What is your HSA strategy?

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Tyrael314
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What is your HSA strategy?

Post by Tyrael314 »

Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
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life in slices
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Re: What is your HSA strategy?

Post by life in slices »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
I have enough disposable income that we just cashflow medical expenses and fully invest the funds in my HSA*

Plan is to use it for medical expense in retirement.
We do save our receipts just in case we need the money earlier and/or for reason not related to healthcare - it doesn't matter when you deduct expense from your HSA account, you just need proof of that expense (even if ten years earlier) if audited.

* I move my funds from my company's plan at Health Equity to my HSA at Fidelity, so that I can invest 100% of my HSA funds (HE required keeping $2K in cash before you can invest)
sailaway
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Re: What is your HSA strategy?

Post by sailaway »

Your strategy allows you to have more tax free growth. I would like to follow that strategy, but DH prefers to log into the insurance site to pay bills, rather than chasing down the details for individual providers. And one provider last year required us to use Instamed. Once logged in, it is actually hard to use anything except your linked HSA to pay via Instamed. So, in the end, we have been paying our medical bills from HSA. Luckily, they have consistently been less than the contribution limit, so our HSA continues to grow.
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Tyrael314
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Re: What is your HSA strategy?

Post by Tyrael314 »

life in slices wrote: Mon Feb 05, 2024 7:10 pm
Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
I have enough disposable income that we just cashflow medical expenses and fully invest the funds in my HSA*

Plan is to use it for medical expense in retirement.
We do save our receipts just in case we need the money earlier and/or for reason not related to healthcare - it doesn't matter when you deduct expense from your HSA account, you just need proof of that expense (even if ten years earlier) if audited.

* I move my funds from my company's plan at Health Equity to my HSA at Fidelity, so that I can invest 100% of my HSA funds (HE required keeping $2K in cash before you can invest)
Funny that is exactly what we were planning on doing.
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THY4373
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Re: What is your HSA strategy?

Post by THY4373 »

life in slices wrote: Mon Feb 05, 2024 7:10 pm I have enough disposable income that we just cashflow medical expenses and fully invest the funds in my HSA*

Plan is to use it for medical expense in retirement.
We do save our receipts just in case we need the money earlier and/or for reason not related to healthcare - it doesn't matter when you deduct expense from your HSA account, you just need proof of that expense (even if ten years earlier) if audited.
I do this as well.
Longdog
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Re: What is your HSA strategy?

Post by Longdog »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
The advantage of your approach is a tax deduction up front, and tax free growth over time. I don't believe there's a financial advantage to what your former financial advisor was advocating, provided you could both fund the HSA and pay the medical expenses upfront from other sources. Essentially you'll be reimbursing yourself years down the line, when the funds in the HSA have (hopefully) grown.
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MoonOrb
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Re: What is your HSA strategy?

Post by MoonOrb »

I cashflow medical expenses and invest the HSA in an S&P500 index fund.
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bhwabeck3533
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Re: What is your HSA strategy?

Post by bhwabeck3533 »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm .... We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.
I posted an HSA related question recently and one responder pointed out that HSA holders and Medicare recipients "don't play well together". Specifically, once you're on Medicare you can't contribute to your HSA.
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papiper
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Re: What is your HSA strategy?

Post by papiper »

We cash flowed all medical expenses and maxed out HSA contributions fully invested in an S&P index fund. All expense receipts were filed by taking a picture and storing the image with the structure "YYYY MM DD description.jpg" and an excel sheet recording the name and the totals.

Now that we are retired we still cash flow any expenses but then we withdraw tax free once a year up to the receipt total. It has grown so much we might never deplete it that way. Great peace of mind. The record keeping hasn't been hard as long as you do it when each expense occurs. As mentioned, on Medicare you can't contribute, but you can use the HSA to pay for Medicare B and D (A is free and supplemental can't be counted).
Last edited by papiper on Tue Feb 06, 2024 7:59 am, edited 1 time in total.
cshell2
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Re: What is your HSA strategy?

Post by cshell2 »

I can't afford to cash flow all expenses and still max 401K and IRA, so I pull for expenses and once cash value at HSA Bank gets over a certain threshold I transfer funds to Fidelity HSA to invest (for me that's around 4K...anything below 3K HSA Bank charges a service fee every month and I want a little cushion for paying expenses as well. I've had a HDHP for the past four years and so far, it's been a good thing for me. I can spend up to $4500/year out of pocket and still come out ahead just with the premium difference and $1000 HSA contribution from my employer. For me and two kids the last four years out of pocket have been.

