How to Use Your HSA Account in Retirement?

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G-Man

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When I retire, I will join the retiree healthcare plan from my current employer. This will be a continuation of my current HDHP with an HSA until I reach age 65. So, I should be able to continue to contribute to my HSA until age 65. When I turn 65, my employer offers a HRA (Health Reimbursement Arrangement/Account) to retirees. My wife's company also provides a HRA to retirees. So, we will have 2 HRA accounts starting at age 65 to be used for healthcare premiums/expenses and LTC expenses/premiums.

I'm using the RightCapital and NewRetirement Planner+ retirement planning tools and both tools treat the usage of HSA differently. In RightCapital, it uses HSA dollars at the start of retirement to pay for healthcare expenses. My HSA account will be depleted in the first 5 years. In NewRetirement Planner+, it treats the HSA dollars as a tax-free account that grows until the end of retirement. It does not spend the HSA dollars.

Would love to hear from folks on the best usage of an HSA account in retirement.
 
If you are able to pay your deductibles and co-pays from current earnings/savings, then, old the HSA (invested or not depending on size) until you have accumulated out of pocket health care expenses equal to the HSA value. Then close the account and reinvest the money. Use the HRA money thereafter.
 
Try to spend your HSA in your lift time, with eligible medical expenses, so that it is withdrawn tax free. Your non-spouse heirs would have to immediately withdraw the HSA and it would all be taxed as regular income. I will look to withdraw mine down in the 65-75 age time frame, or however long it takes me to accumulate enough medical expenses.
 
I'm targeting a certain level of income for ACA purposes, so I am drawing some Roth money. I view the HSA money as 1st-to-use Roth money (meaning if I would otherwise withdraw Roth money and I have some previously spent medical expenses, I withdraw HSA instead).
 
G-Man said:
...Would love to hear from folks on the best usage of an HSA account in retirement.
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From when I retired at 56 until I was eligible for Medicare we let our HSAs grow, and were even eligible to contribute a couple of those years since we had HSA eligible insurance plans.

Originally, my plan was to let it all grow tax-free and just keep a good record of receipts and the do a big withdrawal at some point.

However, I became concerned that if I was run over by a beer truck that neither DW or DD would remember to do this and it would create a mess for them. So in 2020 I did a big withdrawal for all of our eligible health care expenses from 2010 (when we established our HSAs) to 2019. Since then, I do an annual withdrawal about the same time that I prepare my tax return for our eligible health care expenses for the prior year (Medicare Part B and Part D premiums, Medicare deductibles, vision, dental, etc.).

At the rate we are going our HSAs will pay for all those costs for the next 15-20 years, and two less accounts will also simplify our estate. So now, our only real out-of-pocket health care expenses will be from our Medigap premiums and everything else is reimbursed from our HSA annually.

I probably could set up a credit card attached to our HSA for those expenses but I prefer the simplicity and control of just doing an annual reimbursement for the previous year's eligible expenses and DW would inevitably use the credit card for some ineligible expense so it isn't worth the bother.
 
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pb4uski said:
From when I retired at 56 until I was eligible for Medicare we let our HSAs grow, and were even eligible to contribute a couple of those years since we had HSA eligible insurance plans.

Originally, my plan was to let it all grow tax-free and just keep a good record of receipts and the do a big withdrawal at some point.

However, I became concerned that if I was run over by a beer truck that neither DW or DD would remember to do this and it would create a mess for them. So in 2020 I did a big withdrawal for all of our eligible health care expenses from 2010 (when we established our HSAs) to 2019. Since then, I do an annual withdrawal about the same time that I prepare my tax return for our eligible health care expenses for the prior year (Medicare Part B and Part D premiums, Medicare deductibles, vision, dental, etc.).

At the rate we are going our HSAs will pay for all those costs for the next 15-20 years, and two less accounts will also simplify our estate. So now, our only real out-of-pocket health care expenses will be from our Medigap premiums and everything else is reimbursed from our HSA annually.

I probably could set up a credit card attached to our HSA for those expenses but I prefer the simplicity and control of just doing an annual reimbursement for the previous year's eligible expenses and DW would inevitably use the credit card for some ineligible expense so it isn't worth the bother.
Click to expand...

So essentially from the start of retirement to age 65, paid my medical premiums/expenses from the retirement income and not HSA dollars. Just keep track of all medical bills including premiums during that time period. At the age of 65, then I could reimburse myself by taking a lump sum withdrawal from my HSA tax-free.
 
Actually it is an excellent thread. Previously, I wanted to follow some advises to keep investing into HSA while using after tax money to pay medical bills. But realized that I may have enough money in Optum Bank HSA to pay for all past health care expenses (at the moment). I'd rather do that to avoid transferring HSA from OB into Fidelity (after retirement) which could be a trouble according to other topics at this forum.
 
G-Man said:
When I retire, I will join the retiree healthcare plan from my current employer. This will be a continuation of my current HDHP with an HSA until I reach age 65. So, I should be able to continue to contribute to my HSA until age 65. When I turn 65, my employer offers a HRA (Health Reimbursement Arrangement/Account) to retirees. My wife's company also provides a HRA to retirees. So, we will have 2 HRA accounts starting at age 65 to be used for healthcare premiums/expenses and LTC expenses/premiums.



I'm using the RightCapital and NewRetirement Planner+ retirement planning tools and both tools treat the usage of HSA differently. In RightCapital, it uses HSA dollars at the start of retirement to pay for healthcare expenses. My HSA account will be depleted in the first 5 years. In NewRetirement Planner+, it treats the HSA dollars as a tax-free account that grows until the end of retirement. It does not spend the HSA dollars.



