HSA Security

[Rianne]

I can run Firecalc 10 different ways and hike that yearly spending to the max just to include possible health issues since we don't have a long-term health policy. We have approx. $25K in our HSA, turning 65 this year so no more contributions. I feel pretty comfortable with our HSA balance and won't touch it until we absolutely need it.

How do you use your HSA? Is it a health safety back-up plan?

 

[HenryD]

Ours is a health and general emergency fund. I have receipts totaling about 40% of the $60k balance. If all goes well we'll leave it invested until FRA then use it for past and then-current healthcare costs. We're at 53/50 still contributing to DW's and getting some matching, but that will stop when earned income stops in a couple of years.

 

[Aerides]

We continue to max our HSA contributions every year for tax purposes, and have around $50k with over 10 years to Medicare, so we'll continue to add as we tend to like our HSA-eligible ACA plan. We've

I pay myself back every few months after I tally receipts. It's really no big deal one way or the other whether I withdraw or not.

 

[easysurfer]

I max out contributions. I do reimburse myself for qualified medical expenses. Most of my reimbursements have been for dental care.

 

[RunningBum]

I max contributions and save medical receipts. It's there (to the extent of medical expenses since opening) for my to use if I need tax free money. I pulled $1000 out of it once. Probably at 65 I'll start doing planned withdrawals with the intent to get it to $0 as I have medical expenses to use against it.

I definitely will pull from this before my Roth because an inherited HSA must be immediately withdrawn and taxed as regular income. I've seen where my heir could use the HSA tax free to pay for my medical expenses for up to 12 months. It's not clear to me if that includes old expenses I have receipts for. Even if it does, that seems like an unnecessary complication to leave. So, unless I die from a sudden illness or accident, by 70 I'm going to withdraw everything I can tax free and then reimburse myself for any medical expenses I have after that.

 

[Lakedog]

Contributed to an HSA for approx 10 years (until turning 65 last year) but haven't withdrawn any funds yet. Invest primarily in individual stocks with a balance now over $100k. Haven't really decided when to use so just keeping receipts. Medicare premiums are about the only HSA qualified health care expense I have currently (other than small amount of dental) as my federal health plan covers what medicare does not.

 

[jollystomper]

We first became eligible for an HSA in 2017 and have used it primarily to reduce our taxes. This year and next year will be the final, partial contributions are we both turn 65. Our eligible receipts are currently about 45% of the balance, but reimbursement may not be a priority. We are transitioning from Megacorp retiree health care into the wild world of Medicare in less than a year. I am talking the time to figure out if we use the HSA to reimburse the past expenses or use all of it for Medicare and future expenses. The point about using it for dental expenses may be wise, as that is the area where coverage will drop the most, and future expenses most likely to be the highest.

 

[RunningBum]

I don't see how it matters what you use it on as long as you have receipts, since you can reimburse yourself whenever. I just track and save all receipts, and have two numbers: my HSA balance, and the total of all unused receipts. When I withdraw, I'll be using it against that unused receipt number, and not worrying about whether it is for this month's Medicare or last month's dental or something 10 years ago.

 

[RunningBum]

On the other hand, if you just prefer to earmark money for certain things, go ahead and do it your way. Just know that you don't have to overthink of it.

 

[Rianne]

Current OOP medical expenses we just pay. We haven't started WD from the portfolio and won't for a couple of years. I wish I'd started contributing to the HSA earlier but didn't understand the rules on ACA and having a high deductible plan in order to contribute until later. When I figured that out, thanks to this forum, I got the Bronze high deductible plan.

I guess I'm thinking dental work, and glasses since we'll be on Medicare this year.

 

[RunningBum]

Current OOP medical expenses we just pay.

Have you kept the receipts? That's the trick to be learned here. Pay medical expenses out of pocket, let the HSA grow tax free, and withdraw at some later point. You don't have to directly pay a medical bill from an HSA account. You can reimburse yourself later, even much later, as long as it was an expense incurred after you opened the HSA account.

That's why I'm puzzled when you keep talking about specific uses like dental. You don't have to be. You can have $5K in other medical bills, $10K in Medicare premiums, and $10K in dental and you've covered tax free withdrawal on the whole $25K.