2020 - $1223
2021 - $9972 (youngest had his tonsils removed and one ER visit)
2022 - $2144
2023 - $2741

HSA balance is about 20K right now.
deltaneutral83
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Re: What is your HSA strategy?

Post by deltaneutral83 »

bhwabeck3533 wrote: Tue Feb 06, 2024 7:10 am
Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm .... We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.
I posted an HSA related question recently and one responder pointed out that HSA holders and Medicare recipients "don't play well together". Specifically, once you're on Medicare you can't contribute to your HSA.
Correct, but I think the base premiums (I have no idea which letter it is, "D?") can come out of your HSA, and if IRMAA shows up at your door, that can be sizeable I think. I'm sure there are plenty on here who can confirm those details. I think between medical and dental needs above 65 I can do a number on my HSA, if both spouse and I do not use it all up, then we are blessed with good health until the end, and our heirs will have to take what's in our HSA's as ordinary income on the day the one who lives the longest goes. It's not the greatest vehicle for heirs, but it should be the smallest account for many I imagine. For people past the second bend point of SS, but not maxed out, I have to think the payroll deductions come with an exponential return from the 40 year time span of 25-67/70 (or whatever ages those choices are) if you have an HSA those years. If you max out SS then the SS part of the FICA deductions don't matter, just the Medicare I believe.
PaunchyPirate
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Re: What is your HSA strategy?

Post by PaunchyPirate »

I also just funded an HSA for the first time in 2024. Assuming an HDHP remains available to me on the ACA exchange, I will likely fund an HSA for at least 3 more years. I plan on paying for my medical expenses with cash and let the HSA grow until later in life, when I wills start using it for medical expenses. I've already met my high deductible amount for 2024. I'm 61 and will start Medicare in a few years. At that point, I will evaluate when I might want to start using the HSA funds.
GreendaleCC
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Re: What is your HSA strategy?

Post by GreendaleCC »

Transfer cash to Fidelity HSA a few times per year. Buy total stock market (FSKAX). Adjust state tax filing to add dividends each year (sad!).
Johnny Thinwallet
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Re: What is your HSA strategy?

Post by Johnny Thinwallet »

We max family HSA annually via payroll contributions. This means there's always money going in twice each month every month.

We reimburse medical expenses once each month. Despite this, the HSA still grows at a decent clip. We've never had a year where we had more distributions than the family HSA contribution max. In fact, most years our distributions are much lower than the annual contribution limit. Last year, for example, we had $2,600 in distributions (vs. $7,750 in contributions).

We maintain a cash balance minimum of around $2,500. When the cash balance gets up between $3-4k, we sweep some dollars into the investment account to bring the cash balance back down to $2,500. I do this manually as needed throughout the year. The exception to this is if we have a known larger medical expense coming, then I'll let the cash balance grow a bit longer and larger to accommodate that anticipated expense. Essentially I try to avoid tapping the investment account for distributions (i.e. once money goes in to investments, I'm not pulling those dollars back out). When larger distributions hit, we just the cash account catch back up via payroll contributions.
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FrankLUSMC
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Re: What is your HSA strategy?

Post by FrankLUSMC »

We only had HSA contributions for 2014 through end of 2020 maxed out each year (with company contrib. of $1K) and cash flowed all medical. We were in pretty good health so less than 1k year avg. medial expenses.
Just accumulated up to $90k (good Vanguard funds available) and started using withdrawals in 2023.
Withdrawing against Part B and D Medicare premiums, all expenses back to 2014 and all forward expenses.
Will also have some IRMAA additions in 2025 due to large Roth conversions in 2023 and 2024.
Normchad
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Re: What is your HSA strategy?

Post by Normchad »

I should have put it all in nvidia.

I’ve never taken a dollar out of the HSA. I figure I’ll use it later.
printer86
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Re: What is your HSA strategy?

Post by printer86 »

My employer switched us to an HDHP about 8-10 years before I retired in 2020. We primarily cash flowed our medical expenses during those years and invested the HSA funds. Luckily, we incurred relatively minor medical expenses during that time. The funds are about 85% invested in an S&P 1500 index fund and about 15% in cash earning about 5%.

Since retiring, we are still cash flowing medical expenses with the plan to use our HSA funds to pay for our Medicare part B premiums and other post Medicare medical bills. With about 12 years of HSA savings behind us, and another 5 before hitting Medicare age, we currently have about $140k in our HSA.

If you can afford it, and have relatively minor medical expenses, an HSA is a great savings tool.
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jeffyscott
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Re: What is your HSA strategy?

Post by jeffyscott »

I take the money out for our medical expenses as we go, even though this adds to our taxable account. I don't want the hassle of saving documents for years/decades.

