Draw from HSA rather than Roth?

[Montecfo]

My plan (I'm 52 now):

Continue to accumulate receipts.
Contribute another $7.3K or so in the next few years.
Reimburse myself for accumulated receipts at 65.
Start using it for Medicare premiums at 65.

The above plan means that the account will hit it's highest value when I'm 65 and be completely zeroed out when I'm about 75. So it'll go from about $9K now to about $53K at age 65 to $0 at age 75.

So I'll be current in the sense that I won't have any outstanding unreimbursed expenses starting at age 65, but it'll take another 10 years of Medicare premiums to drain the amount that has accumulated.

(If one concedes my preference to drain my HSA by age 75, then I don't see any advantage in continuing to contribute more. If someone else does I'd be interested in discussing that logic/strategy - maybe there's something I'm missing.)

The plan, of course, is subject to revisions, updates, and investment returns.

It is a fine plan. It is just underpinned by several unknowables. Namely, your longevity and your level of health costs to be incurred.

 

[Mulligan]

We’ve been using our HSAs to cover Medicare part B and D premiums. We will eventually draw them down for that, and maybe the occasional dental bill. Trying to mostly have them drawn down by early 70s, then two less accounts and related tax filings to deal with.

That will be my plan. I had to use an exchange plan 7-8 years after retirement and used an HSA to get the tax deduction. I put all the dough in a brokerage linked to account and have boosted that thing close to 100k now. I am now on partners insurance with $200 deductible so I wont be able to save many medical receipts to offset, as I have used basically no healthcare except for a few dental receipts.
Im just going to keep investing it and growing it and then at 65 use it for medicare premiums and maybe a trip to the nursing home. Im already ensconced in the 24% permanently plus 5% state. I have no intention of withdrawing just to pay 29% taxes on it.
So if I am fortunate enough to have it continue to grow more by the time Im dead, I wont feel too sorry for my daughter. It will still be a lot of free money for her after she pays the taxes herself.

 

[SecondCor521]

It is a fine plan. It is just underpinned by several unknowables. Namely, your longevity and your level of health costs to be incurred.

Thank you.

"It is difficult to make predictions, especially about the future." - apparently a Danish saying once attributed to Yogi Berra.

 

[audreyh1]

If one concedes my preference to drain my HSA by age 75, then I don't see any advantage in continuing to contribute more. If someone else does I'd be interested in discussing that logic/strategy - maybe there's something I'm missing.

Both DH and I contributed as long as we could - tax (top line income reduction) benefit and tax free withdrawals. It is basically tax-free savings toward a future expense.

I am still contributing. DH is spending down his to cover his Medicare premiums.

I was 54 and DH 58 when we started contributing, so we didn’t have as many years as some folks did to accumulate funds.

I had already calculated that as we each reached 70 we would have drained most of it, about in time for SS income to be deducting those premiums. Now it’s looking like we might possibly get another year or two.

 

[SecondCor521]

@audreyh1, thanks, I hadn't thought about that aspect of it. I'd guess offhand that between age 70 and 75 when I'm using HSA funds to pay my Medicare premiums, that I wouldn't be able to deduct them as medical expenses.

On the federal return, that's not a big deal because I probably won't itemize. On the state, I lose a deduction equal to 6.5% of my Medicare premiums. That's not a big deal to me but it is something I hadn't thought about.

 

[RunningBum]

Can you not reimburse yourself for the Medicare premiums deducted from your SS? I hadn't thought about this. From a search, this Kiplinger article says you can. https://www.kiplinger.com/article/r...reimburse-you-for-medicare-premiums-paid.html

That makes sense. If you can reimburse yourself form your HSA for other eligible medical expenses, why not this?

Speaking of eligible expenses, are people including their mileage? It's a pretty low rate set each year, $0.18/mile this year, but for me it adds up since most every place I have to go is at least a 45 mile round trip, so I'm over $100 some years.

 

[audreyh1]

Can you not reimburse yourself for the Medicare premiums deducted from your SS? I hadn't thought about this. From a search, this Kiplinger article says you can. https://www.kiplinger.com/article/r...reimburse-you-for-medicare-premiums-paid.html

That makes sense. If you can reimburse yourself form your HSA for other eligible medical expenses, why not this?

