Time to use HSA/Roth IRA or take a loan? [Medical expenses]

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Quercus Palustris
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Time to use HSA/Roth IRA or take a loan? [Medical expenses]

Post by Quercus Palustris » Tue Jan 14, 2020 9:51 am

Hello forum,

DW and I have found ourselves in a situation that isn't grave, but definitely qualifies as poor timing. TL;DR: just bought a house, very little non-EF cash on hand; large medical expenses coming up. Take a loan for them, and/or cash out HSA + Roth IRA?

DW and I just bought a house in December, in a HCOL area (Northern VA suburbs). We spent down just about all our "discretionary" cash in order to make the 20% down payment + necessary repairs, but kept our EF intact. We now find ourselves needing to do IVF, and costs are looking like about $30,000 + maybe $10,000 in meds and tests (possibly more of the latter if multiple cycles needed). Insurance is unlikely to cover much or any of this.

A few months ago, we could have just paid cash and maybe waited longer to purchase the house, but what's done is done. We're rebuilding our savings, which fortunately won't take us too long provided there aren't [any more] surprise home repair costs. But we don't want to touch our EFs, those are for "real emergencies" (lost job, major medical incident) -- but due to wife's age, it's not prudent for us to delay IVF any longer. It feels like we're in a bit of a bind.

The clinic partners with a company that specializes in financing, and I'll have a call with them a bit later. From what I've read, their loans fall right around the APR% for "personal loans", and have no pre-payment penalty. So it's possible I could shop around (credit union, SoFi) to refinance it afterwards. DW does not like the idea of 401k loans and won't consider that an option.

My question: I have about $8000 in an HSA I no longer contribute to, and $6000 in contributions in a Roth IRA, which I could potentially throw at this to reduce our loan amount. I'm a bit torn as I fell in the camp of keeping the HSA as a last ditch emergency fund, and otherwise saving it for retirement. On the other hand, I don't relish the idea of more debt right now, and possibly at an unfavorable rate.

Should I:
  • Cash out HSA and Roth IRA, take loan for remainder?
  • Take the full loan, drop 401k contributions to match, pay off as soon as possible?
  • Try to get a 0% balance transfer CC? (if 3% transfer fee < loan APR%)
  • Some combo of the above?
  • Take the full loan, try to pay off as soon as possible?
When would you say it's time to use your HSA/Roth pre-retirement?

Here's our info:
My income: $145,000, fairly stable job, but a contractor (so who knows)
DW income: $110,000, very stable job
Income after tax/deductions: ~$11,000/mo
My 401k: ~200,000 (playing catch up for not contributing enough in my 20s)
DW 401k: ~$350,000 (a good saver!)
Both maxing 401k contributions
Credit scores: Both ~800s (may not have recalculated after the mortgage yet)
EF: ~6mos, don't want to touch this
My HSA: $8000
My Roth IRA: ~$6000 in contributions
Fixed expenses: $3600 total ($3200 mortgage: $580k @ 3.625%, $400 car loan: $12k @ 1.9%)

Appreciate any thoughts you have, or let me know if there's more info I should provide?
Last edited by Quercus Palustris on Tue Jan 14, 2020 11:14 am, edited 2 times in total.

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Watty
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Re: Time to use HSA/Roth IRA or take a loan? [Medical expenses]

Post by Watty » Tue Jan 14, 2020 10:38 am

Quercus Palustris wrote:
Tue Jan 14, 2020 9:51 am
My income: $145,000, fairly stable job, but a contractor (so who knows)
DW income: $110,000, very stable job
Using the HSA would make sense and be an easy choice because you would get the tax advantages of using it for medical expenses. I would not use the Roth.

With a combined income of $255,000 you have a gross monthly pay of over $21,000 a month

After taxes and payroll deductions your take home pay will be a less but you still have a LOT of income that you have not accounted for.

I would think that your take home pay might be something in the ballpark of $14,000 a month.