Would love to hear from folks on the best usage of an HSA account in retirement.
Click to expand...

What other types of accounts is New Retirement Planner leaving unspent? That appears to be a key piece of the puzzle.
 
RunningBum said:
Putting Roths before HSA is a terrible idea. I can't think of one reason you should do it that way. I already pointed out the big reason not to above, that it's tax unfriendly to inherit for a non-spouse.
Click to expand...

What would your order of withdrawal be?
 
G-Man said:
What would your order of withdrawal be?
Click to expand...

At a minimum swap the order and put HSA before Roth. Beyond that, I don't favor an absolute order, and probably few should use up all taxable before moving on to deferred, then all deferred before HSA and so on. That would result in some taxes when drawing from taxable, high taxes drawing from deferred, and then no taxes when drawing from HSA and Roth. Taxes should probably be spread out more evenly over the years. I didn't fully read the paper but a scan didn't see this noted.

For my own situation, I plan to drain down some of my taxable holdings, but not the ones with high unrealized gains. I will have most of my tIRA converted, and the rest used for QCDs, unless my situation changes. I will use the HSA and then Roth before taking the taxable high gains, because those get stepped up basis upon my death. This limits the taxes paid by me, and more money to my heirs. We all win.
 
G-Man said:
So essentially from the start of retirement to age 65, paid my medical premiums/expenses from the retirement income and not HSA dollars. Just keep track of all medical bills including premiums during that time period. At the age of 65, then I could reimburse myself by taking a lump sum withdrawal from my HSA tax-free.
Click to expand...

That's what I did, but you don't necessarily have to do that, you could reimburse yourself anually if you prefer.
 
An HSA-related question, please. If a couple has an established HSA/HDHP but due to a job change decide to go with the regular non HSA/HDHP insurance option at that workplace, can they continue contributing to the old HSA to take advantage of its long term financial benefits?
 
Markola said:
An HSA-related question, please. If a couple has an established HSA/HDHP but due to a job change decide to go with the regular non HSA/HDHP insurance option at that workplace, can they continue contributing to the old HSA to take advantage of its long term financial benefits?
Click to expand...
No, generally you must be currently enrolled in an HSA plan to contribute. For any given tax year, you can only contribute for the months you were enrolled in the HSA compliant plan.

You still have the account and it can continue to grow and you can still use it for paying medical expenses.
 
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Markola said:
An HSA-related question, please. If a couple has an established HSA/HDHP but due to a job change decide to go with the regular non HSA/HDHP insurance option at that workplace, can they continue contributing to the old HSA to take advantage of its long term financial benefits?
Click to expand...

Unlikely, depending on the provider of the plan. In our case, I contribute to a new HSA with fidelity, but no longer add to the old one. I targeted that one for the first to be emptied, as, like PB4USKI does upthread, I now withdraw annually to avoid any complications of letting the reimbursement matching info get too old.
 
I was keeping my HSA "for later" but about 10-12 years ago I changed my mind and flushed it all over a two year period. My wife had been executor for two of her family members (different times). Both had first dollar health care insurance. When I saw how relieve she was when she went through a stack of medical "bills" that all showed zero owed I decide then and there to get this paper mess behind me. When someone is ill or dies there are a ton of administrative activities to be done. Any that I can prevent in advance is a gift to her.
 
Aerides said:
Unlikely, depending on the provider of the plan. In our case, I contribute to a new HSA with fidelity, but no longer add to the old one. I targeted that one for the first to be emptied, as, like PB4USKI does upthread, I now withdraw annually to avoid any complications of letting the reimbursement matching info get too old.
Click to expand...
My situation is similar. I have a Fidelity HSA with a significant balance (very low six figures), which I'll start using once I retire. I have a second one through work. I take regular distributions from that one. This year, I'll take one big distribution in December; meanwhile, the money's invested in a money market fund earning 5% tax-free.
 
I'm a reimburse once a year type of guy.

I'm afraid if I wait too long I may kick the bucket suddenly and leave the pot of gold unused.
 
jebmke said:
I was keeping my HSA "for later" but about 10-12 years ago I changed my mind and flushed it all over a two year period. My wife had been executor for two of her family members (different times). Both had first dollar health care insurance. When I saw how relieve she was when she went through a stack of medical "bills" that all showed zero owed I decide then and there to get this paper mess behind me. When someone is ill or dies there are a ton of administrative activities to be done. Any that I can prevent in advance is a gift to her.
Click to expand...

That is exactly why I changed.
 
We use it to pay for medical expenses. The last couple years we have had some fluke high medical expenses so using the HSA keeps our overall income ok for ACA.
 
I am still about 7 years from Medicare, and now cannot pay into HSA. I have great free insurance through GF, so will continue to keep it invested. At 65 probably will use some of the income stream it can kick off to pay for Medicare premiums. Going to let it ride and grow to use as a defacto nursing home fund. Am keeping all menial receipts to if needed pull out tax free.
Hopefully I can get it out before I die, but if I dont. Oh well its still free money for my daughter and her tax rate would be lower than mine anyways if money is in it.
 
I keep my HSA funds in an account in Fidelity, solely invested in a covered call ETF (QYLD) and have the dividends deposited to the same account in a money market fund (FDRXX). The ETF currently has a yield over 11% and the money market has a yield of 4.90%. On a monthly basis, I take out a fixed amount that is less than the monthly dividend and use it for general expenses.

I pay all medical bills with a credit card that currently is returning 2.5% cash back that is deposited into a different Fidelity account with the same yield of 4.90%. Lastly, I store all significant medical invoices in a folder. Although, this will ultimately leave monies in the HSA, it is nice to know that the income provided will last my lifetime and provides a nice cushion for unexpected expenses.
 
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