HSA Refresher Course (For Me)

[ownyourfuture]

As recommended by moderators, I searched for older articles related to HSA’s, but very few, if any of those threads cover more than 1 or 2 specific questions/area’s, & many of them are quite dated. As popular as HSA’s seem to be (especially for members of this forum) I'm thinking this might be helpful for future members as well.

I retired June 2015, & opened my HSA @ HSA Bank in late 2016. I just recently transferred it to Fidelity.

Here’s my basic understanding of HSA’s, & a few questions. Please correct me if any of this is inaccurate, or if I’m missing something.
✓ means it applies to me.

1: You can only open up & make tax deductible contributions, if you have a high deductible, HSA compatible health care plan ✓

2: For 2019, the max contribution is $3,500.00 (Single) ✓ If you’re 55+ for any part of 2019, you can add another 1-k $4,500.00 ✓

3: My HC plan has a deductible of $6,400.00 & zero coverage for dental & vision, even if the deductible has been met. It's my understanding
that I could use (if I chose to) HSA funds to pay for bills related to those 2 areas ?

4: I had a minor medical event in May of 2016. I have all the receipts for my out-of-pocket costs. I was on *Cobra* through November
of that year, & I didn't initiate my HSA until December. With that in mind, if I chose to at some later date, could I use HSA funds
to reimburse myself, even though at the time I had the illness, I had a non HD plan, & hadn’t even opened an HSA yet ?

5: #2 covered maximum annual contributions. Assuming it was all medical related, are there limits to annual distributions ?

6: Assuming there’s still sufficient funds in my HSA, when I turn 65 & go on Medicare, I can use money from my HSA to pay Medicare
premiums ? And even though those premiums are deducted from my SS benefits, I can withdraw money from the HSA tax free to
reimburse myself for the part B premiums, & also use it to pay part D premiums, as well as premiums for Medicare advantage plans ?
(but not medigap) http://www.early-retirement.org/forums/f38/options-with-hsa-88277.html

7: As I've learned here @ ERF, it's best to contribute as much as possible each year, & let it grow tax-free as long as possible.
This is exactly what I'm going to do, as long as I’m able to do so.
Even though I've seen this question answered many times, I'll ask it again just to be absolutely sure.
Assuming the rules don't change, as long as I have the proper receipts/paperwork, 10 years from now, I could take a tax-free
distribution from my HSA, to reimburse myself for the 2 teeth cleanings I'll receive in 2019 ?

 

[audreyh1]

1. Correct.
2. Correct.
3. Correct as long as incurred after you opened the initial HSA account.
4. No. It would have to be expenses incurred after you opened your first HSA account.
5. No limit AFAIK up to emptying the account, obviously.
6. Correct.
7. How long you let it grow completely depends on you. You probably want to use it up at some point.

Last paragraph: yes.

 

[ownyourfuture]

4. No. It would have to be expenses incurred after you opened your first HSA account.

I figured 4 would be a no.
Now I can shred that old paperwork.
Myself, & my file cabinet thank you!

 

[bada bing]

A minor caveat to 1. & 2:
The contribution limits are actually monthly and add up to the annual limit. You have to be covered by only a HDHP for the entire year to get the entire annual contribution limit. Otherwise it is pro-rata by the month covered.

 

[RunningBum]

1. Correct.
2. Correct.
3. Correct as long as incurred after you opened the initial HSA account.
4. No. It would have to be expenses incurred after you opened your first HSA account.
5. No limit AFAIK up to emptying the account, obviously.
6. Correct.
7. How long you let it grow completely depends on you. You probably want to use it up at some point.

Last paragraph: yes.

Agreed on all points. And the using it up part is wise and perhaps overlooked. It passes well to a spouse upon death, but to anyone else I think it becomes immediately taxable. I'm not clear if your executor can withdraw based on saved receipts. I think at some point before 65 I'm going to cash in most of my receipts, and use any left over for Medicare payments and any other expenses.

 

[bingybear]

mod to 1. - you need a HSA compatible health plan. Just because it has a high deductible is not enough.

 

[ownyourfuture]

mod to 1. - you need a HSA compatible health plan. Just because it has a high deductible is not enough.

Corrected

 

[audreyh1]

Our plan is to use the HSA to pay Medicare premiums covering the period between 65 and 70 when it will automatically be taken out of our Social Security checks. This would be the easiest record keeping wise, plus occur after we are no longer eligible to contribute to the HSAs.

For DH paying the Medicare premiums starts next year.

 

[Montecfo]

I hope to have the problem of unused HSA balance!

 

[pjigar]

I hope to have the problem of unused HSA balance!

Lot of us young dreamers will have that "problem". I haven't been reimbursing a penny since last two years and maxing out.

 

[RunningBum]

If I leave an unused HSA balance, it's because I died before I could drain it, so, No, I hope to not have that problem.

