by stoptothink »

invest4 wrote: Sat May 29, 2021 1:01 pm My whole purpose of funding the HSA is to let it grow and fund future medical costs. Barring current medical expenses that would create an extraordinary strain my existing finances, I'm paying it now.
This. We're likely looking at retirement when I hit 50 (wife will be 45), HSA is going to be the primary way we bridge the gap before Medicaid. The one and only time we tapped it was to pay for the birth of my son 6yrs ago because we didn't have $11k in savings at the time.
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Re: HSA money, use it or save it for later

Post by FIREchief »

Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
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Re: HSA money, use it or save it for later

Post by jebmke »

FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
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Re: HSA money, use it or save it for later

Post by invest4 »

jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
I am really not that worried about receipts keeping over a long period and such. I’m reasonably confident there will be a sufficient amount of spending when the time comes to start using the funds.
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Re: HSA money, use it or save it for later

Post by yangtui »

I treat my HSA as a long term investment vehicle similar to a Roth IRA. The tax benefits are far too great to justify spending it down during my accumulation years. I have luckily not had to deal with any large medical bills yet but if I do I have plans in place to handle them without tapping my HSA.
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Re: HSA money, use it or save it for later

Post by MillennialFinance19 »

We do a little bit of both with the HSA. My plan contributes $1800 per year, so we use that for actual medical expenses since it's at a less desirable provider for investing. The remaining $5400 is invested at Fidelity and will likely never get touched. Even though we've had a crazy year for medical expenses in 2021, we still haven't touched the Fidelity HSA.
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Re: HSA money, use it or save it for later

Post by dogagility »

Depends. https://www.bogleheads.org/wiki/Priorit ... nvestments

We treat ours like a retirement vehicle, and it's 100% total stock market. Save receipts too so we have significant tax-free withdrawals built up, if needed.
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Re: HSA money, use it or save it for later

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jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
That's good to hear (I do recall your reports of being challenged by the IRS, a rare occurrence here on the forum). That said, I was referring to their rules, which are a bit silly. They require you to prove that you were not otherwise reimbursed. How the heck can a person prove that something didn't happen? That said, an EOB from an insurance company that documents amount billed, amount paid by insurance and amount patient is responsible for is likely bullet proof (provided you can also provide copies of federal and state tax returns that show that the expenses were not claimed as itemized deductions, as well as proof that an HSA was established prior to an incurred expense).
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Re: HSA money, use it or save it for later

Post by jebmke »

FIREchief wrote: Sun May 30, 2021 4:09 pm
jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
That's good to hear (I do recall your reports of being challenged by the IRS, a rare occurrence here on the forum). That said, I was referring to their rules, which are a bit silly. They require you to prove that you were not otherwise reimbursed. How the heck can a person prove that something didn't happen? That said, an EOB from an insurance company that documents amount billed, amount paid by insurance and amount patient is responsible for is likely bullet proof (provided you can also provide copies of federal and state tax returns that show that the expenses were not claimed as itemized deductions, as well as proof that an HSA was established prior to an incurred expense).
I deal with IRS on behalf of others quite often. In general they are reasonable people who apply common sense for the typical taxpayer. The tight technical rules are there for them to fall back on for blatant abuse or large items in the grey areas.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: HSA money, use it or save it for later

Post by willthrill81 »

jebmke wrote: Sun May 30, 2021 4:26 pm
FIREchief wrote: Sun May 30, 2021 4:09 pm
jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
That's good to hear (I do recall your reports of being challenged by the IRS, a rare occurrence here on the forum). That said, I was referring to their rules, which are a bit silly. They require you to prove that you were not otherwise reimbursed. How the heck can a person prove that something didn't happen? That said, an EOB from an insurance company that documents amount billed, amount paid by insurance and amount patient is responsible for is likely bullet proof (provided you can also provide copies of federal and state tax returns that show that the expenses were not claimed as itemized deductions, as well as proof that an HSA was established prior to an incurred expense).
I deal with IRS on behalf of others quite often. In general they are reasonable people who apply common sense for the typical taxpayer. The tight technical rules are there for them to fall back on for blatant abuse or large items in the grey areas.
I've only ever had one dealing with the IRS, and it wasn't a great one. We were claiming a deduction for an education expense and had the tax form for the expense, but after much runaround and phone calls with the IRS, we finally learned that they wanted proof that the expense was paid. Once we showed them a written statement from the institution showing a zero balance, they said that was sufficient. The tax professionals we worked with said that they had never seen the IRS insist on such evidence.

