Can an HSA be used like a Roth IRA?

[REWahoo]

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......

I'm using mine to pay our annual LTC insurance premiums.

 

[audreyh1]

I'm using mine to pay our annual LTC insurance premiums.

Makes sense!

 

[audreyh1]

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.

If you leave it alone, you should also think about what happens if you die before depleting it. A spouse can inherit it and continue to use it as an HSA. Non-spouse, other rules. This article covers those: What happens to your HSA when you die? | Money

 

[sengsational]

When the beneficiary is not your spouse...the fair-market value becomes taxable income to the beneficiary

OUCH!

I guess they kind of have that right, since the money has never been taxed, but naming someone other than your spouse isn't that great.

I've never looked into the details of what happens when I die thing with HSA (or Roth, for that matter). I suppose I should , but can't get motivated to noodle on those details.

 

[DanP]

Today I am doing "family" contributions which include our dependent kids.

Can one use an HSA to pay for qualified medical expenses much later on, even if the kids have long since become independent?

 

[UnrealizedPotential]

Today I am doing "family" contributions which include our dependent kids.

Can one use an HSA to pay for qualified medical expenses much later on, even if the kids have long since become independent?

I don't know. I would ask the administrator of your HSA account. If no account yet, ask a brokerage?

 

[RunningBum]

It's not that big of a deal to track HSA. I put the receipts in a shoe box after recording and labeling each one in my spreadsheet. I also account for any reimbursements (one so far) and cancellations from using in schedule A (one year). I suppose I could just remove the receipts from that year from the box and my spreadsheet and maybe I'll do that once I'm free from audit for that year and no longer need those receipts.


The spreadsheet has a total for all expenses, all withdrawals/cancelations, and amount left I could reimburse.


In the very unlikely event I get audited, I'll take that spreadsheet and my shoebox and go through it with the auditor. I see no need to go to a lot of work to match up receipts with withdrawals before then. I kind of think by the time I show my 2nd or 3rd tagged receipt and matching spreadsheet entry, the auditor would say, OK, you're good. If not, I'm confident I can match them all.

 

[Rianne]

It was my understanding, say we put $7900 in HSA 1/1/2018 for medical bills in 2018, we can write off the entire $7900, not just the gains. Broker said that is the case, was she wrong?

 

[pb4uski]

If by write-off you mean a deduction against income ... yes. It works the same as a contribution to a deductible IRA but is reported on a different line.

You don't get a writeoff for gainsin the HSA but you don't get taxed on them either.

 

[LiveBelowMeans]

I’ve been funding my HSA account for years and not touching it. Balance well over 6 figures. Money sits in a vanguard fund. Excellent vehicle for high income individuals.

 

[pb4uski]

All true... ours are mid-five figures but I'm stuck wondering when and how to use it.

 

[audreyh1]

I’ve been funding my HSA account for years and not touching it. Balance well over 6 figures. Money sits in a vanguard fund. Excellent vehicle for high income individuals.

JUst be aware of inheritance issues.

 

[audreyh1]

All true... ours are mid-five figures but I'm stuck wondering when and how to use it.

Reimburse Medicare premiums? Do you pay long-term care insurance premiums? Expensive dental bills?

We intend to use ours up after 65 and no longer contributing.

 

[SkinsFan0521]

I just wanted to jump in here real quick and mention another slightly different option for HSA use that hasn't been mentioned yet...

One of my biggest areas of concern for my FIRE plan is bridging the gap between my retirement age and 59.5. So, if I end up coming up short with my brokerage account to bridge that gap, I'm planning on withdrawing my HSA funds to reimburse me for my past medical expenses to give me some additional (tax free) income during those years before I reach 59.5. Obviously, the ideal scenario is that I have plenty of money in my brokerage account to bridge that gap, but if not, the HSA is a nice tax-free way to get some additional cash flow. And if I do end up having enough in the brokerage account, then I would just leave the HSA money alone and use it after age 65.

 

[SkinsFan0521]

You will pay a 20% penalty if you withdraw funds from your HSA before reaching 65 years old.

Not if I'm using that money to reimburse my medical expenses. Then, it's tax free.

