HSA contributions... wise?

[REattempt]

I have had my HSA since I retired 3 years ago. Got my HD plan in place and opened the HSA in 2011. I've been contributing the max allowable every year.

I typically make my contributions twice a year and it was time to do my first contribution for 2014....and I got to thinking....

Looking at the balance, while not TONS of money ~6k, since I haven't been using much of the money (knock wood), I started to question whether I wanted to continue to make contributions. I then went and researched what happens to the money when I die. I have no spouse, so it would go to my designated beneficiary and be taxed.

How do you evaluate HSA contributions? Should I continue to put money into the HSA just for the tax reduction?

I'd like to hear how other look at HSA contributions in the bigger picture.

Thanks!

 

[travelover]

I'm socking away the maximum in my HSA with the intent of bleeding it off once I get to Medicare to pay for other expenses. It essentially allows me to never pay taxes on that money.

use the money tax-free for medical expenses that aren’t 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.

Kiplinger - Interstitial

 

[easysurfer]

In my case, I use my HSA to pay for medical expenses. Hopefully, that should carry me until Medicare. The extra tax reduction is an added bonus.

It's great having the HSA reimburse myself for expenses such as dental work since once FIRE'd, as discussed on other threads here, having dental insurance on your own probably isn't really helpful.

 

[MichaelB]

I'm socking away the maximum in my HSA with the intent of bleeding it off once I get to Medicare to pay for other expenses. It essentially allows me to never pay taxes on that money.

+1

 

[ziggy29]

I'm socking away the maximum in my HSA with the intent of bleeding it off once I get to Medicare to pay for other expenses. It essentially allows me to never pay taxes on that money.

This. At least that's what I was doing when I had an HSA-eligible Megacorp insurance plan. We managed to get over $25K in there before I got whacked, so now I plan to just let that grow for a while. At some point I can either use it for medical expenses or withdraw as ordinary income after I'm 65.

 

[kaneohe]

Where else do you get a triple-tax benefits: deduction going in, no taxes while growing, no taxes coming out. IRAs have either taxes coming out (TIRA) or no deduction going in (Roth). When you get to Medicare, the premiums can use up your HSA in a few years @ 1K+/yr so it should be no problem. At worse, at the proper age, you pay taxes on withdrawals for non-qualified expenses like a TIRA.

 

[REattempt]

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.

I'm socking away the maximum in my HSA with the intent of bleeding it off once I get to Medicare to pay for other expenses. It essentially allows me to never pay taxes on that money.

Kiplinger - Interstitial

This I think is what I was missing...medicare/medicare advantage premiums....

Never thought of it at 46! Was looking at it as a tax benefit going in and using it for paying my medical expenses (OOP)...didn't look 15 years out!

Thanks...first half 2014 deposit made!

 

[Rosie]

As kaneohe mentioned above, it's a deduction so it'll reduce your MAGI if you care about the ACA subsidy.

 

[mpeirce]

At some point I can either use it for medical expenses or withdraw as ordinary income after I'm 65.

If you keep good records you can withdrawal HSA funds to pay for medical expenses from prior years that are covered by your HSA.

Internal Revenue Bulletin - August 16, 2004 - Notice 2004-50

A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur. However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year.

So keep those records and you can keep your money compounding tax free in the HSA for quite some time and still take it our tax free.

 

[Gotadimple]

If you keep good records you can withdrawal HSA funds to pay for medical expenses from prior years that are covered by your HSA.

Internal Revenue Bulletin - August 16, 2004 - Notice 2004-50


So keep those records and you can keep your money compounding tax free in the HSA for quite some time and still take it our tax free.

One of the key points in the IRS bulletin is 'not taken as a deduction on your income tax' (and I am paraphrasing).

I have been retired for a few years, have an HSA, and itemize deductions - including unreimbursed expenses. In 2013, Medical expenses need to be greater than 10% of AGI to be deductible. I just sneaked through (because of premium costs on private insurance). Next year I won't and that is when I will begin to use the HSA funds I have been plowing into the account for the last 5 years.

