HSA 70k when would you start using it

[Artsdoctor]

Or, if you happen to have receipts from years gone by, you can even reimburse yourself for those past expenses roughly at the same amount as your current supplemental premiums. It's mental accounting, to be sure, but it can be satisfying nonetheless.

I did chuckle at that last sentence.

My Plan G-HD premium is a big $45 a month, so I don’t bother with using old receipts to cover it, despite how satisfying that might be.

That is a GREAT rate! This is very state- and age-dependent for many, but you have a terrific plan premium.

[krisSA]

That means, per your example, expenses above $30,700 would be tax deductible and one can pay from tIRA balance and reimburse the first $30,700 from HSA balance, isn't it?

Short answer: no. You can't deduct expenses reimbursed from your HSA. You also can't withdraw from your HSA against expenses that you deducted on your taxes.

(I think the way it's phrased, I think you may be able to take the $7500 from the HSA in a later year because you didn't deduct it, but that's a pretty aggressive read. You certainly can't withdraw based on expenses from $7500 to $30700.)

I agree with your explanation, I misunderstood the quote "unreimbursed expenses from $7500 to $30700". That portion was also deductible for the withdrawal from tIRA but one could have saved taxes using 'Standard Deduction' instead. I guess there's no perfect solution (100% tax free) to pay for the LTC expenses from tIRA savings

[N.Y.Cab]

I have over $150k but always use my HSA when I can. Hope to use it up on Medicare part B, D and deductibles so that my heirs don’t have to worry about cashing it out in 1 year.

[TN_Boy]

What excellent advice! I honestly hadn't thought about HSAs in this light. My husband is going to have tremendous nursing and assisted living expenses coming up 4 to 10 years from now. But in the near term, assuming the ACA subsidies continue, I am going to need more CASH in 2026 and 2027 and don't want it to be income, so as to not reduce my subsidies. Pulling from his HSA (we stored receipts) is the perfect answer!! And yes, he will be able to offset IRA withdrawal (income) in later years, with all those medical deductions. Thanks for helping me get a plan for the best way to create cash in 2026 and 2027.

It is great advice however, as has been noted, you can only deduct expenses that exceed 7.5% of your AGI. Since the MFJ standard deduction for seniors is $33,200 next year, itemized deductions need to exceed that amount before they really are valuable. Assuming you have the $10k SALT deduction, then that leaves $23,200 of headroom. This can be filled with charitable contributions or mortgage interest in many cases, but if not, that means that you would have to have $23,200 of eligible medical deductions before you would exceed the standard deduction. So if your AGI is $100k, the first $7,500 of your medical expenses aren't eligible for a deduction. So you would need to pay $23,200 + $7,500 = $30,700 in unreimbursed medical expenses before that next dollar would be tax deductible.

So the extent to which medical expenses will be tax deductible depends on your AGI, and what other tax deductions you may have.

Sure, but my experience after dealing with a couple of these situations is that getting over the 7.5% AGI limit and exceeding the standard deduction, even for a couple, is not that hard.

Consider your example. One spouse winds up in assisted living, because they need help with two or more ADLs, and/or have dementia (the key criteria for deducting LTC expenses).

In my area, assisted living is going to run 5k or more. A month. 60k a year. That blows right by the 33.2k standard deduction all by itself, even with the 7.5% limit. Then you have other medical expenses, for both spouses. Say your medicare insurance (including Medicare advantage or supplemental plus drug coverage) is a modest $300 a month per spouse. Add that $7,200 to the medical expenses. Buy some glasses? Cost of exam and eyeglasses deductible. Un-reimbursed drug expenses? Co-pays? Add those to the medical expenses. And now you can throw in the usual state and local tax deductions, any charitable deductions, etc. for more itemized deductions.

You'd want to do some tax modeling, though in many cases it will quickly be apparent that medical expenses make it worth going this route, making the tIRA withdrawal federally tax-free.

[michaeljc70]

It is great advice however, as has been noted, you can only deduct expenses that exceed 7.5% of your AGI. Since the MFJ standard deduction for seniors is $33,200 next year, itemized deductions need to exceed that amount before they really are valuable. Assuming you have the $10k SALT deduction, then that leaves $23,200 of headroom. This can be filled with charitable contributions or mortgage interest in many cases, but if not, that means that you would have to have $23,200 of eligible medical deductions before you would exceed the standard deduction. So if your AGI is $100k, the first $7,500 of your medical expenses aren't eligible for a deduction. So you would need to pay $23,200 + $7,500 = $30,700 in unreimbursed medical expenses before that next dollar would be tax deductible.