We've withdrawn a total of about $25K over 8-10 years. If invested in a US stock fund with 100% QDI and no cap gain distributions, the tax drag is minimal. We are in the 0% Federal bracket for QDI/LTCG, marginal state tax rate is 6.25%. With about 1.5% dividends the current cost of our suboptimal use of the HSA is less than $25 per year.

If we spend the money (or harvest the gains, prior to moving to a higher tax bracket) the LTCG would ultimately be taxed at 0% Federal and about 4.4% state. OTOH, if we never use that money, then the heirs get a stepped up cost basis.
brockmari
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Re: What is your HSA strategy?

Post by brockmari »

sailaway wrote: Mon Feb 05, 2024 7:11 pm Your strategy allows you to have more tax free growth. I would like to follow that strategy, but DH prefers to log into the insurance site to pay bills, rather than chasing down the details for individual providers. And one provider last year required us to use Instamed. Once logged in, it is actually hard to use anything except your linked HSA to pay via Instamed. So, in the end, we have been paying our medical bills from HSA. Luckily, they have consistently been less than the contribution limit, so our HSA continues to grow.
I use Instamed and it is very easy to link a credit card to be used for payments. No additional service fee either. Then you can collect cashback.
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Free to Choose
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Re: What is your HSA strategy?

Post by Free to Choose »

My current thought is to use my HSA with a Medicare Supplement Plan G High Deductible. The math looks like a benefit over Plans G and N. I have quite a large sum (>$100k) and many years until 65. It should be able to pay all my bills without too much risk of needing other funds.

I save receipts just in case.
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slow n steady
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Re: What is your HSA strategy?

Post by slow n steady »

Do you max all of your retirement accounts?

For the people that don't, it can make sense to reimburse yourself for current expenses and contribute to retirement accounts.

An example. Let's say you have 5k in an HSA and have 5k of medical expenses. You decide to leave the money in the HSA and reimburse yourself later. The 5k grows to 15k. You then reimburse yourself the 5k and have 10k that can be tax free only for medical expenses.

Or, you reimburse yourself for the 5k and contribute it to a Roth IRA. The Roth investment grows to 15K. After age 59.5, you can withdraw the entire 15k for any purpose tax free.

That being said, I will soon not be following my own advice for other reasons. When my wife starts working later this year, we will not be able to max out all retirement accounts. Yet my plan is to pay for medical costs out of pocket and keep the receipts. We currently have 80k in our HSA and 20k worth of receipts we have not been reimbursed for. My reason for continuing to not reimburse ourselves is I want to have hidden money available for college. When our kids go to college, we will probably have around 70k of receipts. This is money we can use that won't be taxed and we won't be penalized by the FAFSA. As far as I know, the FASFA acts like HSA's don't exist, including withdrawals from it. Someone please comment if I am off in my assumptions.

Good luck!
cshell2
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Re: What is your HSA strategy?

Post by cshell2 »

slow n steady wrote: Wed Feb 07, 2024 7:26 am As far as I know, the FASFA acts like HSA's don't exist, including withdrawals from it. Someone please comment if I am off in my assumptions.
This is true. And if the contributions are payroll deducted they are no longer included as income either (same with 401K contributions). Before the change this year, these items had to be added back on as non-taxable income. Deductible IRA contributions and contributions to an HSA outside of the employer plan are still included in income though.
Mike Scott
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Re: What is your HSA strategy?

Post by Mike Scott »

We do an annual reimbursement of expenses and invest the remainder as part of our retirement portfolio. The reimbursement gets moved to a different account and there are no receipts to track long term.
evancox10
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Re: What is your HSA strategy?

Post by evancox10 »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?

Who wants to save receipts for 30+ years? Paging George Costanza…

Just pay from the HSA as you go. It’s not even clear that you would save taxes. Leaving the money in the HSA, you’re paying your marginal ordinary income tax rate on the earnings portion of the eventual withdrawal, without tax drag along the way. Outside of the HSA, you have dividend / bond income tax drag, but pay potentially lower capital gains rates on the earnings portion. Over longer time spans the ongoing tax drag would matter more, but if you game this out the total possible savings is not exactly material, IMO.
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Darth Xanadu
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Re: What is your HSA strategy?

Post by Darth Xanadu »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
As others have mentioned, reimbursing yourself for current expenses could make a lot of sense if it helps you max out other tax-advantaged accounts. And it may be true that stashing those HSA reimbursements in taxable may not result in that big of a tax drag anyway. But, if you're already maxing other tax-advantaged accounts, then it makes good sense to use your approach.

