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HSA and ROTH IRA
Old 03-14-2018, 03:58 PM   #1
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HSA and ROTH IRA

New to this forum and wanted opinions on investing HSA distribution money to ROTH IRA. I'm currently maxing out on 401k and HSA. I haven't used any of my HSA money for medical expenses, just investing it. I was thinking of reimbursing myself for qualified medical expenses and taking that money and putting it into a Roth IRA. I am currently 55 and have over 2 mil in 401k and Reg IRA's and plan on working maybe another 3-4 years. So also looking to have some non-taxable money to pull from later on. My thought is that this is away of getting pre-tax money into a Roth IRA, so that when I go to use it years from now, I won't be restricted to just using for medical purposes and also won't have to pay tax when I take withdrawals. I most likely will have more money in my HSA than I will have qualified expenses (at least hope so) so any money I don't pull out for that would stay in the HSA. Am I missing anything with my logic that this would be a good way of having pre-tax money and not being taxed on it later on? I know I could just invest straight into a ROTH, but that would mean either investing more money than I am now or doing it after tax. Thanks in advance for any input
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Old 03-14-2018, 05:00 PM   #2
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I have an HSA that I don't take withdraws to cover present expenses, but want to let it grow. After 65 you can use it for medical (or old bills too), paying for medicare (sans advantage plans). And it can be used for LTC. You can invest your HSA.

For me, I save the receipts so I can pull $ later. Also after 65 you can pull it for anything and pay the tax, but not penalty
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Old 03-14-2018, 05:21 PM   #3
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Originally Posted by bingybear View Post
After 65 you can use it for medical (or old bills too), paying for medicare (sans advantage plans). And it can be used for LTC.
HSA can be used for Medicare Advantage, Part B, and Part D premiums. It can not be used for Medicare Supplement (Medigap) premiums. The HSA can be used for Medigap cost sharing such as the Part B deductible not covered by Medigap Plan G.
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Old 03-14-2018, 05:25 PM   #4
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Note that you cannot move money directly from an HSA to a Roth IRA. Instead the money comes out of the HSA then can be contributed to a Roth IRA, assuming you qualify.
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Old 03-14-2018, 05:37 PM   #5
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I understand you can't move it directly from HSA to Roth, but if you have qualified medical expenses you can reimburse yourself from that and then decide to move to ROTH IRA (if you qualify). It just seemed to me to move it to a ROTH would provide more options without having to pay a tax no matter what you used it for. I also wouldn't have to keep all the receipts or scanned images for 20-30 years. I would probably still need them for 7 years from when I claim the disbursements.
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Old 03-14-2018, 06:19 PM   #6
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Sounds like a reasonable plan although it wouldn't work for many of us that are already retired and don't have the 'earned' income needed to contribute to a ROTH. There is the 5 year withdrawal rule for taking money out of a ROTH that you should educate yourself on.

You also seem to have a lot of your savings in tax deferred accounts (401k, IRA). You may want to look at ROTH conversions and see if they make sense for your situation. There are quite a few threads on this forum on that topic.
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Old 03-14-2018, 08:55 PM   #7
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I don't understand how you are getting any advantage, at least not how you've explained it. You say you want it in a Roth 401K so you can withdraw it for any reason, not just medical. But to get it from the HSA to the Roth 401K you had to use medical bills to withdraw from the HSA. You could just as easily wait and later withdraw from that HSA using those same medical bills that you didn't use earlier.

I guess there's no disadvantage either, but if I was eligible for a Roth 401K I'd rather fund it with other money, so that I could later withdraw for any reason from that Roth 401K tax free, and also have the HSA to withdraw from using any qualified medical expenses I'd incurred since opening the HSA, and that I had used on Schedule A. More money growing tax free instead of moving some from one account to another.
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Old 03-15-2018, 11:53 AM   #8
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I agree with RB...Except for eliminating the long-term paperwork complexity, I don't see an advantage.

Let's say you keep a spreadsheet with all of your medical expenses, and you toss the paperwork into a shoe box. Unless you get audited, all you need is the spreadsheet, which is a list with four columns: date, description, expense amount, cumulative expense amount. In the unlikely event you get audited, you walk in with a printout of your spreadsheet and your shoe box.

All that being said, I'll certainly pull from the HSA before pulling from the Roth, as long as I have "room" based on historical medical spending. Once established, the tax advantage of both are identical, but utilizing the HSA money, with the restriction, leaves more flexibility in the future.
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Old 03-15-2018, 03:28 PM   #9
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Personally I have made sure that I have enough free cash flow each year, there is Earned Income and I qualify, to fully fund the IRA, the HSA and the 401k to the max each year.

With your level of Net Worth, why wouldn't you just do that?

Also note that under current law, you can always take the HSA distributions, tax free, for qualified medical expenses incurred in prior years. Just be sure to save your receipts and have a good long term record keeping and accounting system.

-gauss
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Old 03-15-2018, 06:05 PM   #10
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We're using HSA accounts as additional Roth accounts. Add taxable money to the Roth IRA and leave the HSA as is (continue contributions if eligible) to maximize Roth accounts.

As far as withdrawals, yes the HSA is somewhat restricted. When we're ready to start withdrawing from our Roth accounts we will start with the HSA's, using saved old receipts and any current expenses that qualify. Given we should have about 10 years of receipts, the HSA's may empty fairly quickly then.
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