So the extent to which medical expenses will be tax deductible depends on your AGI, and what other tax deductions you may have.

Sure, but my experience after dealing with a couple of these situations is that getting over the 7.5% AGI limit and exceeding the standard deduction, even for a couple, is not that hard.

Consider your example. One spouse winds up in assisted living, because they need help with two or more ADLs, and/or have dementia (the key criteria for deducting LTC expenses).

In my area, assisted living is going to run 5k or more. A month. 60k a year. That blows right by the 33.2k standard deduction all by itself, even with the 7.5% limit. Then you have other medical expenses, for both spouses. Say your medicare insurance (including Medicare advantage or supplemental plus drug coverage) is a modest $300 a month per spouse. Add that $7,200 to the medical expenses. Buy some glasses? Cost of exam and eyeglasses deductible. Un-reimbursed drug expenses? Co-pays? Add those to the medical expenses. And now you can throw in the usual state and local tax deductions, any charitable deductions, etc. for more itemized deductions.

You'd want to do some tax modeling, though in many cases it will quickly be apparent that medical expenses make it worth going this route, making the tIRA withdrawal federally tax-free.

Yes, but that standard deduction and 7.5% is lost. If your taxable income is $150k you are in the 22% marginal bracket that means you are losing $32.3k + 60k*.075 = $4.5k which totals almost $37k in deductions or $8k in taxes at the marginal rate (depending on income this could straddle two brackets). Then (in the original post) you said take it out of a tIRA. Taking 60k out of a tIRA in this case would also add those taxes of around $13k. There could be state taxes too.

You have to take into account that if you don't use the HSA it could become taxable to an heir at ordinary rates. Of course, with the tIRA you can wind up in a similar situation though they have longer to withdraw it.

I'm sure there are scenarios where this will could come out ahead, but I think they are far and few between. Currently only 10% of taxpayers itemize.

[TN_Boy]

Sure, but my experience after dealing with a couple of these situations is that getting over the 7.5% AGI limit and exceeding the standard deduction, even for a couple, is not that hard.

Consider your example. One spouse winds up in assisted living, because they need help with two or more ADLs, and/or have dementia (the key criteria for deducting LTC expenses).

In my area, assisted living is going to run 5k or more. A month. 60k a year. That blows right by the 33.2k standard deduction all by itself, even with the 7.5% limit. Then you have other medical expenses, for both spouses. Say your medicare insurance (including Medicare advantage or supplemental plus drug coverage) is a modest $300 a month per spouse. Add that $7,200 to the medical expenses. Buy some glasses? Cost of exam and eyeglasses deductible. Un-reimbursed drug expenses? Co-pays? Add those to the medical expenses. And now you can throw in the usual state and local tax deductions, any charitable deductions, etc. for more itemized deductions.

You'd want to do some tax modeling, though in many cases it will quickly be apparent that medical expenses make it worth going this route, making the tIRA withdrawal federally tax-free.

Yes, but that standard deduction and 7.5% is lost. If your taxable income is $150k you are in the 22% marginal bracket that means you are losing $32.3k + 60k*.075 = $4.5k which totals almost $37k in deductions or $8k in taxes at the marginal rate (depending on income this could straddle two brackets). Then (in the original post) you said take it out of a tIRA. Taking 60k out of a tIRA in this case would also add those taxes of around $13k. There could be state taxes too.

You have to take into account that if you don't use the HSA it could become taxable to an heir at ordinary rates. Of course, with the tIRA you can wind up in a similar situation though they have longer to withdraw it.

I'm sure there are scenarios where this will could come out ahead, but I think they are far and few between. Currently only 10% of taxpayers itemize.

I guess I got unlucky since I've seen this be useful not once but twice in different situations .

But note that you picked 60k here, and

1) 60k is more of a lower bound than upper if you are in a care facility. Think 8K plus for memory care as an example.
2) I mentioned 10k more of likely medical expenses that are easy to get (medicare premiums, drug costs etc). Now we are at 70k
3) I mentioned state and local taxes (surely 2 or 3k more, for us it would be SALT limit, 10k). Now 72 to 80k, less the 7.5%.

