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HSA in Retirement
Old 12-15-2019, 08:56 PM   #1
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HSA in Retirement

Is there any reason that I should not fund an HSA in Retirement? I have a Retiree Medical Plan that is a High Deductible Plan which qualifies for HSA's and includes a small ($400) Employer Paid contribution. My wife and I are also 7 years away from Medicare. We expect to have several thousand dollars for medical, dental, vision and hearing each year and think it would make sense to, at a minimum, fund the HSA up to this amount but I want to make sure I am not missing something. Thanks.
Rob
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Old 12-15-2019, 09:03 PM   #2
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Max it out. The tax benefit isn't quite as big in retirement since you're probably in a lower tax bracket, but it still makes sense to use it fully if you have a qualifying plan. Many of us pay our medical bills out of pocket and track the receipts to use later, perhaps much later while letting the money grow tax free in the HSA. But even if you use it for current year expenses it's a good deal.
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Old 12-15-2019, 10:17 PM   #3
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+1 Think of it as a Roth since the benefits are tax-free as long as they are used for qualified medical expenses.
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Old 12-16-2019, 08:23 AM   #4
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Thank You so much for the responses. I was hoping that I wasn't missing something and am glad to have confirmation.
Rob
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Old 12-16-2019, 08:47 AM   #5
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I also think it is a good idea to open/fund HSA accounts. I found out that you can't have HSA once Medicare starts. Also, California state tax treats HSA accounts as taxable so I am careful with the investments within HSA accounts and track all my contribution amounts and cost bases.
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Old 12-16-2019, 09:01 AM   #6
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We opened HSA accounts during retirement as we ended up getting insurance that made us eligible. We’ve used them as tax-free savings for covering Medicare Part D and Part B premiums. Once we each start Medicare (DH starts next year) contributions stop, and payments begin, and our monthly cash flow opens up substantially. This is particularly useful as we both plan to delay SS until 70, so we won’t have SS paying for Medicare premiums until 70.
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Old 12-16-2019, 10:27 AM   #7
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+1 Think of it as a Roth since the benefits are tax-free as long as they are used for qualified medical expenses.

Actually it's better than a Roth because the contributions are deductible and money taken out for medical expenses is tax-free. Kind of like the best parts of an IRA and Roth.
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Old 12-16-2019, 10:38 AM   #8
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For those with HSA-eligible ACA plans, the HSA contribution is a great way to lower income for subsidy purposes.
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Old 12-16-2019, 02:35 PM   #9
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We did HSA-eligible ACA plans and maxed out our HSA accounts. Works great in retirement.

We treat the HSA like a Roth account. We don't use it for current medical spending, but instead let it grow tax-free as long as possible. We save our eligible medical expense receipts for the future, when it's time for us to start making Roth withdrawals. At that time the HSA will be drained first, as long as the receipts allow, since it is more restrictive than Roth withdrawals.
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Old 12-16-2019, 02:42 PM   #10
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I maxed out a Retiree HSA account, and it paid my health insurance premiums from 58 1/2 until 2 months short of Medicare. I was able to purchase MegaCorp's relatively low cost insurance thru those years with the funds.
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Old 12-16-2019, 08:30 PM   #11
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Unlike IRAs, there is no earned income requirement on HSAs. So you can max it out even with retirement income, as long as you have a qualifying HDHP and are under 65.
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HSA in Retirement
Old 12-16-2019, 09:52 PM   #12
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HSA in Retirement

Quote:
Originally Posted by Bogie View Post
Actually it's better than a Roth because the contributions are deductible and money taken out for medical expenses is tax-free. Kind of like the best parts of an IRA and Roth.


Yes, the triple tax free benefit is unmatched. Money is fungible, so I am not funding my HSA for health benefits, I fund it to avoid taxes and invest the money inside a brokerage account. I keep the health cost receipts and save them for the eventual tax free withdrawal...If I dont drain it first down the road from Medicare premiums or “The Home”.
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Old 12-16-2019, 10:14 PM   #13
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Just be careful about waiting too long to cash in. Your spouse can still use it as an HSA, but a non-spouse who inherits it will be taxed on it that year.

https://www.irs.gov/publications/p96...link1000204096

Quote:
Death of HSA Holder

You should choose a beneficiary when you set up your HSA. What happens to that HSA when you die depends on whom you designate as the beneficiary.
Spouse is the designated beneficiary.
If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA after your death.

Spouse isn’t the designated beneficiary.
If your spouse isn’t the designated beneficiary of your HSA:
  • The account stops being an HSA, and
  • The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die.

If your estate is the beneficiary, the value is included on your final income tax return.



The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death.
I'm unsure about that last paragraph, whether they can use old receipts to reduce/eliminate the amount taxable, or if it has to be current medical expenses which you were billed for but not yet paid. I suspect only the latter.
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Old 12-16-2019, 10:46 PM   #14
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We decided long ago that the easiest use documentation-wise would be to bridge the gap in Medicare premiums we pay between starting Medicare at 65 and SS at 70 for each of us. Once we start SS, the Part B and any IRMAA will be taken directly from our SS checks. From my calculations, most of it will probably be used up once I'm 70, and any remaining can be used up on eyewear, dentistry, and Part D.

So we don't plan to hold and invest after Medicare eligibility.
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Old 12-17-2019, 06:45 AM   #15
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For those with HSA-eligible ACA plans, the HSA contribution is a great way to lower income for subsidy purposes.


Good point. We’re close to the cliff and going on ACA at the end of next year. Funding HSA I already have through my former work and some 4 years of business losses when we replant the entire family orchard next year couldn’t come at a better time. Hopefully the ACA or better will still be around.
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Old 12-17-2019, 08:05 AM   #16
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Just be careful about waiting too long to cash in.
We built ours up for a number of years and have it invested in the S&P500. Since that has done so well (it's currently around $80K), we're starting to pay our small out of pocket expenses with it. We still have the receipts from the early years to allow us to tap it in a big way if we every want to.

I'm still funding it for a few more years, but DW can't any more.

We figure it's there to be spent eventually.
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Old 12-17-2019, 05:34 PM   #17
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Move the HSA slider to the max, which let's you ease the Roth conversion slider a bit higher.
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