I'll note that you can reimburse yourself down the line for qualified medical expenses, but those expenses must have been incurred after the HSA was established.

I agree with some others here that saving receipts and other relevant documentation for year/decades is onerous (to me). However, instead of deciding to reimburse myself for current out of pocket expenses, I decided to just cash flow those for now AND not bother keeping receipts. It's not an ideal approach, because the big risk is that the account balance becomes taxable as ordinary income to a non-spouse inheritor [Instructions for the surviving spouse are to drain this account first and as fast as possible]. It wasn't a big deal when my HSA balance was $10k but now that it's approaching 6 figures, I suspect I should start documenting expenses. Something to keep in mind.
flyingcows
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Re: What is your HSA strategy?

Post by flyingcows »

I have a Google Sheet where I have links to the Insurance EOB doc, provider invoice, and receipt which I store digitally in Google Drive. Each year I can see my total expenditures.

I just max out the HSA each year and haven't withdrawn lately but did a few years ago, as of right now we could withdraw about 16k tax free based on our spreadsheet of expenses that have been accumulated over the years while having an HSA

This used to be more of a hassle with physical receipts as I had to scan them/take photos, but the last few years it seems like all the providers we've used have a portal where I can download the receipts/invoices, and our insurance portal has all the EOBs

Our company also allows a limited purpose FSA with an HSA, this limited purpose FSA can be used for dental/vision expenses only so we utilize that as much as we can based on our predicted spending
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cerequio
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Re: What is your HSA strategy?

Post by cerequio »

Tyrael314 wrote: Mon Feb 05, 2024 7:12 pm
life in slices wrote: Mon Feb 05, 2024 7:10 pm
Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
I have enough disposable income that we just cashflow medical expenses and fully invest the funds in my HSA*

Plan is to use it for medical expense in retirement.
We do save our receipts just in case we need the money earlier and/or for reason not related to healthcare - it doesn't matter when you deduct expense from your HSA account, you just need proof of that expense (even if ten years earlier) if audited.

* I move my funds from my company's plan at Health Equity to my HSA at Fidelity, so that I can invest 100% of my HSA funds (HE required keeping $2K in cash before you can invest)
Funny that is exactly what we were planning on doing.
Make that three! Our HSA is with Optum that has a minimum $2K before you can invest, plus monthly fees. Is it just as easy as transferring all the funds over to an HSA at Fidelity?
Olemiss540
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Re: What is your HSA strategy?

Post by Olemiss540 »

cshell2 wrote: Tue Feb 06, 2024 7:35 am I can't afford to cash flow all expenses and still max 401K and IRA, so I pull for expenses and once cash value at HSA Bank gets over a certain threshold I transfer funds to Fidelity HSA to invest (for me that's around 4K...anything below 3K HSA Bank charges a service fee every month and I want a little cushion for paying expenses as well. I've had a HDHP for the past four years and so far, it's been a good thing for me. I can spend up to $4500/year out of pocket and still come out ahead just with the premium difference and $1000 HSA contribution from my employer. For me and two kids the last four years out of pocket have been.

2020 - $1223
2021 - $9972 (youngest had his tonsils removed and one ER visit)
2022 - $2144
2023 - $2741

HSA balance is about 20K right now.
My approach as well.

OP, if you are planning to invest the money you pull out of the HSA in a taxable account, better to save receipts and leave it in the HSA growing tax free. If you are not saving enough to max out ALL tax advantaged spaces, my preference is to pull out medical expenses as they are used and use that money to fund Roth IRA/401ks to the max if needed.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
2032vision
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Re: What is your HSA strategy?

Post by 2032vision »

We’ve had an HSA for many years.

Maxed out contributions each year and only reimbursed for kid’s braces which both came in the same year $8k total.

All other medical expenses we have cashed flowed and now have approx $150k balance in HSA and $50k of unreimbursed expenses.

401k and all other available tax advantaged space is being utilized.

Biggest concern was how to track receipts.

I have kept receipts in annual stacks and finally digitized them using the iPhone scan feature in Notes. Then created spreadsheets in Excel and emailed all the above to my email and saved on an external hard drive on my pc.

The funds in the HSA are invested in a basic 3 fund portfolio and I don’t track it as part of my retirement portfolio.

I’ll plan to spend it down in retirement but don’t plan to sweat it if my heirs have to pay some ordinary income tax one day.
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camillus
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Re: What is your HSA strategy?

Post by camillus »

I personally immediately reimburse myself for health expenses.