Maybe one can hope to have no medical expenses to use against the HSA, but I don't think that's very realistic, and there are always Medicare premiums to use it against. By itself that wouldn't likely use it all, but I'm fairly healthy overall and the idea that I won't have enough medical expenses to use it is long gone unless I die soon and/or suddenly before getting a chance to reimburse myself.

 

[N02L84ER]

If I am on an ACA plan and withdraw money from my HSA to reimburse myself for qualified medical expenses, will the withdrawal increase my MAGI? Is it treated like LTCG and just taxed at 0%? So far, I have not withdrawn anything from my account.

 

[Bir48die]

If I am on an ACA plan and withdraw money from my HSA to reimburse myself for qualified medical expenses, will the withdrawal increase my MAGI? Is it treated like LTCG and just taxed at 0%? So far, I have not withdrawn anything from my account.

You have received some excellent feedback. You will get a 1099-SA which will show both your contribution for the year and your distributions. As long as the distributions are legit (assuming you know qualified expenses) then there is no income reporting. You'll just need to fill out for 8889 for your taxes. If any of the distributions are not qualified then yes they will be taxable.

 

[steelyman]

This thread, along with the recent one about Medicare supplements, has been very helpful for me. The whole thing seems maddeningly confusing and a moving target.

I’m not Medicare-eligible yet and don’t currently qualify for an HSA, but that’ll change and reading of others experiences is a great head start.

 

[ownyourfuture]

If I am on an ACA plan and withdraw money from my HSA to reimburse myself for qualified medical expenses, will the withdrawal increase my MAGI? Is it treated like LTCG and just taxed at 0%? So far, I have not withdrawn anything from my account.

Very good question & I see someone has already posted the answer.
I'll add that information to the original post. However, since you only have approximately 6 hours to make changes to a post, I'll have to copy & paste the entire thing into a new reply.

 

[ownyourfuture]

Update

As recommended by moderators, I searched for older articles related to HSA’s, but very few, if any of those threads cover more than 1 or 2 specific questions/area’s, & many of them are quite dated. As popular as HSA’s seem to be (especially for members of this forum) I'm thinking this might be helpful for future members as well.

I retired June 2015, & opened my HSA @ HSA Bank in late 2016. I just recently transferred it to Fidelity.

Here’s my basic understanding of HSA’s, & a few questions.


1: You can only open up & make tax deductible contributions, if you have a high deductible, HSA compatible health care plan.
True

*Once you turn age 65, you can no longer make contributions to an HSA.
But if funds are still available in the account, you can still use it to make tax free reimbursements to yourself for earlier medical expenses, & other things medical related. See #6 & #7


2: For 2019, the max contribution is $3,500.00 (Single) If you’re 55+ for any part of 2019, you can add another 1-k $4,500.00
$7,000.00 (Family) If you’re 55+ for any part of 2019, you can add another 1-k x 2 = $9,000.00
Correct
**They can each add a catch up contribution of $1000 only if they each have their own HSA**


4: I had a minor medical event in May of 2016. I have all the receipts for my out-of-pocket costs. I was on *Cobra* through November
of that year, & I didn't initiate my HSA until December. With that in mind, if I chose to at some later date, could I use HSA funds
to reimburse myself, even though at the time I had the illness, I had a non HD plan, & hadn’t even opened an HSA yet.
No: You can't use HSA money to pay for qualified medical costs that occurred before the account was initiated.

5: Assuming it’s all medical related, are there limits to annual distributions.
No:

6: Assuming there’s still sufficient funds in my HSA, when I turn 65 & go on Medicare, I can use money from my HSA to pay Medicare
premiums. And even though those premiums are deducted from my SS benefits, I can withdraw money from the HSA tax free to
reimburse myself for the part B premiums, & also use it to pay part D premiums, as well as premiums for Medicare advantage plans.
(but not medi-gap) True

7: As I've learned here @ ERF, it's best to contribute as much as possible each year, & let it grow tax-free as long as possible.
This is exactly what I'm going to do, as long as I’m able to do so.
Even though I've seen this question answered many times, I'll ask it again just to be absolutely sure.
Assuming the rules don't change, as long as I have the proper receipts/paperwork, 10 years from now, I could take a tax-free
distribution from my HSA, to reimburse myself for the 2 teeth cleanings I'll receive in 2019. True

8: When you take distributions from your HSA, as long as the entire amount is used for qualified medical expenses, it ‘will not’ count as income related to
your MAGI (Modified Adjusted Gross Income) FYI: This is the number the feds use to determine if you qualify for health care premium subsidies.
Thanks to circumstances beyond my control, I went over my maximum amount by $305.00 in 2018. The consequences are painful.

 

[audreyh1]

On the family numbers.

If both spouses are 55+ they can each add a catch up contribution of $1000 but only if they each have their own HSA. So the family limit is $9000, not $8000 in that case.

