Our HSA went crazy this year! Up $150,000

[rmcelwee]

I'm posting this as a response to the current "we never had an HSA" thread.

I think we started our HSA in 2013. We did take maybe $2,000 out of it the first year but never withdrew again (until now) but contributed the max each year. My employer only had crappy funds with high fees in so we moved it to another provider who offered a nice Vanguard 500 fund. We continued contributing to the employer HSA (so two HSA's at the same time) and my employer eventually changed providers who offered that same Vanguard fund. When I retired in 2022 I kept both HSA's open but consolidated them over to Fidelity in February of this year. This let me move my investment to TQQQ and that took off like a rocket. We did pull $20K out in August (for 10 years of expenses) and will look at it again in 2024 since I think I can pull out the money I spent on 18 months of COBRA coverage ($27,000). We used both withdraws for living expenses.

FWIW, the value of the HSA now stands at $270,000 and I will probably move it back to a 500 fund this year. We consider this to be enough to pay for all our healthcare needs for the rest of our lives. Hopefully we are correct...

 

[audreyh1]

Looks like you’ll be able to cover major long term care with that!

 

[G-Man]

I'm posting this as a response to the current "we never had an HSA" thread.

I think we started our HSA in 2013. We did take maybe $2,000 out of it the first year but never withdrew again (until now) but contributed the max each year. My employer only had crappy funds with high fees in so we moved it to another provider who offered a nice Vanguard 500 fund. We continued contributing to the employer HSA (so two HSA's at the same time) and my employer eventually changed providers who offered that same Vanguard fund. When I retired in 2022 I kept both HSA's open but consolidated them over to Fidelity in February of this year. This let me move my investment to TQQQ and that took off like a rocket. We did pull $20K out in August (for 10 years of expenses) and will look at it again in 2024 since I think I can pull out the money I spent on 18 months of COBRA coverage ($27,000). We used both withdraws for living expenses.

FWIW, the value of the HSA now stands at $270,000 and I will probably move it back to a 500 fund this year. We consider this to be enough to pay for all our healthcare needs for the rest of our lives. Hopefully we are correct...

Not familiar with TQQQ. I have my HSA invested in FXAIX.

 

[audreyh1]

We are spending ours down now, so invested fairly conservatively.

Late start and didn’t amass as much, so we are using to pay Medicare premiums.

 

[Eucerin]

I had HSA plan in 2012, 2013 and 2014, and then switched job to another company that offered non-HSA plan. I invested them in a fidelity low cost fund and then switched to Apple stock. I cashed it out two weeks ago. Total 107k.
Leave 7k to medical spending, and the 100k invested in short term treasury

 

[mpeirce]

Impressive.

Our HSA has coasted into the low six figures and we have started to use it for our, so far modest, health expenses. Ours is at Benefit Wallet and invested in Vanguard Total market.

I'll keep adding to it while I can of course.

Inheriting an HSA by a spouse it fine, but inheriting by someone else isn't great.

 

[G-Man]

I had HSA plan in 2012, 2013 and 2014, and then switched job to another company that offered non-HSA plan. I invested them in a fidelity low cost fund and then switched to Apple stock. I cashed it out two weeks ago. Total 107k.
Leave 7k to medical spending, and the 100k invested in short term treasury

I was thinking about switching from Fidelity mutual fund to Apple stock this year as well. Only started contributing to my HSA several years ago.

 

[MarieIG]

Impressive.

Our HSA has coasted into the low six figures and we have started to use it for our, so far modest, health expenses. Ours is at Benefit Wallet and invested in Vanguard Total market.

I'll keep adding to it while I can of course.

Inheriting an HSA by a spouse it fine, but inheriting by someone else isn't great.

After the passing of the second spouse, perhaps leave that account to charity, and other more favorable accounts to heirs.

 

[mpeirce]

After the passing of the second spouse, perhaps leave that account to charity, and other more favorable accounts to heirs.

