Can an HSA be used like a Roth IRA?

[pb4uski]

Yes, that would be a problem.

 

[kaneohe]

My plan was to accumulate health expense costs, including Medicare premiums equal to the balance in the account and then close it. Thus far I haven't hit the magic number, because itemizing seems to be more tax effective. Future changes in tax law may change my thinking.

- Rita

Not sure how this works.....you have to fulfill the 10% of AGI requirement for the floor before you can start deducting medical expenses so that amount is not being useful except to enable the amount above that to be deducted.

 

[Gotadimple]

Not sure how this works.....you have to fulfill the 10% of AGI requirement for the floor before you can start deducting medical expenses so that amount is not being useful except to enable the amount above that to be deducted.

True, you have to make a decision about whether the deductible amount (after the floor) is significant enough to make a difference in tax payments.

If income is low enough, the premiums for Medicare Part B, Part D, and/or Medicare Advantage/Medigap can put you in a spot where you exceed the 10% floor and it does make a difference in taxes due. If it has no tax impact, then, I'd take the receipts/EOBs and stuff them in my HSA folder - no medical deduction that year on Schedule A.

YMMV.

Rita

 

[PaddyMac]

We saved our HSA over quite a few years and have built up a nice cushion ($45K or so) for medical expenses, paying all of our expenses from cash flow. Although I have kept receipts, I'm not looking at using old receipts. Our ACA premiums are going up $300 a month next year (no subsidy) so I plan to use the HSA for larger medical expenses (surgeries, expensive glasses, etc) to smooth out the next nine years until we get Medicare. It would be nice not to drain the account, but the idea is medical expense smoothing for us.

 

[ncbill]

The same way they verify your medical deductions when you itemize. They audit your return, request supporting documentation, and disallow any item not properly documented.

IF you ever get audited.

Mom wrote off five figures in medical expenses on her taxes for several years.

I wondered about such high deductions, but the CPA we used (30+ years experience) noted he'd never seen medical deductions questioned.

 

[43210]

Actually an HSA is more like a traditional IRA (not Roth), but with the special rule that withdrawals are tax/penalty free for qualified medical expenses.

 

[sengsational]

For those planning on compounding for decades in the HSA w/o withdrawals, here's an interesting post (about 5 posts down) Health Savings Accounts (HSAs) - Triple Tax Free Retirement Savings - Finance - Fragile Deal

It talks about record keeping requirements. Most of the discussion here has been about keeping receipts that show qualified medical expenses. You also need to show that the expenses have not been deducted (or used to provide the 10% of AGI floor for deductions). That means keeping decades of tax returns.

You also need to show that the expenses have not been reimbursed previously.
That means saving decades of EOBs.

There is a suggestion at the end

If you are deferring HSA reimbursements and have unused IRA space at some point, there is no reason not to take HSA reimbursements up to the amount of your unused IRA space and contribute the funds to a Roth IRA. The earnings will be tax-free upon retirement, the contribution can be withdrawn without penalty, and you avoid the long-term recordkeeping burden for those medical expenses. Reimburse the oldest medical expenses first.

What does it mean "unused IRA space". To contribute to a Roth, you must have earned income, so if you don't work, you have "no unused IRA space", right? So that strategy isn't useful for those that are not getting earned income?

It would seem that if I had unused IRA space, rather than pull from one tax free account and put it into another tax free account, I could just put "regular money" into the tax free account, and have even more money that will grow tax-free.

 

[kaneohe]

There is a suggestion at the end What does it mean "unused IRA space". To contribute to a Roth, you must have earned income, so if you don't work, you have "no unused IRA space", right? So that strategy isn't useful for those that are not getting earned income?

It would seem that if I had unused IRA space, rather than pull from one tax free account and put it into another tax free account, I could just put "regular money" into the tax free account, and have even more money that will grow tax-free.

Agree w/ you last paragraph.........just guessing that writer was thinking that unused space meant there were not enough available funds to fund the Roth....seems like you could only pull amounts supported by qualified medical expenses.