HSA money, use it or save it for later

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printer86
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Re: HSA money, use it or save it for later

Post by printer86 »

I can't remember what year we originally enrolled in my employer's HSA compliant HDHP, maybe around 2010. During that time, I primarily paid our medical bills out of pocket. Sometimes, I used our HSA account to pay some larger medical bills, but most years we did not even come close to hitting our deductible.

I early retired last fall with over 100k in our HSA. My plan is to continue cash flowing our medical expenses, as long as they remain minor, and save our HSA funds for our 65+ years.
MrBeaver
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Re: HSA money, use it or save it for later

Post by MrBeaver »

Our HSA is currently $220k, or roughly 18% of our portfolio. Our annual OOP max is $3k (and deductible, 100% coverage after that). So hitting our OOP max every year would only be a 1.3% withdrawal rate, while contributing another $7k per year makes it a combined guaranteed 1.8% ($4k) increase per year, even before investment returns.

I honestly find it very hard to weigh the possible benefit of having a large HSA balance to float higher insurance and deductible costs between retirement and Medicare or during a period where I might go self-employed, the benefit of self-funding undetermined long term care, and the benefit of paying out of the HSA now to invest another 3k in taxable.

I’m not worried about estate issues, as our gift desires will be larger than our HSA so that eliminates the potential for a large tax bill to someone else.

Also note that the ‘tax value’ of receipts to withdrawal tax free is devalued by inflation each year. I find judging the reduced yearly value of tax-free withdrawals against the increased tax drag from withdrawing now and investing in taxable yet another thing difficult to judge.

Finally, I haven’t been especially good at organizing / documenting all receipts and EOBs. I have several large ones, but it’s honestly only around 10k in expenses are this point.

I’m leaning toward starting to withdrawal yearly and build up our taxable account (which is relatively small now). At around 40 years old, even if we retire early at 55, that could give us an HSA balance of around $500k then providing a 4% withdrawal rate or $20k per year. Do I really think health care (pre-Medicare) will be more expensive than that?
TJat
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Re: HSA money, use it or save it for later

Post by TJat »

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.
30 years of max contributions invested in equities will probably create a pretty massive tax savings. I’ve never heard of the IRS challenging any claim, they have better things to do with their limited resources than chase the possibility of people claiming for delinquent bills. Even if that’s a concern, wait until 65 to withdraw for any reason and in the case of a medical emergency that can’t be cash flowed, withdraw Roth IRA contributions.

Because of the tax advantages, it doesn’t make sense to withdraw from the HSA if you’re then saving money elsewhere beyond a 401k match.
willyd123
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Re: HSA money, use it or save it for later

Post by willyd123 »

If I had one dollar to save and my choices were invest it into a 401(k), after tax savings or my HSA, I would do the latter as it is the most effective savings vehicle. Of course this assumes that I do not need the money for a long period of time. My rationale is that a dollar in an HSA reduces your taxable income same as a dollar into a 401(k) BUT the growth in the HSA goes untaxed (assuming you spend it on qualified medical expenses) while the 401(k) money will be fully taxable. And the HSA is better than the after tax savings because the after tax savings are taxed at least in terms of the growth.
dogagility
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Re: HSA money, use it or save it for later

Post by dogagility »

MrBeaver wrote: Tue Jun 01, 2021 8:24 am I’m leaning toward starting to withdrawal yearly and build up our taxable account (which is relatively small now). At around 40 years old, even if we retire early at 55, that could give us an HSA balance of around $500k then providing a 4% withdrawal rate or $20k per year. Do I really think health care (pre-Medicare) will be more expensive than that?
Unlikely but did you consider that HSA withdrawals for any reason after age 65 are penalty-free? In other words, the account can be used to fund any retirement expense at age 65 like a traditional IRA.
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
jebmke
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Re: HSA money, use it or save it for later

Post by jebmke »

TJat wrote: Tue Jun 01, 2021 8:31 am 30 years of max contributions invested in equities will probably create a pretty massive tax savings.
Yes, over 30 years the income/gain could be substantial. The savings (when compared to contemporaneous reimbursement) of course is the tax on that part only. So, for most people, 15% of the income/gain.
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MrBeaver
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Re: HSA money, use it or save it for later