I haven't researched this extensively but my understanding is that the HSA is taxed as income to the estate with regular taxes due.

What's left can obviously be left to people or charities. But that's after tax money.

 

[MarieIG]

I haven't researched this extensively but my understanding is that the HSA is taxed as income to the estate with regular taxes due.

What's left can obviously be left to people or charities. But that's after tax money.

https://www.marketwatch.com/story/what-are-the-rules-for-inheriting-an-hsa-2020-09-25

I found the above article, but it is from 2020 - and I am not an accountant so cannot verify its contents - but naming a charity the beneficiary (or contingent beneficiary if this is an option) of the HSA - funding the charity after the passing of the first spouse, might be something OP and his spouse may wish to discuss with their tax / estate planning specialist.

 

[Errollyn]

We did pull $20K out in August (for 10 years of expenses)

First, congrats on the run-up. Second, how have you tracked medical expenses, and to what detail? Like are you keeping receipts every time you buy eye drops, or did you have large expenses that the $20k were used against?

 

[mpeirce]

Interesting.

Yes, it looks like the charity can be the BENEFICIARY and get the money tax free.

Also, I noticed that if you specify a person, it goes to them and is taxed at their tax rate. If you leave it to your estate, it get's taxed as part of your "final" year's taxes. So there may be a benefit to one approach over the other depending on the beneficiary - basically what's your marginal tax rate vs theirs.

 

[rmcelwee]

First, congrats on the run-up. Second, how have you tracked medical expenses, and to what detail? Like are you keeping receipts every time you buy eye drops, or did you have large expenses that the $20k were used against?

It was much easier to do when I was working and had my workplace health insurance (Aetna). I logged on to Aetna and downloaded a history of expenses. I also logged on to Walgreens (where we got all our prescriptions) and grabbed their records. I think I came up with $24K in expenses. We rounded that down to $20K and have our fingers crossed that we never get an audit. I'm sure a paper receipt is better but hopefully the PDF files we got will suffice.

As far as current expenses, we started using an HSA provided credit card for everything. Some of our health care providers charge extra for using a CC and we do not get our 1% / 2% rewards we had with our regular credit card but we decided that it is just easier to do it that way. I'll start claiming it yearly starting at the end of 2024.

 

[rmcelwee]

Looks like you’ll be able to cover major long term care with that!

Yes, that was one of the main goals. I'm so happy that we decided way back then to take advantage of the HSA program and invest the money.

 

[Montecfo]

I haven't researched this extensively but my understanding is that the HSA is taxed as income to the estate with regular taxes due.

No. It is passed to heirs, not taxed at the estate level. As someone already said, to a spouse it continues to be an HSA. To other heirs it is taxable when received, net of any remaining medical expenses incurred by the owner and paid within a year.

Now, if you leave it to the estate, then it is taxed to the original owner. Doubt anyone would recommend that.

 

[MarieIG]

Interesting.

Yes, it looks like the charity can be the BENEFICIARY and get the money tax free.

Also, I noticed that if you specify a person, it goes to them and is taxed at their tax rate. If you leave it to your estate, it get's taxed as part of your "final" year's taxes. So there may be a benefit to one approach over the other depending on the beneficiary - basically what's your marginal tax rate vs theirs.

Agreed. There is also the "stretch" for the IRAs, the step up for taxable accounts, etc.

 

[audreyh1]

https://www.marketwatch.com/story/what-are-the-rules-for-inheriting-an-hsa-2020-09-25

I found the above article, but it is from 2020 - and I am not an accountant so cannot verify its contents - but naming a charity the beneficiary (or contingent beneficiary if this is an option) of the HSA - funding the charity after the passing of the first spouse, might be something OP and his spouse may wish to discuss with their tax / estate planning specialist.

Thanks for the link.

That sounds like a great option and could simplify things considerably. We hope to spend ours down.