So ... I think it easy to come up with itemized deductions that are at least 30k or 40k more than the standard deduction, thus lowering taxable income by an additional 30 to 40k over the standard.

You would have to do some tax modeling, as I noted, but I think it likely that in this situation -- you can pull from from tIRA or HSA -- it will make sense to pull some/all of it from the tIRA.

And of course, the math is even more compelling with a single taxpayer (i.e. one spouse is gone) versus a couple.

One reason only 10% of taxpayers itemize is because most taxpayers don't have huge medical expenses to deduct. That seems a bit irrelevant; if you or your spouse is in a care facility and the reason meets IRS guidelines you do have huge medical expenses to deduct! And that does change things.

[michaeljc70]

Yes, but that standard deduction and 7.5% is lost. If your taxable income is $150k you are in the 22% marginal bracket that means you are losing $32.3k + 60k*.075 = $4.5k which totals almost $37k in deductions or $8k in taxes at the marginal rate (depending on income this could straddle two brackets). Then (in the original post) you said take it out of a tIRA. Taking 60k out of a tIRA in this case would also add those taxes of around $13k. There could be state taxes too.

You have to take into account that if you don't use the HSA it could become taxable to an heir at ordinary rates. Of course, with the tIRA you can wind up in a similar situation though they have longer to withdraw it.

I'm sure there are scenarios where this will could come out ahead, but I think they are far and few between. Currently only 10% of taxpayers itemize.

I guess I got unlucky since I've seen this be useful not once but twice in different situations .

But note that you picked 60k here, and

1) 60k is more of a lower bound than upper if you are in a care facility. Think 8K plus for memory care as an example.
2) I mentioned 10k more of likely medical expenses that are easy to get (medicare premiums, drug costs etc). Now we are at 70k
3) I mentioned state and local taxes (surely 2 or 3k more, for us it would be SALT limit, 10k). Now 72 to 80k, less the 7.5%.

So ... I think it easy to come up with itemized deductions that are at least 30k or 40k more than the standard deduction, thus lowering taxable income by an additional 30 to 40k over the standard.

You would have to do some tax modeling, as I noted, but I think it likely that in this situation -- you can pull from from tIRA or HSA -- it will make sense to pull some/all of it from the tIRA.

And of course, the math is even more compelling with a single taxpayer (i.e. one spouse is gone) versus a couple.

One reason only 10% of taxpayers itemize is because most taxpayers don't have huge medical expenses to deduct. That seems a bit irrelevant; if you or your spouse is in a care facility and the reason meets IRS guidelines you do have huge medical expenses to deduct! And that does change things.

The higher the costs are the more you have to take out of the tIRA. Therefore the more tax on that and the higher the 7.5% exemption becomes.

Another factor is if you aren't using an HSA when you are at the end of your ropes when are you going to use it?

In these cases you are saying they had substantial HSAs and chose to use a tIRA instead? What happened to their HSAs?

[tuningfork]

Like some others, I originally invested my HSA to let it grow and saved receipts for years. Later I decided I would rather spend down the HSA during my lifetime, so I cashed in the saved receipts for some tax-free income and began reimbursing myself for current year medical expenses. Now on Medicare, I'm spending about $5K to $8K per year from the HSA for Medicare premiums with IRMAA, varying each year as I figure out how to control my IRMAA bracket. Despite those annual withdrawals my HSA balance is at its all time high, at least until I make this year's withdrawal in December.

[AnEngineer]

The higher the costs are the more you have to take out of the tIRA. Therefore the more tax on that and the higher the 7.5% exemption becomes.

It's mostly the opposite. You're drawing more out of your tIRA, but you're deducting that same additional amount, so there's so extra tax. There's a fixed amount you have to clear, but once you decide to deduct, additional medical expenses are tax free out of the tIRA.

Oh, are you saying the 7.5% is based on the amount before itemizing including all withdrawals to cover the expenses? Is that how it works? If so, worst case 7.5% of additional withdrawals is taxable income, so a very small tax rate is possible, but not zero.

[TN_Boy]

I guess I got unlucky since I've seen this be useful not once but twice in different situations .

