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Tax free medical fund
Old 04-07-2014, 01:34 PM   #1
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Tax free medical fund

It would be great to get your thoughts. I have 70k in an RMSA (retirement medical acct). It grows tax free and has been returning about 7% per year during good/bad times. However, it is use it or lose it. I have no control over the investments. I can use the money for myself and my wife including premiums and all medical related issues. So, while over the years I have dipped into the fund, I have really liked the tax free growth, esp. during the down market.

We are healthy early 60s and so far have not spent much more than our premiums on medical care. We are fortunate to have vision & dental coverage.

So, I understand the risk of waiting to spend this money. But, your thoughts and experience for when it makes sense to begin to use these funds is appreciated. Please don't hesitate to ask ? if you need more information. Thanks
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Old 04-07-2014, 05:33 PM   #2
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As long as you have medical expenses it can pay and the account doesn't disappear, it sounds good as is. Will it cover Medicare charges?

The one thing I can think of as a total outsider is to use this account if it saves you from withdrawing from a Roth account. And of course before you lose it.
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Old 04-07-2014, 05:48 PM   #3
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What happens if you die? Your spouse? Both of you?

Are you still working? If this is a benefit of employment, what happens when you retire?

Of the "use it or lose it" issues, what are the "lose it" issues that concern you?
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Old 04-07-2014, 07:05 PM   #4
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The money is only for medical expenses and if we die with money in the account, we lose it. The 'lose it' issue is simply not using the money. Since I am no longer working, I can not contribute more. The fund grows based on its annual return.
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Old 04-07-2014, 07:31 PM   #5
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So it's like an HSA except that it can't be passed onto your heirs/estate?

Since you're retired, I would probably start tapping it for those medical expenses, and insurance premiums if you can use it for that. You're probably in a lower tax bracket now in retirement so it may not be worth hoarding and spending down other investments.
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Old 04-07-2014, 08:22 PM   #6
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Tough call.......

The 7% tax free return is nice. But, the downside of the use it or lose it criteria shouldn't be overlooked.

You could always compromise and spend it down slowly, say over the next decade. If you lose even a small portion of it, say 10% - 20%, that would offset all/most of the financial advantages you've gained from having the account. So, why try to stretch it to the extreme?
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Old 04-08-2014, 11:53 AM   #7
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Depending on family history and your thoughts on potential long term care needs, can it be used for LTC insurance premiums?
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Old 04-08-2014, 12:04 PM   #8
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Good thought wmc1000. I am fortunate to have a very low annual LTC insurance premium. I am unfortunate to have been paying it for many years. But, I will look to see if the money can be used for the actual cost of LTC. Even with insurance, it could be a large expense.
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Old 05-12-2014, 01:37 PM   #9
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just read today at Age 65 You are eligible to make withdrawals from a health savings account for non-medical expenses without the usual 20% penalty. The money is taxable, but you still will have benefited from years of tax deferral.
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Old 05-12-2014, 05:47 PM   #10
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Quote:
Originally Posted by wmc1000 View Post
just read today at Age 65 You are eligible to make withdrawals from a health savings account for non-medical expenses without the usual 20% penalty. The money is taxable, but you still will have benefited from years of tax deferral.
Yes, it's kind of like a "stealth IRA", with no RMDs either.
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Old 05-14-2014, 09:03 PM   #11
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RMSA is not the same as HSA.
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