Can an HSA be used like a Roth IRA?

[UnrealizedPotential]

Let us say I open up an HSA. I fully fund the account each year. Then I have medical expenses over 7 years of 20k. I use my own savings to pay for medical expenses over those 7 years,not using any HSA money. I save all the receipts over those seven years.

Then in year 8, could I take out 20k from my HSA tax free to reimburse myself using my receipts from the 7 years worth of medical expenses? I am not saying I would do this. Is this possible? Is this a good idea if one needs money before age 65 and can get it tax free?

Of course one would need significant savings to do this. I am thinking if it is possible to do this, it wouldn't make my income higher. I am thinking if the money could be taken out tax free, and it is used for medical expenses, years later , granted.

So my question ultimately is, can this be a good option at some point if one is in position to do this for tax free income that I'm thinking wouldn't help determine AGI ?

I didn't see a time limit for using receipts to reimburse oneself years later.

 

[audreyh1]

Yes, so long as the expenses occurred after you opened the account, they can be taken out at any time in the future to reimburse those expenses tax free.

There is no time limit.

Withdrawals from an HSA to reimburse medical expenses aren't treated as income.

Do they appear as part of the AGI or MAGI? - I don't think so and have never heard otherwise. That would defeat the purpose of such an account. But I haven't gone through the tax forms for reimbursing.

 

[Senator]

Yes, it is a great way to do it. You can even pay some medicare premiums with it. You get a 1099-SA.

I am not sure if you need to save receipts, or just have a log. Receipts under $75 do not need to be saved.

 

[audreyh1]

Yes, it is a great way to do it. You can even pay some medicare premiums with it. You get a 1099-SA.

I am not sure if you need to save receipts, or just have a log. Receipts under $75 do not need to be saved.

I've been carefully saving receipts "just in case" we decide to reimburse something. But our plan is to use the HSA to fund part B Medicare premiums between ages 65 and 70 when the payments will be automatically taken from SS.

 

[RunningBum]

I save all receipts to, give each an ID, and put a line with that ID, explanation, and expense amount in a spreadsheet.


Paying Medicare seems like an easy non-receipt way to drain it too. I assume that you can let them take it out of SS and then reimburse yourself for the same amount, right?

 

[DanP]

Still learning about HSAs and so far loading the max but not using it, saving it for medical expenses at a later date, paying out of pocket now as well.

Just to make sure the only difference in what you describe is that you would be able to withdraw that $ at some point in the future and use towards non-medical, correct?

 

[RunningBum]

Re: tax reporting, I took $1000 out in 2016 because I had an urgent need to cover a check written at the CU where I have both accounts. The withdrawal is reported on form 8889 on line 14, then cancelled out as a qualified medical expense on line 15 for a net 0 on line 17 and 0 carried over to form 1040. It's not included in AGI or MAGI as long as it's a qualified expense.

 

[audreyh1]

Still learning about HSAs and so far loading the max but not using it, saving it for medical expenses at a later date, paying out of pocket now as well.

Just to make sure the only difference in what you describe is that you would be able to withdraw that $ at some point in the future and use towards non-medical, correct?

Yes, after 65 funds can be withdrawn for any reason, and if not used to reimburse medical expenses are taxed as ordinary income.

But why would you not use them to reimburse medical expenses that you had paid since you opened the account and recurring current medical expenses? It could make a big difference tax-wise.

 

[audreyh1]

Re: tax reporting, I took $1000 out in 2016 because I had an urgent need to cover a check written at the CU where I have both accounts. The withdrawal is reported on form 8889 on line 14, then cancelled out as a qualified medical expense on line 15 for a net 0 on line 17 and 0 carried over to form 1040. It's not included in AGI or MAGI as long as it's a qualified expense.

Thanks!

 

[RunningBum]

Still learning about HSAs and so far loading the max but not using it, saving it for medical expenses at a later date, paying out of pocket now as well.

Just to make sure the only difference in what you describe is that you would be able to withdraw that $ at some point in the future and use towards non-medical, correct?