But note that you picked 60k here, and

1) 60k is more of a lower bound than upper if you are in a care facility. Think 8K plus for memory care as an example.
2) I mentioned 10k more of likely medical expenses that are easy to get (medicare premiums, drug costs etc). Now we are at 70k
3) I mentioned state and local taxes (surely 2 or 3k more, for us it would be SALT limit, 10k). Now 72 to 80k, less the 7.5%.

So ... I think it easy to come up with itemized deductions that are at least 30k or 40k more than the standard deduction, thus lowering taxable income by an additional 30 to 40k over the standard.

You would have to do some tax modeling, as I noted, but I think it likely that in this situation -- you can pull from from tIRA or HSA -- it will make sense to pull some/all of it from the tIRA.

And of course, the math is even more compelling with a single taxpayer (i.e. one spouse is gone) versus a couple.

One reason only 10% of taxpayers itemize is because most taxpayers don't have huge medical expenses to deduct. That seems a bit irrelevant; if you or your spouse is in a care facility and the reason meets IRS guidelines you do have huge medical expenses to deduct! And that does change things.

The higher the costs are the more you have to take out of the tIRA. Therefore the more tax on that and the higher the 7.5% exemption becomes.

Another factor is if you aren't using an HSA when you are at the end of your ropes when are you going to use it?

In these cases you are saying they had substantial HSAs and chose to use a tIRA instead? What happened to their HSAs?

In this case, there was no HSA, but there was lots of taxable income -- pension, SS, interest, dividends and some capital gains. And the very large medical deduction allowed easy zeroing of federal taxes.

People should model their exact situation, but there are a lot of little things to note:

1) The example numbers are for a married couple, so if you don't use the HSA, it could be for the spouse
2) However, since HSAs are probably the worst thing for non-spouses to inherit, if you care about your heirs tax situation (I wouldn't let this be a big deal myself) you'd want to spend that HSA a little earlier in retirement anyway to burn it down.
3) The median age to go into LTC care is something like 80; I'd think few people would have a big enough HSA at that point in life to pay for lots of LTC, so this would often be a moot point, especially if they were thinking about 2).

If I get a chance, I'll do some sample tax returns, but I can't get to that right now. But I really think that one can find a good use for 80k (or more) of medical deductions; I was certainly able to, as POA.. And, it wasn't JUST the large medical deduction for LTC. Once you can itemize and are past that 7.5% limit, there are lots of other medical costs you can usually throw in, along with house property taxes, state and local taxes, charitable contributions; it is easy to get way over that MFJ standard deduction.

[michaeljc70]

The higher the costs are the more you have to take out of the tIRA. Therefore the more tax on that and the higher the 7.5% exemption becomes.

Another factor is if you aren't using an HSA when you are at the end of your ropes when are you going to use it?

In these cases you are saying they had substantial HSAs and chose to use a tIRA instead? What happened to their HSAs?

In this case, there was no HSA, but there was lots of taxable income -- pension, SS, interest, dividends and some capital gains. And the very large medical deduction allowed easy zeroing of federal taxes.

People should model their exact situation, but there are a lot of little things to note:

1) The example numbers are for a married couple, so if you don't use the HSA, it could be for the spouse
2) However, since HSAs are probably the worst thing for non-spouses to inherit, if you care about your heirs tax situation (I wouldn't let this be a big deal myself) you'd want to spend that HSA a little earlier in retirement anyway to burn it down.
3) The median age to go into LTC care is something like 80; I'd think few people would have a big enough HSA at that point in life to pay for lots of LTC, so this would often be a moot point, especially if they were thinking about 2).

If I get a chance, I'll do some sample tax returns, but I can't get to that right now. But I really think that one can find a good use for 80k (or more) of medical deductions; I was certainly able to, as POA.. And, it wasn't JUST the large medical deduction for LTC. Once you can itemize and are past that 7.5% limit, there are lots of other medical costs you can usually throw in, along with house property taxes, state and local taxes, charitable contributions; it is easy to get way over that MFJ standard deduction.

The whole topic is about HSAs and using them. So we weren't even talking about the same thing....

[TN_Boy]

The whole topic is about HSAs and using them. So we weren't even talking about the same thing....

The point is that using tIRA to pay versus HSA may work because of a huge medical deduction.

And the key part of that point is that LTC costs can easily result in potentially large medical costs, which can be used to create itemized deduction amounts far in excess of the standard deduction, and from some of the posts in this thread it wasn't clear to me that everybody realized how big that deduction can be.