I think that the shoe box o' receipts strategy is not very realistic. I do not want to be digging through Lenscrafter and Rite Aid receipts in 20 years.

Take the money and run (to the next available retirement vehicle).

Regarding HealthEquity to Fidelity HSA, I recommend an indirect 60-day rollover once every 12 months. The Trustee-to-Trustee transfer is unwieldy, slow, and frustrating.
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jeremyl
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Re: What is your HSA strategy?

Post by jeremyl »

camillus wrote: Thu Feb 08, 2024 4:52 pm I personally immediately reimburse myself for health expenses.

I think that the shoe box o' receipts strategy is not very realistic. I do not want to be digging through Lenscrafter and Rite Aid receipts in 20 years.

Take the money and run (to the next available retirement vehicle).

Regarding HealthEquity to Fidelity HSA, I recommend an indirect 60-day rollover once every 12 months. The Trustee-to-Trustee transfer is unwieldy, slow, and frustrating.
I started to pay out of pocket and save the receipts. It became tedious. I may try again if I get organized better. The idea others mentioned about reimbursing self and contributing to a Roth sounds interesting.

American Fidelity is my employer HSA and they require $2,500 cash before investing so I opened an HSA with Fidelity and do the trustee-to-trustee direct transfer once a year and invest everything in fidelity total market fund. We've been fortunate that our health has been in good shape. We've not spent much on health care so our HSA is in good shape since I started it 4 or 5 years ago

One needs to be sure to leave some money in your employer account because they might close it if you leave a zero balance (someone here told me to do that). Pay attention to your employer HSA on this. Recently, I did my yearly transfer and my employer HSA did not follow instructions and transferred all of the money and closed my account. Glad I checked the account and American Fidelity had to open a new account and make sure my recent contribution was received.

Great point about hiding college savings in HSA.
evancox10
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Re: What is your HSA strategy?

Post by evancox10 »

jeremyl wrote: Thu Feb 08, 2024 7:32 pm
American Fidelity is my employer HSA and they require $2,500 cash before investing so I opened an HSA with Fidelity and do the trustee-to-trustee direct transfer once a year and invest everything in fidelity total market fund.
I'm in a similar situation, with a $2000 min cash (0% interest) balance @ OptumHSA. Can you explain how yearly transfers avoids the cash drag? In 3 to 4 months, you are back to a $2500 cash balance though, right? I guess only having the cash drag for ~10 months (effectively) is better than 12 months, but it's not a huge savings. $16-$25/year @ 5% interest rates. For me that doesn't seem worth the squeeze, given the work involved and possible issues you can (and did) run into. But maybe I'm missing something.
jeremyl
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Re: What is your HSA strategy?

Post by jeremyl »

evancox10 wrote: Thu Feb 08, 2024 9:10 pm
jeremyl wrote: Thu Feb 08, 2024 7:32 pm
American Fidelity is my employer HSA and they require $2,500 cash before investing so I opened an HSA with Fidelity and do the trustee-to-trustee direct transfer once a year and invest everything in fidelity total market fund.
I'm in a similar situation, with a $2000 min cash (0% interest) balance @ OptumHSA. Can you explain how yearly transfers avoids the cash drag? In 3 to 4 months, you are back to a $2500 cash balance though, right? I guess only having the cash drag for ~10 months (effectively) is better than 12 months, but it's not a huge savings. $16-$25/year @ 5% interest rates. For me that doesn't seem worth the squeeze, given the work involved and possible issues you can (and did) run into. But maybe I'm missing something.
It was a suggestion someone here made when I learned that my employer was going to offer the HDHP with HSA. I did it so I could be in control of my money and be fully invested. Investment options weren't good when it started either.

They now have the vanguard s&p 500 fund now. I have a nice small chunk in my personal HSA now so I'm just continuing it.

It only takes a few minutes to do the paperwork. Didn't see it as a big deal. This is the first time they messed up. They corrected the issue so I'm ok with it. If it keeps happening, I may rethink the plan.
bling
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Re: What is your HSA strategy?

Post by bling »

like others, i treat my HSA as an extra IRA account and cashflow all of my medical expenses. i let the small costs slide, but keep copies of more expensive receipts.

i was a bit surprised how many of my colleages didn't pick the HDHP option. i did the math, and in my situation even in the worst case scenario where i max out all of my out-of-pocket expenses i was still better off on the HDHP. i guess people really hate paying expensive copays every visit, not realizing the "cheaper" options have much higher premiums taken out of the paycheck before it even hits your bank account.
hoofaman
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Re: What is your HSA strategy?