Post by MrBeaver »

dogagility wrote: Tue Jun 01, 2021 2:26 pm
MrBeaver wrote: Tue Jun 01, 2021 8:24 am I’m leaning toward starting to withdrawal yearly and build up our taxable account (which is relatively small now). At around 40 years old, even if we retire early at 55, that could give us an HSA balance of around $500k then providing a 4% withdrawal rate or $20k per year. Do I really think health care (pre-Medicare) will be more expensive than that?
Unlikely but did you consider that HSA withdrawals for any reason after age 65 are penalty-free? In other words, the account can be used to fund any retirement expense at age 65 like a traditional IRA.
They are penalty free, but not tax free. Money withdrawn now to reimburse medical expenses essentially converts future growth subject to marginal income tax rates into future capital gains subject to capital gains rates, while incurring tax drag from dividends.

I still think though that it makes sense to retain HSA money as a risk mitigation strategy — none of us know how many future medical expenses we will have.
Duzz78
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Re: HSA money, use it or save it for later

Post by Duzz78 »

The post concerning the IRS Medical Tax Exemption has been removed for the following reason:
As one BH long timer has mentioned, it would be better to use your HSA funds to reimburse yourself. Therefore going through any work or exercise to go the other route would be a waste of one's time.
Last edited by Duzz78 on Sun Jun 13, 2021 9:09 pm, edited 1 time in total.
mrsgoldilocks
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Re: HSA money, use it or save it for later

Post by mrsgoldilocks »

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.
Personally, I'm taking my HSA as a great investment vehicle to prepare for the time when I may face expensive medical bill, i.e. LTC hopefully never ... so I delay reimbursement as long as I can. Plus, I don't know how long I can still contribute to the HSA account. so once the money is gone, it's gone. I still feel really bad that I don't know about Roth earlier. Now, I can't even contribute to it any more.
so if you can cover the expense, I would suggest saving your receipt and reimburse when you're 80 years old. :sharebeer Or when you really need money.
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grabiner
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Re: HSA money, use it or save it for later

Post by grabiner »

Duzz78 wrote: Tue Jun 08, 2021 11:25 pm Here might be another option for you to consider.

Take the IRS Medical Tax Exemption. Put it on your tax return and you might also get a higher tax saving rate.
The disadvantage is that you cannot reimburse yourself from the HSA for any of the expenses that year, including the 7.5% excluded amount. For example, if your AGI is $100K and you have $10K of medical expenses, you can either deduct $2500 this year, or reimburse yourself $10K from the HSA in this year or a future year. If you have very high medical expenses in a few years, this may not cause a problem with the ability to eventually use the HSA entirely for medical expenses.
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N.Y.Cab
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Re: HSA money, use it or save it for later

Post by N.Y.Cab »

I used to save and invest most of it before. Now that the balance is 6 figures, I’ll spend it going forward. The HSA debit card is super easy to use.
jackbeagle
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Re: HSA money, use it or save it for later

Post by jackbeagle »

How has the HDHP + HSA combination, even if contributions are tax-advantaged, been more beneficial than a low deductible PPO plan? Is the spread in annual cost of coverage + OOP still in favor of going high deductible + HSA?

In order to even contribute to a tax-advantaged HSA (not an FSA), one must participate in a high deductible plan with a MINIMUM deductible of $1,400 individual, $2,800 family. This is the legal minimum on healthcare.gov, this doesn't mean an employer's HDHP option won't have a higher deductible.

Are there still copays for office visits and prescriptions, or is there one big integrated deductible?
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

jackbeagle wrote: Wed Jun 09, 2021 7:14 pm How has the HDHP + HSA combination, even if contributions are tax-advantaged, been more beneficial than a low deductible PPO plan? Is the spread in annual cost of coverage + OOP still in favor of going high deductible + HSA?