Mileage driven for medical purposes are also reimbursable. Worthwhile for me because my providers are 20-40 miles away.

I keep a spreadsheet one line per expense. When I get a bill, I make an entry in the spreadsheet, and give it a code like 2022-01 for the first expense of 2022, write that code on the bill, and scan the bill and file it on my computer. And I also put the receipt in a shoe box, on top of previous receipts so that they are all in order. No need to do both, but I did the shoebox for years and only started scanning a couple years ago.

 

[swakyaby]

Have about $50K in the HSA, and use it for some of the ongoing health expenses, including expensive dental crowns and vision care. Mainly use for DH’s Medicare premium which has been $615/month lately due to IRMAA. I still have 4 more years to go before Medicare, so I contribute the maximum amount.

 

[audreyh1]

We simply used our HSAs as a tax advantaged way to save and invest for future medical expenses, and are pretty plan to use them up to pay Medicare Part B premiums (and Part D IRMAA) until Social Security check covers them. Anything left over will reimburse for Medicare premiums.

 

[SecondCor521]

I'm 53 and have only had an HSA for a few years.

At this point to fund my HSA I would need to sell from taxable, incurring capital gains and impacting my ACA subsidies and my kids' FAFSA. So right now I don't fund it that way.

I do redirect my cash back from my Fidelity 2% Visa to my HSA. That gives me full value of the points and results in a tax deductible HSA contribution.

I might have excess income in a few years and think I will fund it then.

Because HSA's don't inherit well, I plan to monitor my contributions and limit them to where I will be able to drain it to zero by age 80 just based on Medicare premiums and what expenses I've accumulated so far.

I'll drain it of accumulated expenses at age 65, then annually for Medicare premiums thereafter.

 

[RunningBum]

At this point to fund my HSA I would need to sell from taxable, incurring capital gains and impacting my ACA subsidies and my kids' FAFSA. So right now I don't fund it that way.

You may have other reasons to not contribute, but this shouldn't be it. The ACA subsidy and FAFSA are both based on some form of AGI, right? I know the ACA is, and a quick FAFSA google says it is too.

An HSA contribution shows up on 1040 line 10, reducing AGI on line 11. Selling anything with a non-zero basis and using the proceeds to make an HSA contribution is a net reduction to AGI.

 

[pb4uski]

.... How do you use your HSA? Is it a health safety back-up plan?

We first started our HSAs about 2010 and just made contributions and let them grow from 2010 to 2020. Beginning in 2020 when we turned 65 I decided to start draining them down. While I have an anlysis of our qualified expenses and a big file of receipts, I didn't want to risk that upon my demise that DW and DD would know what to do, so I did a big withdrawals in 2020 for our qualified expenses for 2010-2019.

For 2021 and 2022, I did withdrawals for qualified expenses for the prior year... mostly Medicare Parts B and D, deductibles and co-pays, dental and vision, etc. Those are about $5k a year for 2, most of which is Part B ($170.10*12*2 = $4,082.40 in 2022)

 

[The Cosmic Avenger]

Have you kept the receipts? That's the trick to be learned here. Pay medical expenses out of pocket, let the HSA grow tax free, and withdraw at some later point. You don't have to directly pay a medical bill from an HSA account. You can reimburse yourself later, even much later, as long as it was an expense incurred after you opened the HSA account.

That's why I'm puzzled when you keep talking about specific uses like dental. You don't have to be. You can have $5K in other medical bills, $10K in Medicare premiums, and $10K in dental and you've covered tax free withdrawal on the whole $25K.

Mileage driven for medical purposes are also reimbursable. Worthwhile for me because my providers are 20-40 miles away.

I keep a spreadsheet one line per expense. When I get a bill, I make an entry in the spreadsheet, and give it a code like 2022-01 for the first expense of 2022, write that code on the bill, and scan the bill and file it on my computer. And I also put the receipt in a shoe box, on top of previous receipts so that they are all in order. No need to do both, but I did the shoebox for years and only started scanning a couple years ago.

I have a coworker who pays their current medical expenses out of their HSA, and I'm puzzled by that, too. To me it's exactly like withdrawing early from a retirement account -- in addition to the principle amount, a lot of future gains will not be realized. We're finally loosening our belts a bit since it feels like we're solidly FI, but the first thing we did is stop contributing to backdoor Roths, because 1) it was a pain, and 2) we wanted to reduce our taxes.