Post by hoofaman »

bling wrote: Sat Feb 10, 2024 10:12 am i was a bit surprised how many of my colleages didn't pick the HDHP option. i did the math, and in my situation even in the worst case scenario where i max out all of my out-of-pocket expenses i was still better off on the HDHP. i guess people really hate paying expensive copays every visit, not realizing the "cheaper" options have much higher premiums taken out of the paycheck before it even hits your bank account.
Same thoughts, in our workplace the HDHP is a great value. Also the coverage has been pretty good, which I wasn't expecting. One year we had a lot of Medical things going on, including a surgery, the total pre-discounted costs from medical providers was over 100k. Yet I only had to pay about 3k out of pocket that year, not even close to our out of pocket max (I was totally expecting to have to pay 7k out of pocket that year). Interestingly we paid about the same out of pocket the prior year on a fraction of those medical costs just having routine checkups and RX
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jeffyscott
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Re: What is your HSA strategy?

Post by jeffyscott »

^ Same as the above, it was always hard to come up with any scenario where the non-HDHP would come out ahead. Yet only 10-20% of employees chose the HDHP.

I think people feared having a $3000 bill in January, ignoring that an additional $3000+ was going to come out of their paycheck during the year when they chose the plan with a $250/500 deductible. There was some discussion around the employer making their full contribution in January, rather than monthly, to reduce this barrier.

I do know one guy whose spouse was a doctor and she insisted that they take the non-HDHP. She did not want the psychological barrier to seeking care that an HDHP can create.
bling
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Re: What is your HSA strategy?

Post by bling »

jeffyscott wrote: Sat Feb 10, 2024 10:54 am I think people feared having a $3000 bill in January, ignoring that an additional $3000+ was going to come out of their paycheck during the year when they chose the plan with a $250/500 deductible. There was some discussion around the employer making their full contribution in January, rather than monthly, to reduce this barrier.
yea... i have to remind myself from time to time that BHs are a tiny fraction of the general population. when a plurality of Americans can't cover a $500 unexpected expense, it starts to make (some) sense why people would choose to give control of their finances away to another entity because they know they can't control it themselves.
Berean
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Re: What is your HSA strategy?

Post by Berean »

A previous post states:

"Leaving the money in the HSA, you’re paying your marginal ordinary income tax rate on the earnings portion of the eventual withdrawal, without tax drag along the way."

I don't think that is correct. HSA withdrawals are tax free to the extent you use them either to pay for current healthcare expenses or to reimburse yourself for healthcare expenditures in prior years.

Right, guys?
rustlers
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Re: What is your HSA strategy?

Post by rustlers »

The HSA is superior to other retirement accounts. It combines the best attributes of the a) Traditional - by tax deducting the contributions, b)Roth - withdraw money tax free (health related), and c)Taxable - allowing withdrawal anytime, plus acting as an emergency fund (with a historical health spend bill).

Therefore, one should prioritize maxing out and leaving the funds alone in HSA invested in a equity index, prior to any traditional/Roth contribution after the employer match.

Given that we might not have or choose the HDHP every succeeding year, makes the yearly max contribution even more valuable.

Even if you use the HSA as a pass through despite its superiority, recommend not to use the linked debit card to pay medical expenses directly, but use a credit card instead.

The best HSA provider currently is Fidelity. In majority of cases, you can do an online transfer directly from your Fidelity HSA account, to draw funds from an expensive employer sponsored HSA at another institution, based on the floor $ to be kept. This trustee to trustee transfer is not subject to the once a year limit.

Once you leave your employer, you can then close your other HSA account, and continue to operate the personal Fidelity HSA account till a better option surfaces.
VanguardInvestor1972
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Re: What is your HSA strategy?

Post by VanguardInvestor1972 »

Berean wrote: Sat Feb 10, 2024 3:36 pm A previous post states:

"Leaving the money in the HSA, you’re paying your marginal ordinary income tax rate on the earnings portion of the eventual withdrawal, without tax drag along the way."

I don't think that is correct. HSA withdrawals are tax free to the extent you use them either to pay for current healthcare expenses or to reimburse yourself for healthcare expenditures in prior years.

Right, guys?
Yes that sounds right so far as your statement goes.

My guess is that the previous poster was referring to a scenario in which the HSA grew so large that there were no medical expenses that could be charged to the HSA. In this scenario, imagine the person passes age 65 and then decides to withdraw HSA funds to support lifestyle expenses or whatever. In that case the previous poster would pay at the marginal ordinary income tax rate.
vxmike
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Re: What is your HSA strategy?

Post by vxmike »

slow n steady wrote: Wed Feb 07, 2024 7:26 am Do you max all of your retirement accounts?