In order to even contribute to a tax-advantaged HSA (not an FSA), one must participate in a high deductible plan with a MINIMUM deductible of $1,400 individual, $2,800 family. This is the legal minimum on healthcare.gov, this doesn't mean an employer's HDHP option won't have a higher deductible.
In my experience, HDHPs are almost always the better choice (among those available to the same person). The premiums are lower, so you come out ahead of you spend nothing, and premiums plus OOP max are usually lower than with a trad plan. Somewhere in between trad plans might be better, but that is only a good choice if you can predict medical spending accurately. Note also that while you pay everything until you hit the deductible, you only pay negotiated rates in network, so better than cash (before negotiating).
Are there still copays for office visits and prescriptions, or is there one big integrated deductible?
I believe that you can not have any copays before you get to the deductible with HDHP plans. You'll pay full price for office visits etc, except for preventative care which is "free" as per ACA (e.g. annual physical). After deductible there may be coinsurance or copays depending on the plan until OOP max.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

MrBeaver wrote: Tue Jun 01, 2021 8:24 am Our HSA is currently $220k, or roughly 18% of our portfolio. Our annual OOP max is $3k (and deductible, 100% coverage after that). So hitting our OOP max every year would only be a 1.3% withdrawal rate, while contributing another $7k per year makes it a combined guaranteed 1.8% ($4k) increase per year, even before investment returns.

I honestly find it very hard to weigh the possible benefit of having a large HSA balance to float higher insurance and deductible costs between retirement and Medicare or during a period where I might go self-employed, the benefit of self-funding undetermined long term care, and the benefit of paying out of the HSA now to invest another 3k in taxable.

I’m not worried about estate issues, as our gift desires will be larger than our HSA so that eliminates the potential for a large tax bill to someone else.

Also note that the ‘tax value’ of receipts to withdrawal tax free is devalued by inflation each year. I find judging the reduced yearly value of tax-free withdrawals against the increased tax drag from withdrawing now and investing in taxable yet another thing difficult to judge.

Finally, I haven’t been especially good at organizing / documenting all receipts and EOBs. I have several large ones, but it’s honestly only around 10k in expenses are this point.

I’m leaning toward starting to withdrawal yearly and build up our taxable account (which is relatively small now). At around 40 years old, even if we retire early at 55, that could give us an HSA balance of around $500k then providing a 4% withdrawal rate or $20k per year. Do I really think health care (pre-Medicare) will be more expensive than that?
How do you have such a large HSA balance? :shock:
Osterix
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Re: HSA money, use it or save it for later

Post by Osterix »

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.
Does a receipt not indicate that a bill has been paid?
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Re: HSA money, use it or save it for later

Post by LittleMaggieMae »

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.
That's not a good blanket statement. I don't think all HDHP's are the same.

My employer's HDHP covers an amazing amount of healthcare services and prescriptions at no cost to me. My yearly physical exam is covered for example. Things like a colonoscopy or Well woman exam were covered at no charge to me. I had a health issue that required a bunch of tests and medications and doctor visits over 4 months which culminated in surgery that required an overnight stay and 6 weeks leave from work. My total out of pocket expense were under 3K (OK, I guess you can add in the bi-weekly expense of the HDHP plan $30 per paycheck or $780 per year so just under 4K for the year). This was less expensive than my employer's PPO plan ($160 per pay check and then a copay for visits/medications the surgery/hospital stay etc..) And in the years I just have routine "maintenance" kind of healthcare needs my "out of pocket" is the $30 per paycheck for the Plan and maybe $250 total for copays or other billing. And yes I'm contributing the maximum to my HSA.
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

LittleMaggieMae wrote: Wed Jun 09, 2021 9:56 pm My employer's HDHP covers an amazing amount of healthcare services and prescriptions at no cost to me. My yearly physical exam is covered for example. Things like a colonoscopy or Well woman exam were covered at no charge to me.
All plans are required to do so by law.
jackbeagle
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Re: HSA money, use it or save it for later

Post by jackbeagle »

AnEngineer wrote: Wed Jun 09, 2021 8:15 pm
jackbeagle wrote: Wed Jun 09, 2021 7:14 pm How has the HDHP + HSA combination, even if contributions are tax-advantaged, been more beneficial than a low deductible PPO plan? Is the spread in annual cost of coverage + OOP still in favor of going high deductible + HSA?

