HSA account

[Elbata]

I read about HSA accounts, but it seems more hassle than what it's worth.

If anyone is using HSA, could you please extol its benefits? Thank you.

 

[REWahoo]

Click here: Let me google that for you

 

[MichaelB]

A few threads with HSA in the title http://www.early-retirement.org/forums/search.php?searchid=3098911

 

[NW-Bound]

Back quite a few years ago when we were cutting the umbilical cord with our megacorps and had to buy our own HI, we found that the lowest premium was with a policy with a high deductible of $10K/yr and an HSA account. The two went together (mandated by law or the IRS).

The above worked for us, because we were healthy and used no healthcare other than the annual physical exams. The HSA also helped reduce tax obligations as I still had significant earned income.

Now, our situation has changed, and I will need to re-evaluate.

 

[pb4uski]

I view my HSA as yet another opportunity to save money, get a deduction and have the earnings be tax free similar to a Roth IRA except there are no earnings restrictions and I need to spend the money on health care expenses.

If for some reason my AGI or TI is higher than I want I can make a HSA contribution and lower it or vice versa (get a return of a mistaken contribution to increase my AGI or TI).

I keep a running tally of my health care expenses since I have had my HSA and can withdraw that amount tomorrow if I need to and use it for other things. In my view the HSA is a great benefit that everyone should utilize, particularly if your have maxed out your Roth.

 

[47]

If you are reasonably sure that you would hardly use the medical services then you could save a chunk on premium.

But the real cool part of HSA is that it reduces your AGI directly in 1040 line 38.

Yes it works like a tax deduction, but this could be more valuable than a deduction. Most of the phaseouts are based on your AGI, and keeping your AGI low could help you harvest other benefits.

Think of it this way; (> stands for Better than)

Refundable Tax credit > Tax credit > Reduction in AGI > Tax deduction

 

[travelover]

I view my HSA as yet another opportunity to save money, get a deduction and have the earnings be tax free similar to a Roth IRA except there are no earnings restrictions and I need to spend the money on health care expenses.........

+1. DW and I have separate high deductible health plans, so we get to take $4250 each off our taxable incomes (currently 25% bracket). Once we hit Medicare age, we'll just use the accumulated and invested money for Medicare premiums. And we will never pay taxes on that money.

 

[Mulligan]

Whether it is of great benefit to you will obviously depend on your own situation, but for me as an early retiree who is has no healthcare expenditures, it is a nice little deduction. I am locked into the 25% tax bracket because of pension, plus I avoid 6% state income tax on the contributions, too. While my HSA is building up as a fund for "future healthcare costs", I doubt I use it that way. I love the triple tax break features of an HSA and will hold in the account until at least Medicare time way down the road, and use it to pay for my premiums then. If I am very fortunate and don't have much of it being consumed by that, I may eventually access it by pulling out my then yellowed receipts for dental care and other incidentals I have paid cash for over the years to withdraw it tax free then.

 

[NW-Bound]

... I may eventually access it by pulling out my then yellowed receipts for dental care and other incidentals I have paid cash for over the years to withdraw it tax free then.

I did not know that one could draw against HSA for past expenses.

I thought it had to be for current year's expenses. Oh, all the things I have learned from this forum.

 

[MichaelB]

I did not know that one could draw against HSA for past expenses.

I thought it had to be for current year's expenses. Oh, all the things I have learned from this forum.

As long as the HSA account was opened before the expenses were incurred.

Whether it is of great benefit to you will obviously depend on your own situation, but for me as an early retiree who is has no healthcare expenditures, it is a nice little deduction..

+1

Also a nice accumulation of tax free investment earnings.

 

[Mulligan]

I did not know that one could draw against HSA for past expenses.

I thought it had to be for current year's expenses. Oh, all the things I have learned from this forum.

Don't feel bad, NW where do you think I came up with the info!

 

[REWahoo]

As long as the HSA account was opened before the expenses were incurred.

What if you'd already deducted them as medical expenses on your tax return? That would be double-dipping.

 

[RunningBum]

I keep a shoe box of all medical receipts since I opened the HSA. On the front page of each I add a code with red marker of year-##, like 2013-01 for the first receipt of the year, 2013-02 for the second, etc.

I also record each expense including the code in a spreadsheet. This makes it easy to keep track of my expenses, know whether I've got each recorded, and to know that I have a receipt for each recorded expense.

For mileage I just record the destination/purpose and miles along with the rate for that year. I've just realized I should correlate those with the receipts, like maybe 2013-01m, but since I put the name and the date I don't think it'll be that hard. Plus, I have some mileage for things fully covered, like dental checkups, so there is no receipt to go with it.

When I start taking money out, I'll record that on the spreadsheet as well, but I'm letting it grow tax free for now.

I doubt I'll get audited but it's good to know I've got the records to back up withdrawals when I need them. Otherwise, I could be taxed for taking non-medical withdrawals.

It's a bit of work but not that much if you keep things organized. Considering the original tax credit, tax-free growth, and tax-free withdrawals for allowable medical expenses, and it adds up very nicely.

 

[RunningBum]

What if you'd already deducted them as medical expenses on your tax return? That would be double-dipping.

The instructions for form 8889 prevent the double dipping.

You cannot take a deduction on
Schedule A (Form 1040) for
any amount you include on
line 15

Since when I take my distributions my taxes for the year of the expense will have been long since filed, I read this the inverse way, that I can't include on line 15 (Unreimbursed qualified medical expenses) any thing that has been deducted on Schedule A.

 

[pb4uski]

As I understand it, you can't double dip so you have to make a choice to either deduct and forgo the HSA or forgo the deduction and preserve the ability to withdraw those expenses from your HSA later.

For me it is easy since my deductions are less than the exclusion amount.

