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Old 03-08-2013, 08:42 PM   #21
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I thought you had to have earned income to contribute to a HSA? How does that square RE, or am I just wrong?
On the opposite end of the spectrum, another reason why it's the best deal around is that there is also no income AGI-based phase-out/limit to take the HSA deduction!
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Old 03-09-2013, 02:28 AM   #22
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Originally Posted by REWahoo View Post
Tax-free savings account. Not taxed going in, no tax on gains, not taxed when withdrawn = one of the best deals around.
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Originally Posted by wallygator69 View Post
I am treating it as another tax deductible IRA. After age 65 you can use the money for anything and there is no penalty. ANy distribution is taxed as ordinary income.
So which is it? I would think not taxed when withdrawn would only apply to using it for qualified medical expenses.
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Old 03-09-2013, 01:18 PM   #23
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So which is it? I would think not taxed when withdrawn would only apply to using it for qualified medical expenses.
That's my understanding. Untaxed going out only for medical expenses. But the possibilities within that restriction are so broad in scope and timing that it would be wasteful to not match up medical expenses with withdrawals.
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Old 03-09-2013, 02:51 PM   #24
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That's my understanding. Untaxed going out only for medical expenses. But the possibilities within that restriction are so broad in scope and timing that it would be wasteful to not match up medical expenses with withdrawals.
Right. Remember it can used for dental, eye care, prescriptions, medical deductions and co-pays, Medicare parts B and D. And it doesn't have to be done in any one year, it carries forward indefinitely.

Worst case, take it out after age 65 and pay tax on it.
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Old 03-09-2013, 07:38 PM   #25
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Originally Posted by travelover

Right. Remember it can used for dental, eye care, prescriptions, medical deductions and co-pays, Medicare parts B and D. And it doesn't have to be done in any one year, it carries forward indefinitely.

Worst case, take it out after age 65 and pay tax on it.
That is my plan. I am saving all receipts for teeth cleaning, etc and if I ever want the cash way down the road, I will use those receipts to extract it tax free. Though I hope I am able to just build it up and use it to pay for my Medicare premiums, until I am dead.
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Old 03-10-2013, 08:08 AM   #26
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HSA is a good deal. Ours better because our employer contributed $3600 a year for a 4k deductible plan. Over 55 I can contribute another 3650 a year As tax shelter. It's a good deal.
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Old 03-10-2013, 04:54 PM   #27
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I think HSAs are great. Aside from the tax deduction (above the line), you can let the money grow tax free and withdraw it at any time for cumulative qualified expenses. I believe this is correct?

I have been and plan to continue letting the HSA account grow without withdrawals. Fortunately, I doubt I will ever need this money. The trick is that I do not believe this can be passed tax-free to heirs like a Roth IRA. Does anyone have any knowledge about this?

Looking online, it seems that when a person dies, the HSA transfers to the surviving spouse. If the only beneficiary dies, the account balance gets treated as ordinary income in the final tax return. I can't tell if this means all amounts, or only the amounts not going for qualified withdrawals. Does anyone know? If it is all amounts, then it would make sense to get the qualified expenses out before both spouses die.
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Old 03-10-2013, 06:54 PM   #28
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Looking online, it seems that when a person dies, the HSA transfers to the surviving spouse. If the only beneficiary dies, the account balance gets treated as ordinary income in the final tax return. I can't tell if this means all amounts, or only the amounts not going for qualified withdrawals. Does anyone know? If it is all amounts, then it would make sense to get the qualified expenses out before both spouses die.
I don't have personal experience with HSAs in an estate, but do have general tax experience with my grandmother's passing almost 2 years ago.

When a person passes on, the estate executor files a final tax return for the individual in the year they died, with all activity through the official recorded date of death appearing under the decedent's SSN on the decedent's final income tax return. All income earned/received and activity that takes place after the official date of death is assigned to an estate taxpayer identification number.

Note that these two tax returns are two entirely different entities.

So, if there are medical expenses outstanding in prior years or the decedent's final year that have not been 'reimbursed' by HSA withdrawals, the decedent/HSA owner loses any 'tax-free withdrawals' after the date of their death - just like if someone has any capital losses they're carrying over from prior years, they lose any further benefit upon their death, and any more losses cannot be 'carried over' to the estate's income tax return.

If there is not a surviving spouse to inherit the HSA, then the estate (I believe) would withdraw all remaining funds from the HSA and declare it as 100% income. I don't know if the 20% penalty for non-healthcare withdrawals still applies when it's an estate withdrawing the money or not. This is similar where if an IRA owner is over age 70 1/2 and started RMDs, if they did not yet take their annual RMD in the year of their death, then the estate must withdraw the RMD in the year of death, and the estate declares that withdrawal under the estate's TIN, not the decedent's SSN.