In order to even contribute to a tax-advantaged HSA (not an FSA), one must participate in a high deductible plan with a MINIMUM deductible of $1,400 individual, $2,800 family. This is the legal minimum on healthcare.gov, this doesn't mean an employer's HDHP option won't have a higher deductible.
In my experience, HDHPs are almost always the better choice (among those available to the same person). The premiums are lower, so you come out ahead of you spend nothing, and premiums plus OOP max are usually lower than with a trad plan. Somewhere in between trad plans might be better, but that is only a good choice if you can predict medical spending accurately. Note also that while you pay everything until you hit the deductible, you only pay negotiated rates in network, so better than cash (before negotiating).
Are there still copays for office visits and prescriptions, or is there one big integrated deductible?
I believe that you can not have any copays before you get to the deductible with HDHP plans. You'll pay full price for office visits etc, except for preventative care which is "free" as per ACA (e.g. annual physical). After deductible there may be coinsurance or copays depending on the plan until OOP max.
I am in some weird parallel universe (unique situation) because currently the employee contribution for all options is the same. We have a PPO (80/20), an EPN (90/10), and an HDHP ($5,000 deductible) with which we can use an HSA.

- Currently all major local providers are in-network, so I choose the EPN for the low deductible ($440) and cost control.
- The PPO I could see being beneficial if you needed some level of coverage for out-of-network providers.
- Our HDHP at the current moment is a bit of a mystery because it doesn't make financial sense given there is NO premium advantage.

I'd like to think my situation is unique and give credence to your assessment. Are the contributions to an HSA able to be invested in funds, similarly to a 529 can for education?
phantom0308
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Re: HSA money, use it or save it for later

Post by phantom0308 »

I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

jackbeagle wrote: Wed Jun 09, 2021 10:59 pm I'd like to think my situation is unique and give credence to your assessment. Are the contributions to an HSA able to be invested in funds, similarly to a 529 can for education?
Yes, your plan options sound terrible, I'm sorry. I'd try to push back to your employer with fellow employees that the company should pass on at least some of the money they save on premiums to you.

HSA funds can be invested. Rules, fees, and funds vary by provider, but you can always open your own and transfer the balance there. Fidelity has free HSAs for such cases where you can invest in pretty much anything.
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

phantom0308 wrote: Thu Jun 10, 2021 12:04 am I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.

1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
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Re: HSA money, use it or save it for later

Post by Exchme »

Because it's tax unfriendly to leave it to heirs and we will need cash prior to SS and RMDs starting, we will start using it at 65 to pay Medicare and possibly other medical bills, ensuring it is depleted by age 70 when my SS starts and we become about cash neutral. I don't see a reason to sell something and pay capital gains, when this can be used to help bridge the gap.
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Re: HSA money, use it or save it for later

Post by dred pirate »

is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
dogagility
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Re: HSA money, use it or save it for later

Post by dogagility »

Just to add... it's a perfectly good strategy to pay expenses out of pocket and not save receipts. Saving receipts just allows withdrawal of money at a later date for non-medical expenses without incurring a penalty.

If you don't save receipts, you can still use the HSA for medical expenses at any future date or use the HSA for any expense at age 65 (works like a traditional IRA at that age for non-medical expenses).
Last edited by dogagility on Thu Jun 10, 2021 1:35 pm, edited 1 time in total.
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

Exchme wrote: Thu Jun 10, 2021 8:01 am Because it's tax unfriendly to leave it to heirs and we will need cash prior to SS and RMDs starting, we will start using it at 65 to pay Medicare and possibly other medical bills, ensuring it is depleted by age 70 when my SS starts and we become about cash neutral. I don't see a reason to sell something and pay capital gains, when this can be used to help bridge the gap.
I wonder at what dollar amount does it start to make sense to start drawing down (for qualified medical expenses) on an HSA prior to age 65?