For the people that don't, it can make sense to reimburse yourself for current expenses and contribute to retirement accounts.

I don't for a different reason than most folks I suspect. HSA contributions are also taken pre FICA tax so they are more tax efficient than 401K/403B deductions. I'm very close to the second bend point for Social Security (which is a negative return on additional SS tax paid), so I max my HSA contribution before my 403B contribution. I only contribute to my 403B when I'm reducing income in the 22% or higher tax brackets. If I can get down to the 12% married bracket I'm happy to remain there and not contribute further to my 403B and its much more limited investment options.

I max the HSA but reimburse for all expenses as they occur. Yes I might technically come out ahead in the long-run by deferring taxes on my HSA investments, but I have a lot of money in my 403B already and prefer to retain the additional flexibility with larger taxable investments.
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InvestorHowie
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Re: What is your HSA strategy?

Post by InvestorHowie »

We hope to use our HSA funds for medical expenses during retirement but I still keep receipts, EOBs and CC statements digitally just in case there is ever a near-future need (medical or non-medical) to reimburse ourselves. I treat that as part of our emergency fund for now as the tax-free immediately reimbursable balance would cover about one month of expenses currently and will only increase over time.

After a couple years into an HSA it felt particularly good when our balance exceeded the annual OOP in-network max in our family HDHP. That gave me additional confidence that the HSA was a sound choice for us - even beyond its tax benefits.
Time is your friend; impulse is your enemy. --John C. Bogle
Dopey
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Re: What is your HSA strategy?

Post by Dopey »

I have 3 young kids. Wife has a therapist and I get massages for an old back injury.

In short, lots of medical expenses, some of which aren’t covered by our insurance anyway.

I’ve modestly invested in our HSA for years, but a couple years ago we finally had the income to cash flow & log all medical expenses. We hold 1 year of “max out of pocket” cash in HSA and all future deposits go to the S&P 500.

This balance is likely the biggest variable in allowing me to potentially retire early. We’ll see.
dcabler
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Re: What is your HSA strategy?

Post by dcabler »

Tyrael314 wrote: Mon Feb 05, 2024 7:05 pm Wife and I did the math and determined that switching to high deductible made sense for us. And with that started funding a new HSA at the beginning of this year. We are investing the savings difference monthly plus a lump sum deposit from her employer into the HSA.

We ended our relationship with our financial advisor today as we kind of have everything on auto pilot and it made sense too (monthly fee based advisor). He suggested funding a cash portion up to a certain amount based on yearly medical expenses. And he also mentioned he reimburses himself at the end of every year for medical expenses out of his HSA. We were planning on cash flowing medical expenses and just continuing to fund and invest via the HSA into retirement. From what I have heard/read you can save receipt/bills for medical expenses over the years and reimburse yourself later down the line.

Is there any advantage to either strategy or is it just a matter of preference?
During our working years, we paid everything directly and left the HSA intact for the future.
We're retired now and even though we saved all of the receipts I seriously doubt we'll ever reimburse ourselves for that. There will always be medical expenses of one sort of another. Right now, our plan is to use what we have in the HSA to pay for our medicare premiums and possibly a portion of our LTCi premiums...

I only had an HSA-eligible plan for the last 7 years of employment and, while it did grow, the amount sitting in the account isn't exactly life-altering. Once we start medicare, I don't expect it to last much beyond our mid/late 70's, but we'll see..

Cheers
guitarguy
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Re: What is your HSA strategy?

Post by guitarguy »

We fully invest HSA in SP500 index fund, aside from the minimum $500 in cash required by the plan. Max contribute family plan every year. All medical expenses paid out of pocket and receipts logged and saved. Started this in 2019 ish once we were able to max all retirement accounts.

I don’t see how saving receipts is anything painful at all. DW usually pays the med bills over the phone or online. Statement gets “delivered” to my office “inbox.” iPhone scan, airdrop to Mac, drag to folder, add quick line item in excel sheet. It literally takes all of 5 mins a month and I’m left with some folders of pdf docs organized by year and date. What’s so hard about that? :confused

Yes it takes a small amount of effort, but I feel like having that flexibility to take that tax free money whenever we want to is valuable.
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jeffyscott
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Re: What is your HSA strategy?