Rita

 

[mpeirce]

One of the key points in the IRS bulletin is 'not taken as a deduction on your income tax'

Good advise Rita.

If you are going down this path, it's important to read the IRS bulletins to ferret out the details. Or at least have a talk with a tax professional who understands them.

 

[audreyh1]

I'm socking away the maximum in my HSA with the intent of bleeding it off once I get to Medicare to pay for other expenses. It essentially allows me to never pay taxes on that money.

Kiplinger - Interstitial

+2

I'll especially be glad of it if they do away with deductions of medical expenses.

 

[Mulligan]

Where else do you get a triple-tax benefits: deduction going in, no taxes while growing, no taxes coming out. IRAs have either taxes coming out (TIRA) or no deduction going in (Roth). When you get to Medicare, the premiums can use up your HSA in a few years @ 1K+/yr so it should be no problem. At worse, at the proper age, you pay taxes on withdrawals for non-qualified expenses like a TIRA.

I agree. If I could put 10k a year into an HSA, I would. I will pay all medical,expenses out of pocket and save the bills. I have recently started investing my HSA into equities and now consider it a long term IRA. In 15 years when I am 65 I will start to pay Medicare premiums out of it.


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[mpeirce]

FYI

A good site for tracking medical expenses is

http://simplee.com/

 

[iam21177]

No other vehicle is triple tax deferred and that alone makes is pretty amazing and useful in retirement. We are maxing two individual HSA, even though I have Rx I need to pay for (on my old plan it was only $5 an Rx for 60 day), and we might pay more slightly compared to a premium plan at the end of the year - the benefits of the HSA make it all worth while in the long term.

 

[pb4uski]

No other vehicle is triple tax deferred and that alone makes is pretty amazing and useful in retirement. We are maxing two individual HSA, even though I have Rx I need to pay for (on my old plan it was only $5 an Rx for 60 day), and we might pay more slightly compared to a premium plan at the end of the year - the benefits of the HSA make it all worth while in the long term.

+1 I'm building it now in anticipation of using it later in retirement for medical expenses. It can also be used for nursing home costs so it can also be thought of as our LTC self insurance funding.

In addition, I keep good records of what we spent for medical expenses that we have not deducted so we can access that money tax free at any time if needed (but it is highly unlikely that we ever would).

 

[iac1003]

Medicare premiums are taken out of my husband's Social Security check automatically so no paying of Medicare premiums directly with an HSA. I am sure if you defer SS until age 70 you have access to the HSA funds for such a purpose. OTOH who can predict what will be available, including Medicare and SS, at least in what form, in 15 years?

 

[REWahoo]

Medicare premiums are taken out of my husband's Social Security check automatically so no paying of Medicare premiums directly with an HSA.

No, but funds can be withdrawn from a HSA account to reimburse for the Medicare premiums paid from a SS check - or reimbursement for any other qualified medical expense you pay for out of pocket.

 

[iam21177]

No, but funds can be withdrawn from a HSA account to reimburse for the Medicare premiums paid from a SS check - or reimbursement for any other qualified medical expense you pay for out of pocket.

I did not know you could get reimbursed for those costs. Interesting! I know so little about health care after I leave my employer. Still have lots of research to do.

Either way, after age 65, HSA money can be used for anything in retirement - not just medical expenses - and withdrawn tax free!

 

[REWahoo]

Either way, after age 65, HSA money can be used for anything in retirement - not just medical expenses - and withdrawn tax free!

You need to do more research. This isn't accurate.

 

[pixelville]

I did not know you could get reimbursed for those costs. Interesting! I know so little about health care after I leave my employer. Still have lots of research to do.

Either way, after age 65, HSA money can be used for anything in retirement - not just medical expenses - and withdrawn tax free!

Incorrect. After retirement, you have the option of treating it like an IRA i.e. pay tax on it upon withdrawal, but no penalty. Of course, as others have stated, no taxes if used for qualified medical expenses.

 

[iam21177]

Oops I meant "withdrawn penalty free" of course!