Some BHs have the benefit of learning the benefits of investing HSA funds early enough to potentially accumulate 6 figure HSA balance before age 65.
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

anon_investor wrote: Thu Jun 10, 2021 12:33 pm
dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
Having a time limit would not combine well with the fact that medical billing routinely takes in excess of 1 year to resolve.
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Re: HSA money, use it or save it for later

Post by Gus Chiggins »

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 :|
Same. We initially started tracking and documenting but, being so far from retirement and with such a small number of low cost expenses, it just wasn’t worth the hassle. Now we just reimburse as we go from HealthEquity and then transfer everything we don’t spend during the year to Fidelity to save for medical costs in retirement. We’re also in California, so we hold US treasuries in our HSA which reduces the opportunity costs. We’re already on track to have a pretty healthy HSA balance by the time we retire anyway, so I’m fine forgoing some optimization.
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Re: HSA money, use it or save it for later

Post by Exchme »

anon_investor wrote: Thu Jun 10, 2021 12:47 pm
Exchme wrote: Thu Jun 10, 2021 8:01 am Because it's tax unfriendly to leave it to heirs and we will need cash prior to SS and RMDs starting, we will start using it at 65 to pay Medicare and possibly other medical bills, ensuring it is depleted by age 70 when my SS starts and we become about cash neutral. I don't see a reason to sell something and pay capital gains, when this can be used to help bridge the gap.
I wonder at what dollar amount does it start to make sense to start drawing down (for qualified medical expenses) on an HSA prior to age 65?

Some BHs have the benefit of learning the benefits of investing HSA funds early enough to potentially accumulate 6 figure HSA balance before age 65.
I just want the last of it to be spent just before other sources of cash come in like SS or RMDs. Once they kick in, the cash crunch is over. Medicare premiums just happen to be simple and since I will owe some IRMAA taxes and have a fairly modest HSA, that match looks like it will balance out. If not, I have a bunch of other medical bills stored up that I can apply.
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Re: HSA money, use it or save it for later

Post by vitaflo »

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.
Exactly why we use our HSA now instead of waiting. In the end it’s the tax free in and out that is the biggest benefit and we get that either way.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

Exchme wrote: Thu Jun 10, 2021 5:10 pm
anon_investor wrote: Thu Jun 10, 2021 12:47 pm
Exchme wrote: Thu Jun 10, 2021 8:01 am Because it's tax unfriendly to leave it to heirs and we will need cash prior to SS and RMDs starting, we will start using it at 65 to pay Medicare and possibly other medical bills, ensuring it is depleted by age 70 when my SS starts and we become about cash neutral. I don't see a reason to sell something and pay capital gains, when this can be used to help bridge the gap.
I wonder at what dollar amount does it start to make sense to start drawing down (for qualified medical expenses) on an HSA prior to age 65?

Some BHs have the benefit of learning the benefits of investing HSA funds early enough to potentially accumulate 6 figure HSA balance before age 65.
I just want the last of it to be spent just before other sources of cash come in like SS or RMDs. Once they kick in, the cash crunch is over. Medicare premiums just happen to be simple and since I will owe some IRMAA taxes and have a fairly modest HSA, that match looks like it will balance out. If not, I have a bunch of other medical bills stored up that I can apply.
Well that is kind of the point, at what number does an HSA become so large that no amount of stored receipts will put a dent in it. Some might reach that point before 65, and would it make sense to pay current medical bills before 65, when an HSA gets that large?
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Re: HSA money, use it or save it for later

Post by gjlynch17 »

anon_investor wrote: Thu Jun 10, 2021 5:40 pm
Well that is kind of the point, at what number does an HSA become so large that no amount of stored receipts will put a dent in it. Some might reach that point before 65, and would it make sense to pay current medical bills before 65, when an HSA gets that large?
I think this is right. Historically, I have paid medical expenses from taxable funds but I may be at that stage where paying from an HSA makes sense. Specifically, I am targeting early retirement at age 54 in 2023. At that point, I intend on continue contributing to an HSA (the "above the line" deduction is valuable) but intend to pay medical expenses from the HSA, as well as reimburse myself for prior medical expenses.
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Re: HSA money, use it or save it for later

Post by phantom0308 »

AnEngineer wrote: Thu Jun 10, 2021 7:27 am
phantom0308 wrote: Thu Jun 10, 2021 12:04 am I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.