For the usual disclaimer: the above is a combination of my general estate income tax return experience, and extrapolation of my knowledge of the tax code. Consult a professional for more assistance and planning.
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Old 03-18-2013, 03:51 PM   #29
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I didn't know you could let HSA funds "ride" and submit distribution requests years after the expenses were incurred. That's pretty sweet.

I'm still not clear on a couple of things though. First, can you or can you not use HSA funds to pay Medicare premiums?

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Originally Posted by travelover View Post
Plus you can use it to pay Medicare B and D plans, I believe.
Mulligan says he wants to
Quote:
Originally Posted by mulligan
use it to pay for my Medicare premiums, until I am dead.
I find this really confusing: From IRS Pub 969 (2012) www.irs.gov/pub/irs-pdf/p969.pdf
Quote:
Insurance premiums. You cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
1. Long-term care insurance.
2. Health care continuation coverage (such as coverage under COBRA).
3. Health care coverage while receiving unemployment compensation under federal or state law.
4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
Am I interpreting #4 correctly? Reversing the double-negatives, "You can treat insurance premiums as QME if the premiums are for Medicare and you are 65 or older"?

Second,
Quote:
Originally Posted by wallygator69
After age 65 you can use the money for anything and there is no penalty. Any distribution is taxed as ordinary income.
What's the advantage of using the money for "anything you want"? Is it because if you spent HSA $ on non-QME and were under 65 you'd pay a 20% penalty in addition to being taxed at the ordinary income rate?
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Old 03-18-2013, 04:16 PM   #30
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Here's my experience with our HSA. DW w*rked for mega-insurance and worked well as they kicked in the first grand and our portion was the rest up to the max. Saved us a good 35% in fed tax.

Now, we are semi-retired and try to not get to the 15% rate so the benefit is less than advantageous. We also noticed the insurance we had to purchase to continue this was more by $500-750 annually than a traditional high-deductible plan. We opted not to continue it as the main benefit would be the 10% deferred tax and same on gains. I didn't think it was worth the headache if we had to pay the extra for little benefit.

The one we maxxed out is still around $15k and it's nice when we can use it, but we really are not that un-healthy as of now...

I'm for them if they provide a clear benefit; I don't see it in our current situation.
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Old 03-18-2013, 04:27 PM   #31
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I didn't know you could let HSA funds "ride" and submit distribution requests years after the expenses were incurred. That's pretty sweet.

I'm still not clear on a couple of things though. First, can you or can you not use HSA funds to pay Medicare premiums?
Yes you can. Medicare premiums, or Medicare Advantage. Other qualified medical expenses. Typically these are the same type that qualify for a tax deduction.

If you withdraw HSA funds and use for any other expense they are subject to a penalty.
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Old 03-18-2013, 04:36 PM   #32
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Yes you can. Medicare premiums, or Medicare Advantage. Other qualified medical expenses. Typically these are the same type that qualify for a tax deduction.
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Medicare beneficiaries canít make new contributions to the account, but retirees can spend the unused funds deposited while working. HSA distributions can be used to pay for Medicare Parts A, B, or D premiums or uncovered expenses, Medicare Advantage plan premiums,...
Using a HSA to Pay for Retirement Medical Costs - Planning to Retire (usnews.com)
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Old 03-18-2013, 04:36 PM   #33
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...........
I'm still not clear on a couple of things though. First, can you or can you not use HSA funds to pay Medicare premiums?
Kiplinger - Interstitial

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Even though your wife canít contribute to an HSA after she signs up for Medicare, she can still use the money tax-free for medical expenses that arenít covered by insurance -- such as co-payments, deductibles, prescription drugs (including over-the-counter drugs with a prescription), vision and dental care, and a portion of long-term-care premiums based on age ($3,290 for age 61 to 70, for example). She can also use the money from the account tax-free to pay her premiums for Medicare Part B, D or Medicare Advantage (just not medigap premiums). For a list of eligible medical expenses, see IRS Publication 502.

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What's the advantage of using the money for "anything you want"? Is it because if you spent HSA $ on non-QME and were under 65 you'd pay a 20% penalty in addition to being taxed at the ordinary income rate?
The advantage for me is that I can take over $8000 (between DW and I) out of our income currently taxed at 25% and never pay taxes on it when we use it for medical expenses later. If I took it out of the HSA after age 65 and used it for non-medical expenses it would be taxed at my then probably lower rate.
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Old 03-18-2013, 08:26 PM   #34
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What's the advantage of using the money for "anything you want"? Is it because if you spent HSA $ on non-QME and were under 65 you'd pay a 20% penalty in addition to being taxed at the ordinary income rate?
For me, the advantage is that I can contribute $3k+ per year now and get a tax deduction regardless of what my taxable income is (barely disqualified for ROTH IRA contributions), and still pull it out after 65 and treat it like a retirement account to add more tax-deductible contributions that I otherwise wouldn't be able to - with the potential for truly tax-free withdrawals when I have any medical expenses.
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