 

[Markola]

I have a coworker who pays their current medical expenses out of their HSA, and I'm puzzled by that, too. To me it's exactly like withdrawing early from a retirement account -- in addition to the principle amount, a lot of future gains will not be realized. We're finally loosening our belts a bit since it feels like we're solidly FI, but the first thing we did is stop contributing to backdoor Roths, because 1) it was a pain, and 2) we wanted to reduce our taxes.

Why puzzling? Folks need medical care sometimes.

We have an HSA but have never been able to accumulate a balance, due to using it for its purpose: navigating life’s expensive ailments in the American non-system. Doing so helped us maximize our workplace retirement plans for years, allowing us to semi-FIRE at 54.

 

[Rianne]

For 2021 and 2022, I did withdrawals for qualified expenses for the prior year... mostly Medicare Parts B and D, deductibles and co-pays, dental and vision, etc. Those are about $5k a year for 2, most of which is Part B ($170.10*12*2 = $4,082.40 in 2022)

For some reason, I was thinking you could not use HSA funds to pay those premiums. A discussion in the past here, I can't remember what thread. I just googled it and see you cannot pay the premiums for the part G plan (private insurance) from HSA.

Edit: I am the owner of our HSA. DH turns 65 after me so I can pay his part B and D premiums from the HSA. If he turned 65 before me, I could not use HSA funds to pay his premiums, although he is on the HSA.

 

[pb4uski]

That would be Plan G Medigap, and you are correct... Medigap premiums are not qualified medical expenses... why is stil one of those mysteries for me but it is what it is.

But you can use HSA funds Parts B and D (and I suppose also Part A if you are one of the few who have to pay Part A premiums), deductibles, co-pays, dental and vision.

 

[swakyaby]

I am the owner of our HSA. DH turns 65 after me so I can pay his part B and D premiums from the HSA. If he turned 65 before me, I could not use HSA funds to pay his premiums, although he is on the HSA.

I was not aware of this restriction. The HSA I have is also set up under my name. But I have been directly paying Medicare Part B premiums for DH since last year. I begin Medicare in 4 more years.

 

[SecondCor521]

You may have other reasons to not contribute, but this shouldn't be it. The ACA subsidy and FAFSA are both based on some form of AGI, right? I know the ACA is, and a quick FAFSA google says it is too.

An HSA contribution shows up on 1040 line 10, reducing AGI on line 11. Selling anything with a non-zero basis and using the proceeds to make an HSA contribution is a net reduction to AGI.

Yes, I think you're correct on that analysis.

I think there was some other reason I decided not to contribute, and at the time I thought my analysis of that other reason was correct, so I just remembered the conclusion of "Don't contribute for now, contribute later".

I think the real reason has more to do with my whole financial picture, which I'll leave out for now but is mainly because I want to preserve my taxable account and I think I'll have more opportune years in the future to contribute. I also don't have that much in qualified medical expenses yet and don't anticipate accruing any in the near future. My accrued expenses are already only about 17% of my HSA balance at the moment.

 

[mpeirce]

But you can use HSA funds Parts B and D (and I suppose also Part A if you are one of the few who have to pay Part A premiums), deductibles, co-pays, dental and vision.

You can also use HSA funds to pay Advantage plan premiums and copays.

My DW uses the HSA debt card to pay copays and we are saving up the premium payments for later reimbursement.

 

[Animorph]

Once the contributions are in, an HSA is like a Roth for us. I have saved receipts and eliminated any that were deducted already on our income taxes, a little twist I hadn't caught on to before I started.

When our financial planning calls for Roth withdrawals (and it does eventually), we will withdraw from the HSA's first, up to whatever we can cover with our receipts. Hopefully we can drain them relatively quickly and avoid the receipt paperwork and inheritance problems.

 

[Irishgirlyc58]

This has been a very informative thread!
I turn 65 in September 2023. It’s my understanding that I can contribute a prorated amount to my HSA next year.
So, $4,650/12x8= $3,100.
Does anyone know if I’m understanding correctly?
TIA.