Of course, and that’s what we’ll likely do each year with what’s left in the HSA once we each start drawing SS. Currently DH pays CMS Medicare directly from his HSA account.

 

[audreyh1]

@audreyh1, thanks, I hadn't thought about that aspect of it. I'd guess offhand that between age 70 and 75 when I'm using HSA funds to pay my Medicare premiums, that I wouldn't be able to deduct them as medical expenses.

On the federal return, that's not a big deal because I probably won't itemize. On the state, I lose a deduction equal to 6.5% of my Medicare premiums. That's not a big deal to me but it is something I hadn't thought about.

We only have a federal return, and our medical expenses don’t match the Schedule A threshold.

Once long term care expenses come into play (or hopefully not sone bad medical situation - knock on wood) the medical itemization situation could change significantly.

 

[SecondCor521]

Can you not reimburse yourself for the Medicare premiums deducted from your SS? I hadn't thought about this. From a search, this Kiplinger article says you can. https://www.kiplinger.com/article/r...reimburse-you-for-medicare-premiums-paid.html

That makes sense. If you can reimburse yourself form your HSA for other eligible medical expenses, why not this?

Speaking of eligible expenses, are people including their mileage? It's a pretty low rate set each year, $0.18/mile this year, but for me it adds up since most every place I have to go is at least a 45 mile round trip, so I'm over $100 some years.

Generally speaking one can use an HSA for medical expenses that would be deductible on Schedule A. And that includes Medicare B and D.

There are some differences, however - some things that are deductible on Schedule A are not qualified HSA expenses, and there are some things that are qualified HSA expenses but not deductible on Schedule A.

To find out for sure, you'd need to look at the instructions for Form 8889.

My point was slightly different though. If I reimburse my Medicare premiums from my HSA, I am likely prohibited from deducting them on Schedule A. For most people like me who don't itemize, this isn't any real loss.

 

[audreyh1]

That’s correct - you can’t itemize medical expenses that have been paid for or reimbursed from your HSA.

 

[tulak]

I'm not sure what you mean by having "cheap money" available. You've already paid the income tax on your regular earnings. Now it's just money. The tax you paid to get it is now history, and not a factor in this decision.

If you pay from your after tax account, you can let the HSA money grow tax free. If you pay from the HSA, your after tax money can grow, but unless you donate it or die with it you'll eventually pay a tax on it, and you'll also pay tax on any dividends it generates.

If you'd have to sell some funds and incur taxable capital gains, that may be a different story. But if you're in the 32% bracket, it seems like you must have a lot of cash available unless you spend it all on other stuff. I wouldn't be reinvesting in your after tax account if it makes you pay medical bills out of your HSA.

For cheap money, I was referring to anything that is less than my current tax rate (32%), but I agree, that's not relevant. I realize that money is fungible, but I have somewhere else I can put that money instead that is more advantageous (a Mega Backdoor Roth).

I think this is where my situation is different. I don't have cash available after tax. All my savings are done in tax deferred or sheltered accounts. My account breakdown is: 76/22/2 for tax deferred/sheltered/taxable. That 2% doesn't increase in the taxable account (instead it goes down). My focus is to max deferred accounts and a Mega Backdoor Roth.

I agree that if I was saving after-tax, then I would benefit using this money to pay for medical expenses for the HSA, but otherwise, it seems like a better choice to use the HSA funds right now.

Does that make sense or am I still missing something?

 

[FIREarly]

If you die with an HSA balance, the heir must fully withdraw it that same year, and it is taxable.

Appreciate your knowledge, thought HSA was taxable no matter when it was inherited. Good updated info.

Who knows what the law will be in 20, 40, or 60 years.

 

[meleana]

We’ve been using our HSAs to cover Medicare part B and D premiums. We will eventually draw them down for that, and maybe the occasional dental bill. Trying to mostly have them drawn down by early 70s, then two less accounts and related tax filings to deal with.

We do also. We have an HSA and HRA. Might as well draw from those tax free for medical bills. That’s what we have them for.