Post by jeffyscott »

guitarguy wrote: Sun Feb 11, 2024 7:52 am I don’t see how saving receipts is anything painful at all. DW usually pays the med bills over the phone or online. Statement gets “delivered” to my office “inbox.” iPhone scan, airdrop to Mac, drag to folder, add quick line item in excel sheet. It literally takes all of 5 mins a month and I’m left with some folders of pdf docs organized by year and date. What’s so hard about that? :confused
Let's suppose the more careful recordkeeping that I would want to do, were I not paying current bills from the HSA, takes an additional 5 minutes per month. That would be an hour per year. Above I estimated that our non-optimal use of the HSA costs us about $25 per year in additional taxes at this time. It's not worth an hour of my time to save $25.

Of course, I might then waste those 5 minutes per month posting about why I use the HSA the way I do, anyway :mrgreen: .
BlackwaterPark10
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Re: What is your HSA strategy?

Post by BlackwaterPark10 »

We put the max out of pocket for the year into a HYSA, and never touched the money and maxed it out every year for 3 years. I invested in VIGIX with Health Equity and it did very well. Since I am no on an HSA plan this year, I opened a Fidelity HSA and transferred funds there to leave HE's fees. I went all in with FKSAX.
EquitiesOrGuitars
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Re: What is your HSA strategy?

Post by EquitiesOrGuitars »

I want to say I have loved this thread and found lots of value in it, thanks for all the answers.

From this I’m getting:
- tax drag not too bad if you withdraw and reinvest in right taxable acct product
-Maybe just reimburse big expenses (and not worry about tracking $2 co-pays on a $10 prescription pickup)
- College FAFSA impact worth consideration.
- Can be considered emergency funds, if you have the accumulated receipts to allow a claim at any time
- Can use for (most) Medicare expenses as retiree

After 6yrs of max we have $55k. Going forward kind of amazing that if kept doing max then without IRS Limits increasing due to Inflation, or market movements, that would mean over $200k in account by anticipated retirement ( Maybe $300k with gains and limits increasing!)

But I too am torn on reimburse now vs later. Already max all accounts (401k, Roth, etc) To date have just been piling receipts, Yes I can use scanner app etc but what will storage methods be by then (EOBs only online at provider for <10yr most likely. EDIT: ours apparently just 24mo!?). Think back 25 years ago - USB flash drives weren’t a thing and AOL was. Maybe in 25 years from now we will just be giving an AI voice command “hey Siri, add all my out of pocket medical expenses for the last 30 years, do HSA withdrawal for same, and put the receipts in a single document for IRS backup”. I mean for those doing backup local hard drives, will you even have a USB port to read it by then? we are not so far removed from burning to CDs for storage and yet new computers don’t even have a drive to read them.

One question for the 65+ HSA crowd: Some have mentioned using funds for retirement medical costs like Medicare - what does that cost for a couple per year? $10k? $20k? No idea as am not a retiree. If the latter then having a $200k HSA by retirement doesn’t seem that much as it is just 10yr of premiums before it is drained, not even full retirement (so maybe just keep the funds in HSA and don’t even worry about any expenses between now and then?)
Last edited by EquitiesOrGuitars on Sun Feb 11, 2024 1:07 pm, edited 1 time in total.
guitarguy
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Re: What is your HSA strategy?

Post by guitarguy »

jeffyscott wrote: Sun Feb 11, 2024 8:58 am
guitarguy wrote: Sun Feb 11, 2024 7:52 am I don’t see how saving receipts is anything painful at all. DW usually pays the med bills over the phone or online. Statement gets “delivered” to my office “inbox.” iPhone scan, airdrop to Mac, drag to folder, add quick line item in excel sheet. It literally takes all of 5 mins a month and I’m left with some folders of pdf docs organized by year and date. What’s so hard about that? :confused
Let's suppose the more careful recordkeeping that I would want to do, were I not paying current bills from the HSA, takes an additional 5 minutes per month. That would be an hour per year. Above I estimated that our non-optimal use of the HSA costs us about $25 per year in additional taxes at this time. It's not worth an hour of my time to save $25.

Of course, I might then waste those 5 minutes per month posting about of why I use the HSA the way I do, anyway :mrgreen: .
Say later in life you could take your tax free distribution and in turn have a low income year and save a bunch on taxes from cap gains at 0% or something else. I dunno. In actuality it likely takes much less than 5 mins a month anyways…there are many months out of the year where we have no medical bills to log at all…so…I still stand by doing it but to each their own. It’s a tiny investment in time in the grand scheme of life that could provide an unknown benefit later on.
ge1
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Re: What is your HSA strategy?

Post by ge1 »

We had a HSA for maybe 5 years. I keep track of out medical expenses, but given the massive tax advantages I don’t tap into the HSA now. Up to 85k balance now, cumulative medical spend is probably around 60k.( Don’t really understand all the comments about how hard it is to keep receipts lol)
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