 

[Gotadimple]

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

 

[kaneohe]

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.

 

[travelover]

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.

I don't see this as a big impediment. I just toss all eligible receipts in a big folder. As I never use HSA funds and never have enough medical expenses to take a deduction, if I'm ever audited, I'll just pull out receipts until I cover the withdrawal.

 

[kaneohe]

I don't see this as a big impediment. I just toss all eligible receipts in a big folder. As I never use HSA funds and never have enough medical expenses to take a deduction, if I'm ever audited, I'll just pull out receipts until I cover the withdrawal.

How does IRS know you've never taken a deduction e.g. 20 yrs ago for that old expense...........you may know all those things are true: never have enough for deduction, etc.........but how does IRS know if they don't save all the old tax returns?

 

[MichaelB]

How does IRS know you've never taken a deduction e.g. 20 yrs ago for that old expense...........you may know all those things are true: never have enough for deduction, etc.........but how does IRS know if they don't save all the old tax returns?

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.

 

[sengsational]

I just wanted to jump in here real quick and mention another slightly different option for HSA use that hasn't been mentioned yet...

One of my biggest areas of concern for my FIRE plan is bridging the gap between my retirement age and 59.5. So, if I end up coming up short with my brokerage account to bridge that gap, I'm planning on withdrawing my HSA funds to reimburse me for my past medical expenses to give me some additional (tax free) income during those years before I reach 59.5. Obviously, the ideal scenario is that I have plenty of money in my brokerage account to bridge that gap, but if not, the HSA is a nice tax-free way to get some additional cash flow. And if I do end up having enough in the brokerage account, then I would just leave the HSA money alone and use it after age 65.

Talking about filling in years to minimize impact on AGI, that brings up a decision point if you have to choose between pulling from HSA and Roth.

Given your Roth has been open for more than 5 years, the basis should be available tax and penalty free. And given you have past medical expenses, the HSA funds should be available tax and penalty free.

It seems like the two types of account are equivalent except for the higher restrictions on the HSA withdrawals. Would that mean that tapping the HSA over the Roth would be advisable?

 

[SkinsFan0521]

Talking about filling in years to minimize impact on AGI, that brings up a decision point if you have to choose between pulling from HSA and Roth.

Given your Roth has been open for more than 5 years, the basis should be available tax and penalty free. And given you have past medical expenses, the HSA funds should be available tax and penalty free.

It seems like the two types of account are equivalent except for the higher restrictions on the HSA withdrawals. Would that mean that tapping the HSA over the Roth would be advisable?

That's exactly my thoughts. If I have the option to withdraw from my HSA or Roth IRA contributions, I'd rather take it from HSA.

 

[travelover]

How does IRS know you've never taken a deduction e.g. 20 yrs ago for that old expense...........you may know all those things are true: never have enough for deduction, etc.........but how does IRS know if they don't save all the old tax returns?

I think you are overthinking this. By the time I cash out my HSA, I'll have a lot more expenses than the withdrawal. And that is assuming I'm ever actually forced to prove it line by line. And I do save my old tax returns.

 

[pb4uski]

Just wondering out loud... if a potential strategy might be to use a HSA for Medicare deductible and co-pays to self insure rather than buy Medigap... especially if you could buy stop-loss coverage (say to cover any deductibles and co-pays that exceed $10k in a year) and self-insure for the first $10k. We are healthy and have little claims.

If something like that was available it might be worth considering... and then if you run into health issues buy conventional Medigap coverage?

 

[kaneohe]

Just wondering out loud... if a potential strategy might be to use a HSA for Medicare deductible and co-pays to self insure rather than buy Medigap... especially if you could buy stop-loss coverage (say to cover any deductibles and co-pays that exceed $10k in a year) and self-insure for the first $10k. We are healthy and have little claims.

If something like that was available it might be worth considering... and then if you run into health issues buy conventional Medigap coverage?

Potential problem w/ this strategy: you get a free ride into Medigap if you enroll when you are first eligible. If you don't, you might have to undergo underwriting to get into a Medigap plan and if you have health issues , you might not pass.