Medicare is considered a qualified medical expense so it's handled the same.

You can withdraw for any reason, but if it's not a qualified medical expense, it's going to wind up as income on line 21. And if you're under 65 you're going to pay an early withdrawal penalty. There may possibly be exceptions for that but I have no plans to withdraw early so I haven't really looked into it.

Form 8889 is where you'd see all this.

 

[audreyh1]

I save all receipts to, give each an ID, and put a line with that ID, explanation, and expense amount in a spreadsheet.


Paying Medicare seems like an easy non-receipt way to drain it too. I assume that you can let them take it out of SS and then reimburse yourself for the same amount, right?

Senator points out that the 1099-SSA documents it.

And your quarterly Medicare statement would for folks who are 65+ but not drawing SS yet.

 

[audreyh1]

Medicare is considered a qualified medical expense so it's handled the same.

You can withdraw for any reason, but if it's not a qualified medical expense, it's going to wind up as income on line 21. And if you're under 65 you're going to pay an early withdrawal penalty. There may possibly be exceptions for that but I have no plans to withdraw early so I haven't really looked into it.

Form 8889 is where you'd see all this.

Just to be clear about Medicare qualified expenses:

Medigap premiums are not qualified. Medicare advantage, part b and part d are.

 

[GalaxyBoy]

From the Bogleheads Wiki:

Paying current expenses out of pocket
If you are maxing out your retirement accounts, you should treat the HSA as an opportunity for further savings, like an IRA, and not withdraw from it until you retire. If you have $1,000 in medical bills, paying them from your taxable account leaves the $1,000 in the HSA to grow tax-free (and keeps the right to withdraw $1,000 tax-free in a future year), while paying them from the HSA leaves $1,000 in your taxable account, which will grow subject to taxes since you do not have any room for tax-sheltered contributions.

Once you are retired, you can withdraw from the HSA an amount equal to your past medical expenses plus any current expenses tax-free, and withdraw from your other accounts for non-medical expenses. HSAs can be used to pay medicare premiums and other medical expenses in retirement.

The only vehicle where money goes in non-taxed, and comes out non-taxed. Sure wish these things had been available to me in my accumulation years.

 

[Senator]

From the Bogleheads Wiki:



The only vehicle where money goes in non-taxed, and comes out non-taxed. Sure wish these things had been available to me in my accumulation years.

And if you work for a megacorp, it generally goes in pre-FICA too. A HSA is better than a Roth when you are working.

 

[pb4uski]

+1 .... I used mine like a Roth when I was workding and even thereafter whwn HSA-eligible policies were a good choice for me... I could move money from taxable into the HSA as a contribution since no earned income is necessary, take a deduction and increase my Roth conversion by the sam e amount with no change in tax.... sweet.

I had a folder of expenses since we started the HSA but need to update it.

I will admit that it is a bit of a nuisance in that they are two additional relatively small accounts to track and the provider choices available are meager. My provider's website is awful but luckily I don't have to deal with them much.

 

[BeachOrCity]

For employee contributions with witholding it is not always exempt from FICA, but it sometimes is. You should double check with your employer on this if important to you. Depends on how the employer sets up their plan.

 

[sengsational]

Keeping track of qualified medical expenses over many years and then pulling from the HSA account, also over many years, sounds like a bit of a tracking nightmare. Yeah, it's not complicated, logically, but there has to be some methodology that endures over decades without any external audit. Although I have a spreadsheet and a notebook with paper receipts from early HSA years, the last few years worth are just shoved in a file folder, and I'm not sure it's really a complete.

When it comes time to spend, do you plan to maintain the running spend balance from day one, and net that against the running total of HSA withdrawals? Or alternatively, remove from your historical transactions, a bunch that equals in value, the amount withdrawn?

 

[UnrealizedPotential]

I had envisioned if and when this was done to take a lump sum out of the HSA equal to the amount over the years I payed out of my own personal savings for health care costs. The receipts saved would be used for proof of the amount taken out that was equal for medical expenses.