1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
You make a lot of good points. I keep a lot of documentation digitally but don’t have a good system set up to manage what has been claimed and not atm. Just a lot of scanned docs in a folder in case the IRS ever asks. Also access to some billing systems that the medical systems I go to use. Probably not the best system. I think it’d be valuable to spend a bit of time organizing.

I have access to a mega backdoor Roth IRA so don’t really have need for a large amount of extra tax advantaged space. IRA and HSA are pretty small in comparison though I do go through the hassle of backdoor Roth IRA which contradicts my own point above.
Exchme
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Re: HSA money, use it or save it for later

Post by Exchme »

gjlynch17 wrote: Thu Jun 10, 2021 6:33 pm
anon_investor wrote: Thu Jun 10, 2021 5:40 pm
Well that is kind of the point, at what number does an HSA become so large that no amount of stored receipts will put a dent in it. Some might reach that point before 65, and would it make sense to pay current medical bills before 65, when an HSA gets that large?
I think this is right. Historically, I have paid medical expenses from taxable funds but I may be at that stage where paying from an HSA makes sense. Specifically, I am targeting early retirement at age 54 in 2023. At that point, I intend on continue contributing to an HSA (the "above the line" deduction is valuable) but intend to pay medical expenses from the HSA, as well as reimburse myself for prior medical expenses.
Yes, I think people should be cautious about how much they put in. If they get carried away, and then die early and/or suddenly and without giving the medical system a chance to do a wallet-ectomy, there could be a substantial sum in there and your non-spousal heirs would have to pay taxes on it all at once. After age 65, of course they could withdraw it themselves and pay taxes on it then, but that's not a big bargain either.
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FrankLUSMC
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Re: HSA money, use it or save it for later

Post by FrankLUSMC »

anon_investor wrote: Thu Jun 10, 2021 12:33 pm
dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
Wrong! You can not reimburse receipts that are incurred before the HSA was started.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

FrankLUSMC wrote: Thu Jun 10, 2021 8:53 pm
anon_investor wrote: Thu Jun 10, 2021 12:33 pm
dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
Wrong! You can not reimburse receipts that are incurred before the HSA was started.
Well duh! But a qualified medical expense I incured today while covered by a qualified HDHP and HSA can be reimbursed 20 years from now under current law.
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

phantom0308 wrote: Thu Jun 10, 2021 8:26 pm
AnEngineer wrote: Thu Jun 10, 2021 7:27 am
phantom0308 wrote: Thu Jun 10, 2021 12:04 am I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.

1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
You make a lot of good points. I keep a lot of documentation digitally but don’t have a good system set up to manage what has been claimed and not atm. Just a lot of scanned docs in a folder in case the IRS ever asks. Also access to some billing systems that the medical systems I go to use. Probably not the best system. I think it’d be valuable to spend a bit of time organizing.

I have access to a mega backdoor Roth IRA so don’t really have need for a large amount of extra tax advantaged space. IRA and HSA are pretty small in comparison though I do go through the hassle of backdoor Roth IRA which contradicts my own point above.
If I had excess (mega backdoor) Roth space available, I'd probably spend down the HSA. The restrictions on withdrawing the gains in a Roth are probably less restrictive overall, unless you're retiring very early and expect lots of future medical spending.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

AnEngineer wrote: Thu Jun 10, 2021 9:20 pm
phantom0308 wrote: Thu Jun 10, 2021 8:26 pm
AnEngineer wrote: Thu Jun 10, 2021 7:27 am
phantom0308 wrote: Thu Jun 10, 2021 12:04 am I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.

1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
You make a lot of good points. I keep a lot of documentation digitally but don’t have a good system set up to manage what has been claimed and not atm. Just a lot of scanned docs in a folder in case the IRS ever asks. Also access to some billing systems that the medical systems I go to use. Probably not the best system. I think it’d be valuable to spend a bit of time organizing.