Consequently, I think that those who are planning on saving receipts and such for many years, they should probably keep all documentation concerning the medical expenses that they possibly can.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: HSA money, use it or save it for later

Post by jebmke »

willthrill81 wrote: Sun May 30, 2021 4:31 pm Consequently, I think that those who are planning on saving receipts and such for many years, they should probably keep all documentation concerning the medical expenses that they possibly can.
Another good reason not to do it and either hope future expenses will soak it up or flush expenses as incurred. The only real savings from waiting is the tax on the buildup.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: HSA money, use it or save it for later

Post by willthrill81 »

jebmke wrote: Sun May 30, 2021 4:41 pm
willthrill81 wrote: Sun May 30, 2021 4:31 pm Consequently, I think that those who are planning on saving receipts and such for many years, they should probably keep all documentation concerning the medical expenses that they possibly can.
Another good reason not to do it and either hope future expenses will soak it up or flush expenses as incurred. The only real savings from waiting is the tax on the buildup.
We've chosen to pay for expenses as they occur. We aren't heavy users of healthcare, and we're saving over 50% of our gross income already, so we don't think that we're sinking ourselves by reimbursing ourselves now.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: HSA money, use it or save it for later

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jebmke wrote: Sun May 30, 2021 4:26 pm
FIREchief wrote: Sun May 30, 2021 4:09 pm
jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
That's good to hear (I do recall your reports of being challenged by the IRS, a rare occurrence here on the forum). That said, I was referring to their rules, which are a bit silly. They require you to prove that you were not otherwise reimbursed. How the heck can a person prove that something didn't happen? That said, an EOB from an insurance company that documents amount billed, amount paid by insurance and amount patient is responsible for is likely bullet proof (provided you can also provide copies of federal and state tax returns that show that the expenses were not claimed as itemized deductions, as well as proof that an HSA was established prior to an incurred expense).
I deal with IRS on behalf of others quite often. In general they are reasonable people who apply common sense for the typical taxpayer. The tight technical rules are there for them to fall back on for blatant abuse or large items in the grey areas.
I don't think an EOB is enough, would need proof the bill was paid.
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Re: HSA money, use it or save it for later

Post by MrJones »

grabiner wrote: Sat May 29, 2021 5:20 pm
MrJones wrote: Sat May 29, 2021 1:55 pm What does the bogleheads wiki say?
HSA: How to use the plan says that you should pay current expenses from the HSA if you are not maxing out your retirement accounts, and save the HSA for later use if you are maxing out.

The reason is that you have already gotten the extra tax benefit from the HSA once you made the contribution.
Thank you for summarizing, grabiner! Hope it was helpful to the OP.

I wonder if there's a way to automatically alert users to the wiki and perhaps an FAQ before they post. Some forum software do this.This might increase the level of discussion rather than rehash some of the material in the wiki.
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FIREchief
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Re: HSA money, use it or save it for later

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theplayer11 wrote: Sun May 30, 2021 5:44 pm
jebmke wrote: Sun May 30, 2021 4:26 pm
FIREchief wrote: Sun May 30, 2021 4:09 pm
jebmke wrote: Sun May 30, 2021 1:54 pm
FIREchief wrote: Sun May 30, 2021 1:39 pm Just a reminder, the IRS rules require more than a simple receipt to qualify for tax free withdrawals.
Perhaps, but when I responded to two separate CP letters on HSA withdrawals they accepted copies of the provider invoice.
That's good to hear (I do recall your reports of being challenged by the IRS, a rare occurrence here on the forum). That said, I was referring to their rules, which are a bit silly. They require you to prove that you were not otherwise reimbursed. How the heck can a person prove that something didn't happen? That said, an EOB from an insurance company that documents amount billed, amount paid by insurance and amount patient is responsible for is likely bullet proof (provided you can also provide copies of federal and state tax returns that show that the expenses were not claimed as itemized deductions, as well as proof that an HSA was established prior to an incurred expense).
I deal with IRS on behalf of others quite often. In general they are reasonable people who apply common sense for the typical taxpayer. The tight technical rules are there for them to fall back on for blatant abuse or large items in the grey areas.
I don't think an EOB is enough, would need proof the bill was paid.
Yes. That goes without saying.
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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kinetic2255
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Re: HSA money, use it or save it for later

Post by kinetic2255 »

Family of 5 with three kids under 7 and DW with some ongoing medical issues. We fully fund the HSA each year and most years we meet our $4k deductible and about $500 of other qualified medical expenses. The account is currently set up to maintain a balance of $4,000 and invest anything after that. This hybrid of spending now but maxing has worked out pretty well. In spite of not paying out of pocket the balance has continued to grow. This might not be textbook but is working for us right now. We have other competing costs, preschool, spouse working 1/2 time, etc. For the record we max roths and 2.25 of 3 tax deferred accounts along with HSA.
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