I don't know how much of a pain it would be to take an amount out monthly and account for it. Maybe I would only have to account for the amount withdrawn in any given year once when I do my yearly taxes regardless how often I took out money.

It is unclear to me what I will do. It depends on my future circumstances. It will give me options in the future and options are good. Using HSA funds to pay for future medicare expenses makes sense to me as well. Letting the HSA account grow tax free over the years is a wonderful thought. Can anyone have too many sources of income? There are a lot of possibilities with an HSA it seems.

 

[joeea]

Once enrolled, a Medicare beneficiary can use HSA distributions to pay for qualified medical expenses.

For example you can use HSA funds to pay for premiums for Medicare Part B, Part C, or Part D. Even when it is deducted from your Social Security benefits, you can draw from your HSA to reimburse yourself for the premiums.
You could also use the HSA to pay premiums for long-term care insurance.
And you could use HSA funds to pay for Medicare expenses, such as co-payments and deductibles.

These funds cannot be used to pay premiums for Medicare supplemental policies (Medigap policies).

I wish HSAs had been available for more years while I was employed. I only managed to save and invest about $11,000. I would have put lots more in, if I had the opportunity. Tax-free in, tax-free out, investable in a wide array of mutual funds, with the ability to withdraw the funds and pay taxes in case of emergency/unexpected non-medical need is pretty hard to beat.

 

[GrayHare]

I don't think anyone has mentioned that one cannot use HSA money to pay for medical expenses that are or were deducted in the past on Sched A. Of course some people never qualify to use Sched A's medical deduction but if you do, it's another item to track, potentially for decades.

 

[sengsational]

I had envisioned if and when this was done to take a lump sum out of the HSA equal to the amount over the years I payed out of my own personal savings for health care costs. The receipts saved would be used for proof of the amount taken out that was equal for medical expenses.

Yeah, if you took an HSA withdrawal equal to all of your past medical spending, then you'd be matching up all of your old receipts with one withdrawal, and you'd not need to maintain those historical records beyond keeping them long enough for an audit.

I was thinking of the case where you take less than all of your HSA balance in some future year.

You could take a wad of your oldest receipts, take an HSA withdrawal equal to that spending, and those oldest transactions would be "used", bound to that year's tax return. They would no longer be in your active file. That was one idea I had for how to manage it.

But another idea would be to maintain all of your historical medical transactions "forever" and just treat it like a bank account. So within your HSA spending transactions, which build-up your balance, you'd enter a negative number when you take an HSA withdrawal, which would decrease your balance. Both methods prevent "going negative" (as in pulling more HSA money than you are able to on a tax-free basis).

 

[UnrealizedPotential]

Interesting using old receipts first. I hadn't thought about that detail. If one didn't take all they could out of an HSA in a given year/years, but only a percentage, that would be a good way to do it.

I am not sure what I would do for the running amounts though. Clearly one would need to keep track of each receipt so that a total could be kept. So you would know what amount you could take out legally at any given time and what amount you were working with.

If one tried to figure out years worth of receipts, what amount you were working with, well, that would not be good at all.

 

[sengsational]

The way I figure it will work out for many of us, is that we'll take some of traditional IRA's, but if the magnitude of the traditional withdrawals start to impact the tax rate, the remaining will be pulled from HSA or Roth. But those accounts will be kind of a "last resort" because they're the more juicy ones to leave alone, if possible. So all that is to say that it's not likely that I'd want to jack the entire HSA unless I had to.

 

[audreyh1]

Like I said - with all the tracking etc., it will be far simpler for us to use it for Medicare premiums in each year that they occur.

But we still keep the medical expense receipts just in case......

 

[UnrealizedPotential]

I'm thinking one even after 65 could pull money from an HSA tax free as long as they had the medical receipts to account for it. it is very, very tempting to just leave the HSA alone if I could and let it grow tax free. So many ways to go it seems. No reason to commit myself one way or the other, but it is good to know the options.
I see what you mean now Audrey.