I have access to a mega backdoor Roth IRA so don’t really have need for a large amount of extra tax advantaged space. IRA and HSA are pretty small in comparison though I do go through the hassle of backdoor Roth IRA which contradicts my own point above.
If I had excess (mega backdoor) Roth space available, I'd probably spend down the HSA. The restrictions on withdrawing the gains in a Roth are probably less restrictive overall, unless you're retiring very early and expect lots of future medical spending.
The HSA can be really beneficial for high income folks who have run out of tax advantaged space.
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FrankLUSMC
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Re: HSA money, use it or save it for later

Post by FrankLUSMC »

anon_investor wrote: Thu Jun 10, 2021 9:15 pm
FrankLUSMC wrote: Thu Jun 10, 2021 8:53 pm
anon_investor wrote: Thu Jun 10, 2021 12:33 pm
dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
Wrong! You can not reimburse receipts that are incurred before the HSA was started.
Well duh! But a qualified medical expense I incured today while covered by a qualified HDHP and HSA can be reimbursed 20 years from now under current law.
so the question was "can you claim an expense that is 20 years old?" Not if the HSA was not started at that time. This is the qualifier that was left out of that question.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

FrankLUSMC wrote: Thu Jun 10, 2021 9:34 pm
anon_investor wrote: Thu Jun 10, 2021 9:15 pm
FrankLUSMC wrote: Thu Jun 10, 2021 8:53 pm
anon_investor wrote: Thu Jun 10, 2021 12:33 pm
dred pirate wrote: Thu Jun 10, 2021 11:21 am is there a time limit on when you have to claim the expenses by? Can you actually claim an expense 20 years old?
Currently there is no time limit. Major loophole! :beer
Wrong! You can not reimburse receipts that are incurred before the HSA was started.
Well duh! But a qualified medical expense I incured today while covered by a qualified HDHP and HSA can be reimbursed 20 years from now under current law.
so the question was "can you claim an expense that is 20 years old?" Not if the HSA was not started at that time. This is the qualifier that was left out of that question.
Thank you for pointing this out. :beer
AnEngineer
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Re: HSA money, use it or save it for later

Post by AnEngineer »

anon_investor wrote: Thu Jun 10, 2021 9:24 pm
AnEngineer wrote: Thu Jun 10, 2021 9:20 pm
phantom0308 wrote: Thu Jun 10, 2021 8:26 pm
AnEngineer wrote: Thu Jun 10, 2021 7:27 am
phantom0308 wrote: Thu Jun 10, 2021 12:04 am I would just spend from the HSA.
1. The amount of money that can be invested is relatively low so any savings will also be low
2. Tax free growth is worth about 0.5% given an index fund paying 2-2.5% dividends and 25+% marginal income tax.
3. Tracking receipts isn’t worth the hassle to me.

I understand others have their own opinions on this, and they are doing the financially optimal thing.

1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
You make a lot of good points. I keep a lot of documentation digitally but don’t have a good system set up to manage what has been claimed and not atm. Just a lot of scanned docs in a folder in case the IRS ever asks. Also access to some billing systems that the medical systems I go to use. Probably not the best system. I think it’d be valuable to spend a bit of time organizing.

I have access to a mega backdoor Roth IRA so don’t really have need for a large amount of extra tax advantaged space. IRA and HSA are pretty small in comparison though I do go through the hassle of backdoor Roth IRA which contradicts my own point above.
If I had excess (mega backdoor) Roth space available, I'd probably spend down the HSA. The restrictions on withdrawing the gains in a Roth are probably less restrictive overall, unless you're retiring very early and expect lots of future medical spending.
The HSA can be really beneficial for high income folks who have run out of tax advantaged space.
I agree, I'm saying if you can effectively move HSA money to a Roth that it can make sense. If you're already maxing out everything tax advantaged, leave it in the HSA.
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anon_investor
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Re: HSA money, use it or save it for later

Post by anon_investor »

AnEngineer wrote: Thu Jun 10, 2021 10:10 pm
anon_investor wrote: Thu Jun 10, 2021 9:24 pm
AnEngineer wrote: Thu Jun 10, 2021 9:20 pm
phantom0308 wrote: Thu Jun 10, 2021 8:26 pm
AnEngineer wrote: Thu Jun 10, 2021 7:27 am


1. Family HSA contribution limits are higher than IRA limits. Are IRAs also too low?
2. Fair enough point, though it could cause you to cross income thresholds.
3. If you are spending your HSA balance now, the records you need to keep are exactly the same, only the duration matters. Also, because the IRS can accuse you of fraud with no time limit, I'd argue you should keep ask such documentation forever. Thus, I'd keep the records the same amount of time. Plus, any record you need to keep for even a few years is probably worth keeping digitally, so why put in extra effort to remove the records?
You make a lot of good points. I keep a lot of documentation digitally but don’t have a good system set up to manage what has been claimed and not atm. Just a lot of scanned docs in a folder in case the IRS ever asks. Also access to some billing systems that the medical systems I go to use. Probably not the best system. I think it’d be valuable to spend a bit of time organizing.