It is generally worthwhile to have two HSA accounts anyway. If the second spouse is younger, they can continue contributing to their own account when the older spouse reaches 65 and contributions to the older spouse’s account must stop. Assuming the younger spouse remains on an HSA compatible health plan when the older spouse moves to Medicare.

 

[ownyourfuture]

On the family numbers.

If both spouses are 55+ they can each add a catch up contribution of $1000 but only if they each have their own HSA. So the family limit is $9000, not $8000 in that case.

Corrected

 

[Smitty700]

This thread, along with the recent one about Medicare supplements, has been very helpful for me. The whole thing seems maddeningly confusing and a moving target.

I’m not Medicare-eligible yet and don’t currently qualify for an HSA, but that’ll change and reading of others experiences is a great head start.

I'm a huge fan of HSAs as they are the most tax advantaged account available. We get a deduction for the money we put in, the money grows untaxed, and the distributions are not taxable when used for qualifying expenses.

And there's no time limit for withdrawals. I've been keeping records of my qualifying expenses since 2016. I don't need the money now, so I keep the money growing in my HSA. When I do need the money, I will apply those distributions against these past expenses that I've tracked.

 

[steelyman]

I'm a huge fan of HSAs as they are the most tax advantaged account available. We get a deduction for the money we put in, the money grows untaxed, and the distributions are not taxable when used for qualifying expenses.

I understand why you’d be a fan. They’re a great option for those who can use them. While working, I had access to an FSA (flexible spending account) which seems similar but I didn’t wise up and use it as early as I should have. Opportunity lost!

Another interesting thing learned (although not applicable to me) are rules regarding HSAs and Medicare.

[ADDED] One tricky thing I recall about the FSA offered to us is that the unused balance at year end was not rolled over into the next year. So there would be a flurry of spending on qualified (and maybe unnecessary) things so the money wasn’t tossed out the window.

 

[Smitty700]

[ADDED] One tricky thing I recall about the FSA offered to us is that the unused balance at year end was not rolled over into the next year. So there would be a flurry of spending on qualified (and maybe unnecessary) things so the money wasn’t tossed out the window.

As you point out, that's the big difference between HSAs and the FSAs. The money in an HSA is not lost if not used in certain time period, as it is in an FSA.We can keep it growing tax free.

 

[bingybear]

I understand why you’d be a fan. They’re a great option for those who can use them. While working, I had access to an FSA (flexible spending account) which seems similar but I didn’t wise up and use it as early as I should have. Opportunity lost!

Another interesting thing learned (although not applicable to me) are rules regarding HSAs and Medicare.

[ADDED] One tricky thing I recall about the FSA offered to us is that the unused balance at year end was not rolled over into the next year. So there would be a flurry of spending on qualified (and maybe unnecessary) things so the money wasn’t tossed out the window.

FSA's have bigger pitfalls. Most notable is that it is (at least in my history) funded by the employee and if all is not used, it is lost. My last employer had done a HRA that the company funded. It was enough to cover all deductibles. I got a pacemaker while under that plan and paid about $250 out of pocket (including spouse health care).

I'm assuming your not being able to fund an HSA is because you don't have a qualifying plan. Hopefully you have a good plan.

There are some things to remember for the HSA, but I haven't found it too involved. It helps to divide it into phases: before medicare, after medicare starts.

I'm just building the HSA buffer as a to help be a LTC fund. I have kept receipts that have not been used as itemized deductions on federal taxes. This way I can pull it later in life when needed.

 

[steelyman]

I'm assuming your not being able to fund an HSA is because you don't have a qualifying plan. Hopefully you have a good plan.

That’s right, my plan is not high-deductible. Looking ahead, when I reach 65, I’ll have some research to do and choices to make.

The big one as things currently stand is between Medigap and Medicare Advantage. Based on information discussed in a few threads, I’ll be better off with Medigap. Who knows what the situation will be when that time arrives? Don’t we all love uncertainty? [emoji6]

 

[bingybear]

The most complicated aspect for me is when people get ACA plans (hsa compatible before CSR)with cost sharing reductions. Sometimes these CSR changes the aspects of the plan and it no longer is HSA compatible. The plan documents don't change to inform you. I would expect the 1095 would at the end of the year.

 

[Smitty700]

The most complicated aspect for me is when people get ACA plans (hsa compatible before CSR)with cost sharing reductions. Sometimes these CSR changes the aspects of the plan and it no longer is HSA compatible. The plan documents don't change to inform you. I would expect the 1095 would at the end of the year.

Very good point.

I'm exactly in that situation. I have what is nominally an HSA plan, but the CSR makes it non-HSA eligible. The name of the plan changes (Oscar Silver HSA to Oscar Silver CSR), but I can't find anywhere in my documents that says that explicitly says it's no longer HSA eligible. I've been aware of this, however, as I remember seeing that information when I initially made the plan selection during enrollment.

But as you point out, that is a very tricky gotcha situation.