And very large itemized deductions can make using a taxable source like tIRA (versus HSA) quite useful, since the deduction can offset the income.

[livesoft]

Was simplicity part of your goal, or did you decide that with a large HSA (you have a lot bigger one than I), no point in letting it just sit there?

We don't really have any other medical expenses other than Medicare premiums and did not want to save receipts. We do not pay for 100% of our annual Medicare premiums, but only up to about 3% to 4% of the HSA value each year for each of our HSAs. So I guess are reasons are both Simplicity and no point in letting it just sit there.

[TN_Boy]

Was simplicity part of your goal, or did you decide that with a large HSA (you have a lot bigger one than I), no point in letting it just sit there?

We don't really have any other medical expenses other than Medicare premiums and did not want to save receipts. We do not pay for 100% of our annual Medicare premiums, but only up to about 3% to 4% of the HSA value each year for each of our HSAs. So I guess are reasons are both Simplicity and no point in letting it just sit there.

Now I have to wonder why you aren't using the HSA to pay all the medicare premiums each year ... which is likely what I will do. Did you do tax modeling and decide that 3 to 4% was optimal?

The "problem" I have is that if an HSA is only about 25 or 30k, then there isn't a scenario I can see where using it is going to change our tax status enough to make much of a difference in my life.

And it's the worst thing for a non-spouse to inherit (though this is not a big issue for us ... because it isn't that big). Thus I I'll probably burn it up and slightly lower our taxes over the next small number of years.

[livesoft]

Now I have to wonder why you aren't using the HSA to pay all the medicare premiums each year ... which is likely what I will do. Did you do tax modeling and decide that 3 to 4% was optimal?

I guess I am using the HSA as a separate mini-retirement portfolio to sort of test whether a 4% withdrawal rate can be a sustained withdrawal rate. I haven't spent much time thinking about this other than I do not want the separate mini-retirement portfolio to go to zero within the next 30 years.

Anyways I did no tax modelling.

[ChrisC]

We began our HSAs in 2008, when HDHPs with HSAs became available health insurance plans in FEHB with a Government contribution to my HSA. My wife, only entitled to a catch-up contribution, ended her HSA contributions in 2016 when she went onto Medicare Part A and B. I ended my HSA contributions in 2018 when I went onto Medicare Part A. We've kept a lot of medical receipts since we started our HSAs. And started reimbursing ourselves in 2019 for past medical eligible expenses and at that time started paying our LTCi premiums going forward. We've had over $175K in eligible medical expenses since 2008 -- stuff adds up after you've had 3 knee surgeries; hernia surgery; multiple dental implants and other dental treatment; LTCi, health insurance and Medicare premiums (at high IRMAA rates); and other major medical treatments. Nonetheless, we've reimbursed or paid from the HSAs around $100K. And still have a remaining balance of $120K in our HSAs. We have been strategically reimbursing ourselves around $15-17K a year, which is just about the amount we fund our grandkids 529s that we own for their benefit.

We have LTCi which would cover LTC for us for 5 years. We initially thought that any gap/shortfall in LTC coverage would be made up from HSAs. It doesn't look like that will happen for us since the burn rate for other medical expenses has been very high and in 5 years, if we reimbursed or paid for all of our medical expenses, our HSAs will likely be completely exhausted at ages 76 and 78 -- a bull or bear market would lengthen or shorten that period -- but our goal is to exhaust the HSAs before we hit 80 and be done with medical receipts and reimbursements.

[Bmac]

For those with Fidelity HSAs that have been using funds for qualified medical expenses, what method are you using primarily? Debit card, bill pay or reimbursement? It seems like the debit card would be the easiest, but I have not every used any of the funds in our account. Also, is it necessary to liquidate invested assets to cash before using to pay expenses?

[papiper]

I move some HSA invested funds to cash and then transfer the cash to my checking account.

[ChrisC]

I billpay my LTCi premiums (pulled by the insurer/admin) and reimburse myself for eligible medical expenses by direct deposit into my checking account. I did this for each of the HSA custodians I've had where I started payments from my HSA (Wells Fargo HSA, Optum Bank HSA, and now Fidelity HSA). In each case, I liquidate enough investment funds to place in the cash/money market account to make the payments and reimbursements. Fidelity is better than the other custodians we've had for the HSAs, since the core position/money market account (FDRXX) in our HSAs draw decent interest rates.