You may be able to cut your 401k contributions back to be just enough to get any employer match for six months then contribute enough in the last six months of 2020 to still max them out for the year.

The mortage and car loan are $3,200 a month only about $2000 a month (maybe $2500 if you have an escrow account) so you should be able to easily have the better part of $10K a month in discretionary spending that you could put towards the IVF.

If you cut your other spending down to only true necessities you should be able to quickly raise that much cash in just a few months and you may not need all of it on the day you start.

Spending a lot of time futzing with finding the lowest interest rate would take time so I would likely just use whatever reasonable interest rate(<10%) loan you can get the quickest so that you do not delay starting the IVF process. That might cost you a few bucks but that would be the price for not planning this out better.

If you get the balance paid off in a few months the interest rates will not really make that much difference.

Also in your long term plans get the car paid off and save up to pay cash for your next car. With your income there is no need for car loans.
Last edited by Watty on Tue Jan 14, 2020 11:04 am, edited 1 time in total.

sailaway
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Re: Time to use HSA/Roth IRA or take a loan? [Medical expenses]

Post by sailaway » Tue Jan 14, 2020 10:58 am

Watty wrote:
Tue Jan 14, 2020 10:38 am
Quercus Palustris wrote:
Tue Jan 14, 2020 9:51 am
My income: $145,000, fairly stable job, but a contractor (so who knows)
DW income: $110,000, very stable job
Using the HSA would make sense and be an easy choice because you would get the tax advantages of using it for medical expenses. I would not use the Roth.

With a combined income of $255,000 you have a gross monthly pay of over $21,000 a month

After taxes and payroll deductions your take home pay will be a less but you still have a LOT of income that you have not accounted for.

I would think that your take home pay might be something in the ballpark of $14,000 a month.

The mortage and car loan are only about $2000 a month (maybe $2500 if you have an escrow account) so you should be able to easily have the better part of $10K a month in discretionary spending that you could put towards the IVF.

The OP clearly states their mortgage and car loans.

It looks like you should seriously consider the terms of the loan and look into personal loans. Your savings seem pretty slim for a couple about to embark on a high risk pregnancy. This also means that you should be looking at where you can be cutting costs in order to pay down the loan and rebuild your savings as quickly as possible.

Best of luck to you!

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Watty
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Re: Time to use HSA/Roth IRA or take a loan? [Medical expenses]

Post by Watty » Tue Jan 14, 2020 11:02 am

sailaway wrote:
Tue Jan 14, 2020 10:58 am
The OP clearly states their mortgage and car loans.
:oops: I missed that, I will edit my post.
Quercus Palustris wrote:
Tue Jan 14, 2020 9:51 am
Fixed expenses: $3200 mortgage (~$580k @ 3.625%), $400 car loan ($12k @ 1.9%)
They should still have a lot of discretionary income each month with gross pay of over $21K a month.

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Quercus Palustris
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Location: Maryland

Re: Time to use HSA/Roth IRA or take a loan? [Medical expenses]

Post by Quercus Palustris » Tue Jan 14, 2020 11:11 am

Thanks, Watty and Sailaway! Our after tax/deductions take home comes out to about $11,000 a month. Now I definitely feel like the stereotypical well-off boglehead wringing his hands about expenses while making lavish :moneybag, haha.

DW and I need to look at where the $$ goes, but things have been unusual expense wise lately. Dec/Jan were a lot of post-purchase home improvement (some mandated by Amica HO insurance): fix shoddy electric and plumbing, remediate mouse problem in attic insulation, etc. And the months leading up to that we had astronomical vet bills. So I'm not sure what "normal" looks like!

Watty, I do like your idea of knocking down the 401k contributions for half a year, then increasing them later. I'm willing to cash out the HSA since as you say, at least I'll have enjoyed all 3 tax advantages from it.

And if IVF works, we will need to be saving up for babby :dollar :dollar :dollar

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