 

[easysurfer]

I keep a shoe box of all medical receipts since I opened the HSA. On the front page of each I add a code with red marker of year-##, like 2013-01 for the first receipt of the year, 2013-02 for the second, etc.

I also record each expense including the code in a spreadsheet. This makes it easy to keep track of my expenses, know whether I've got each recorded, and to know that I have a receipt for each recorded expense.

For mileage I just record the destination/purpose and miles along with the rate for that year. I've just realized I should correlate those with the receipts, like maybe 2013-01m, but since I put the name and the date I don't think it'll be that hard. Plus, I have some mileage for things fully covered, like dental checkups, so there is no receipt to go with it.

When I start taking money out, I'll record that on the spreadsheet as well, but I'm letting it grow tax free for now.

I doubt I'll get audited but it's good to know I've got the records to back up withdrawals when I need them. Otherwise, I could be taxed for taking non-medical withdrawals.

It's a bit of work but not that much if you keep things organized. Considering the original tax credit, tax-free growth, and tax-free withdrawals for allowable medical expenses, and it adds up very nicely.

My method is similar to what you have in that I use both a spreadsheet and keep all the receipts (not in a shoe box but folder). I do reimburse myself each year for qualified expenses of the prior year, so have one folder for what was reimbursed and one for those not yet reimbursed. On the spreadsheet, I create my own Reference Number column and write that on the receipt so I can match up the receipts to the spreadsheet entries.

I think the key to using a HSA is to have a system to keep track just in case of audit. Also, to decide if you want to reimburse yourself or let the money grow.

With a little preparation, I really like my HSA and expect that to be the bridge until reaching Medicare age.

 

[pb4uski]

I have kept printouts of my HI claim info for each year since starting my HSA that shows our deductibles and copays. We don't have an regular prescriptions to deal with. I'm trying to keep things simple and not sweat the small stuff.

 

[JoeWras]

And, if all else fails, and you are of age (65), you can use your HSA like an IRA and take it out in a taxable manner.

I have had an HSA for a few years now and love it. Since I'm still w*rking and am in a high tax bracket, the tax break alone is significant. For the first year, I was using it for medical expenses but have since stopped that and am instead just letting it grow in stock fund.

It is not a hassle at all. Even in the year I used it for distributions, I just threw all my receipts and EOBs in with my tax form in the case of audit.

I expect I'll try to save it for Medicare expenses which should be very straightforward to account for with the IRS -- if they ask.

One more thing: HSA does not equal FSA. My Megacorp's and many others' FSA are a total pain in the butt. With an HSA it is up to you and IRS. There is no crazy faxing of receipts or any such other nonsense that most FSAs have. And of course you keep the money at the end of the year. A lot of people assume an HSA is just like an FSA. Not so.

 

[ChrisC]

I started paying my LTCi premium from my HSA this year right after I retired; previously, it was deducted from pay. Other than the LTCi premiums this year, I've paid all other medical expenses outside of the HSA and let the account grow. I've kept hard copies of medical expenses since I went into the HDHP/HSA in 2008 as well
as an spreadsheet of these expenses. My plan custodian, JP Chase, made it easy to track expenses with software, and distributions, which I have not taken from the HSA, appear effortlessly. Also, the investment choices for HSA funds are decent with Chase.

I plan to use my HSA for all my medical expenses not covered by Medicare or insurance when I reach 65 barring some health disaster not covered by all my committed health plan funds. We have a sizeable nest egg in our HSAs .

 

[walkinwood]

Would someone who has an HSA with vanguard comment on the convenience in terms of paying for service from the account?

 

[pb4uski]

Would someone who has an HSA with vanguard comment on the convenience in terms of paying for service from the account?

Easy. The just redeem some fractional shares to pay the fee IIRC.

 

[kaneohe]

I read about HSA accounts, but it seems more hassle than what it's worth.

If anyone is using HSA, could you please extol its benefits? Thank you.

Name one other plan that has the triple threat of contribution deductible, earnings tax deferred, and withdrawals tax free.

 

[Katsmeow]

Name one other plan that has the triple threat of contribution deductible, earnings tax deferred, and withdrawals tax free.

We have had an HSA policy for the past couple of years because it is way cheaper than the other option we had.

That said - I don't use the HSA part of it. The reason is that we max out our family out of pocket each year (mostly due to some meds our kids take). HSA accounts always seemed more advantageous to me for people who weren't going to be using the money in the HSA for years. In our case we are already withdrawing from DH's IRA (he is retired for 3 years now) so contributing to an HSA would mean withdrawing more money from the IRA and paying taxes on it just so we could then put it in the HSA.

 

[NW-Bound]

Name one other plan that has the triple threat of contribution deductible, earnings tax deferred, and withdrawals tax free.

Not to be picky, but you meant treat, right?

I was thrown into confusion for a few seconds there.

PS. I did have a typo myself in the above short post, but fixed it up quickly. However, I am sure some readers caught it before I saw it.

 

[47]

We have had an HSA policy for the past couple of years because it is way cheaper than the other option we had.

That said - I don't use the HSA part of it. The reason is that we max out our family out of pocket each year (mostly due to some meds our kids take). HSA accounts always seemed more advantageous to me for people who weren't going to be using the money in the HSA for years. In our case we are already withdrawing from DH's IRA (he is retired for 3 years now) so contributing to an HSA would mean withdrawing more money from the IRA and paying taxes on it just so we could then put it in the HSA.

Couldn't you just put the money in HSA, turn around and take it out immediately and use it for medical expenses? You would get to take that HSA amount off of your income resulting in a reduction in AGI.

Even if you are using IRA money, it still would benefit you. In effect you would be withdrawing money from your IRA and not pay any taxes on it.

Am I missing something?