[MoneyOCD]

We never took anything out but I would be rather reimbursing myself than using debit card.

Debit card sure is convenient but you can unknowingly take more money by using it out than suppose to.

For example when doctor asks to prepay some procedures and later insurance will determine that you overpaid. It is very complicated to return money back to HSA and if not returned - you will to claim that extra amount as non-qualified withdraw, pay taxes and possibly penalties.

[walkindude]

Plan G-HD premiums tend to go up just $2 or $3 a month each year, it is a healthy pool and the annual increase in the maximum out-of-pocket helps to keep premiums low.

First off, thanks for all of your well-informed and accurate posts on the Medicare subject.

Unfortunately for me, the above was not the case at my first age 66 Physicians Mutual G-HD premium adjustment in MD. MIne went from 73.94 to 85.44, which is a 15.6% increase. It is also issue-age so it's not that I'm older. I was surprised/disappointed in this, but hopefully it stays calmer in the future.

I still agree with your point about G-HD and larger HSA balances being a good pairing (that's one reason I chose G-HD). But people's mileage may vary on premium increases.

Take care and thanks again for your contributions!

[walkindude]

For those with Fidelity HSAs that have been using funds for qualified medical expenses, what method are you using primarily? Debit card, bill pay or reimbursement? It seems like the debit card would be the easiest, but I have not every used any of the funds in our account. Also, is it necessary to liquidate invested assets to cash before using to pay expenses?

I don't even have a Fidelity debit card. I charge all the medical expenses I have to get at least 2.625% cash back and then reimburse myself toward the end of the year for the past year's expenses by doing an electronic transfer to my checking account. Slightly harder than the debit card, but I get the cashback for using the credit card.

[ModifiedDuration]

Plan G-HD premiums tend to go up just $2 or $3 a month each year, it is a healthy pool and the annual increase in the maximum out-of-pocket helps to keep premiums low.

First off, thanks for all of your well-informed and accurate posts on the Medicare subject.

Unfortunately for me, the above was not the case at my first age 66 Physicians Mutual G-HD premium adjustment in MD. MIne went from 73.94 to 85.44, which is a 15.6% increase. It is also issue-age so it's not that I'm older. I was surprised/disappointed in this, but hopefully it stays calmer in the future.

I still agree with your point about G-HD and larger HSA balances being a good pairing (that's one reason I chose G-HD). But people's mileage may vary on premium increases.

Take care and thanks again for your contributions!

Thank you for the kind words.

Your premium increase with Physicians Mutual is very surprising.

Have you considered looking at the premiums of other insurers, if you think you can pass underwriting or if you live in a state with more lenient rules?

I would recommend taking a look at United American. They are known for low, stable premiums with their Plan G-HD plans.

In some states, the parent company, Globe Life, offers very attractive rates.

I have United American and my monthly premium actually does go up only $2 or $3 each year.

[walkindude]

First off, thanks for all of your well-informed and accurate posts on the Medicare subject.

Unfortunately for me, the above was not the case at my first age 66 Physicians Mutual G-HD premium adjustment in MD. MIne went from 73.94 to 85.44, which is a 15.6% increase. It is also issue-age so it's not that I'm older. I was surprised/disappointed in this, but hopefully it stays calmer in the future.

I still agree with your point about G-HD and larger HSA balances being a good pairing (that's one reason I chose G-HD). But people's mileage may vary on premium increases.

Take care and thanks again for your contributions!

Thank you for the kind words.

Your premium increase with Physicians Mutual is very surprising.

Have you considered looking at the premiums of other insurers, if you think you can pass underwriting or if you live in a state with more lenient rules?

I would recommend taking a look at United American. They are known for low, stable premiums with their Plan G-HD plans.

In some states, the parent company, Globe Life, offers very attractive rates.

It is the insurer I have and my monthly premium actually does go up only $2 or $3 each year.

Good input again. Wisely or unwisely, I decided I wanted issue-age rating and Physicians Mutual was the only choice when I signed up. Now there's a Physicians Life available as well, but it's $96/month. We'll see where it all goes; you pay your money and you take your chances!

[bh-theweb]

A number of folks in this thread are focused on spending down the HSA because it is relatively bad for a non-spouse to inherit.