I have access to a mega backdoor Roth IRA so don’t really have need for a large amount of extra tax advantaged space. IRA and HSA are pretty small in comparison though I do go through the hassle of backdoor Roth IRA which contradicts my own point above.
If I had excess (mega backdoor) Roth space available, I'd probably spend down the HSA. The restrictions on withdrawing the gains in a Roth are probably less restrictive overall, unless you're retiring very early and expect lots of future medical spending.
The HSA can be really beneficial for high income folks who have run out of tax advantaged space.
I agree, I'm saying if you can effectively move HSA money to a Roth that it can make sense. If you're already maxing out everything tax advantaged, leave it in the HSA.
Agreed. :beer
Kagord
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Re: HSA money, use it or save it for later

Post by Kagord »

Based on a prior post, I'd like to fully understand how the 7.5% AGI limit works in conjunction with the HSA. There is verbiage that you can't double dip with a IRS income tax deduction and HSA reimbursement:

Medical Expenses: 20K
AGI: 100K
AGI Floor: 7.5K
Deduction Allowed: 12.5K

So does this mean, I can pay cash now, deduct 12.5K now, and deduct the 7.5K (the floor amount) 30 years later from the HSA? If so, and you were audited in 2051 for the HSA withdrawal, you'd have to keep your 2021 tax return, all HSA activity for 30 years, and the medical expense documentation, right?
Duzz78
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Re: HSA money, use it or save it for later

Post by Duzz78 »

grabiner wrote: Wed Jun 09, 2021 5:13 pm
Duzz78 wrote: Tue Jun 08, 2021 11:25 pm Here might be another option for you to consider.

Take the IRS Medical Tax Exemption. Put it on your tax return and you might also get a higher tax saving rate.
The disadvantage is that you cannot reimburse yourself from the HSA for any of the expenses that year, including the 7.5% excluded amount. For example, if your AGI is $100K and you have $10K of medical expenses, you can either deduct $2500 this year, or reimburse yourself $10K from the HSA in this year or a future year. If you have very high medical expenses in a few years, this may not cause a problem with the ability to eventually use the HSA entirely for medical expenses.
Grabiner that is very true. The disadvantage is one cannot reimburse yourself from an HSA the 7.5% excluded amount while you can reimburse yourself the whole $10K from your HSA.
With this reminder, I have removed my post about using the IRS tax exemption. You are better off using your HSA to pay for those expenses at whatever point in time you choose to do so.
Duzz78
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Re: HSA money, use it or save it for later

Post by Duzz78 »

Kagord wrote: Fri Jun 11, 2021 4:51 am Based on a prior post, I'd like to fully understand how the 7.5% AGI limit works in conjunction with the HSA. There is verbiage that you can't double dip with a IRS income tax deduction and HSA reimbursement:

Medical Expenses: 20K
AGI: 100K
AGI Floor: 7.5K
Deduction Allowed: 12.5K

So does this mean, I can pay cash now, deduct 12.5K now, and deduct the 7.5K (the floor amount) 30 years later from the HSA? If so, and you were audited in 2051 for the HSA withdrawal, you'd have to keep your 2021 tax return, all HSA activity for 30 years, and the medical expense documentation, right?
No you cannot deduct the 7.5% from your HSA account in any year, being either in the current year you did the IRS Medical Exemption or a future year. That amount is included toward obtaining the deduction allowed amount. This would be double dipping for sure. You can only choose to do one or the other. As a seasoned BH member stated, it would more tax beneficial to take the $20K out out your HSA account.
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