I just wanted to chime in that your executor can still reimburse the estate tax-free from the HSA for any qualified medical expenses there are receipts for. So there is no estate planning need to give up on the tax free growth in the HSA to pay for medicare premiums as long as you keep that receipt. There isn't an advantage to driving the HSA balance to $0 before you die vs after. The important part is having more receipts than you do in HSA assets, but the balance of the account can then be thought of as any other routine estate asset. (not as nice as a roth IRA, but the same as a savings account)..

[flyingcows]

We are near retirement age (50s--60s years old) and have 70k in a HSA. What is/was your exit strategy for your HSA? How much do you spend in a year that you can expense? We have not been saving receipts.

Why not start saving receipts? You would need to do that once you start spending from it anyway, since IRS could potentially ask for evidence years (within SOL) after you withdraw from the HSA...might as well get comfortable with a system for doing so now

I use a Google sheet and upload Digital copies of receipts, invoices, and EOB documents. The spreadsheet helps keep things organized and it's nice to see a running total of what I could withdraw from the HSA at anytime, currently I could withdraw 22k from the HSA based on the last 7 years of expenses I've been tracking

[Hillview]

good push and I will start. Thanks also for the method it will work well with how I manage things already!

[NYHawkeye]

I use a Google sheet and upload Digital copies of receipts, invoices, and EOB documents. The spreadsheet helps keep things organized and it's nice to see a running total of what I could withdraw from the HSA at anytime, currently I could withdraw 22k from the HSA based on the last 7 years of expenses I've been tracking

Some HSA providers have good systems for uploading and keeping all of the documentation and maybe even link directly with your insurance company to automatically pull over EOBs. Just need to make sure you can access everything if you ever switch to a new HSA provider.

[ChrisC]

A number of folks in this thread are focused on spending down the HSA because it is relatively bad for a non-spouse to inherit.

I just wanted to chime in that your executor can still reimburse the estate tax-free from the HSA for any qualified medical expenses there are receipts for. So there is no estate planning need to give up on the tax free growth in the HSA to pay for medicare premiums as long as you keep that receipt. There isn't an advantage to driving the HSA balance to $0 before you die vs after. The important part is having more receipts than you do in HSA assets, but the balance of the account can then be thought of as any other routine estate asset. (not as nice as a roth IRA, but the same as a savings account)..

So, how does this work for a non-spouse beneficiary, including the estate if a beneficiary is not named? Isn't there a 1 year clock on reimbursing expenses from the HSA after death of the account holder? The non-spouse beneficiary, say the executor of the estate, pays itself from the HSA for medical expenses previously incurred by the deceased account holder or his dependents -- those reimbursements go into the estate and then are distributed to beneficiaries of the estate, and the distributions aren't income to the estate or the beneficiaries -- is that how it works?

Then, what about HSA surplus funds that can't be matched to prior eligible medical expenses of the deceased account holder or his dependents; say these funds are in 6 figures -- the estate or the non-spouse beneficiary then has to liquidate the HSA (presumably after the 1 year clock has ended for reimbursement of medical expenses incurred by the deceased account holder or anyone that was an eligible dependent on his HSA) and those liquidated funds are treated as ordinary income to the estate or other non-spouse beneficiary?

You make it sound very easy for the estate or non-spouse beneficiary to handle HSA accounts upon the death of the account holder. But this places a premium on (1) good recordkeeping; (2) recordkeeping that the estate or non-spouse beneficiary could easily wrap their arms around; (3) having more "receipts than you do in HSA assets," which is very unlikely if you've had an HSA for 30 years, enjoyed a few bull markets, and have had minimal medical expenses, for whatever reasons; and (4) reimbursement does not trip an IRS review or audit -- I can imagine if the estate reimburses medical expenses of $250K this might trip an audit.

In my case, I'll likely have more receipts than HSA assets but that's mainly because I've only had 10 years to fund and grow our HSAs, and have had major medical expenses (including high IRMAA Medicare premiums) over those 10 years. If I can reimburse myself for past medical expenses while I'm living, tell my why it would be in my family's interest to let everything ride so I can squeeze some more dollars out of the HSA and punt the ball to my spouse (indifferent to our HSAs) or a non-spouse beneficiary to scramble around for medical expense reimbursements?