How are you (yes you) taking advantage of HSA?

[Aerides]

But, but... part of the "triple tax savings" is no tax on the growth of the funds, no? So isn't investing it within the HSA relevant?

Ok well I guess, but you could just as soon put that money into your IRA or Roth or something.

Either way, it's not a scheme to help rich people launder money or buy surreptitious porsches.

 

[JoeWras]

Ok well I guess, but you could just as soon put that money into your IRA or Roth or something.

Either way, it's not a scheme to help rich people launder money or buy surreptitious porsches.

Oh, I agree about the Porches and rich folks. I think rich folks would see the HSA as a nit account, not worthy of worrying about. "Lost in the noise" as my BIL's brother once said about an inherited IRA.

But once you've maxed your IRAs and 401ks, the HSA is a darn nice investment container for the rest of us.

 

[RunningBum]

But, but... part of the "triple tax savings" is no tax on the growth of the funds, no? So isn't investing it within the HSA relevant?

Yes it is. Many will have already maxed out their Roth/IRA options, or no longer have income to make such contributions.

The tax free growth is the only advantage of paying expenses out of pocket now and withdrawing later. (The tax advantage on the contribution happens whether you use your HSA for expenses now or save them for later.) Very very doubtful the tax savings on that growth is going to pay for a Porsche.

Most people here who have done an HSA for some time seem to have a balance of $50k-$100K. If half that is growth, that's $25K-$50K. Let's say 20% fed+state tax is avoided on the cap gains growth. That's $5K-$10K. Don't blow it all in one place!

 

[JoeWras]

Most people here who have done an HSA for some time seem to have a balance of $50k-$100K. If half that is growth, that's $25K-$50K. Let's say 20% fed+state tax is avoided on the cap gains growth. That's $5K-$10K. Don't blow it all in one place!

You made me look. I wasn't paying much attention. I just crossed $40k. About 1/2 is growth.

I'm thinking a Toyota Highlander is in my near future.

 

[harllee]

Some folks seem to think that an HSA is chump change but DH and I each have over $100,000 in our IRAs. This is a significant part of our planning for our retirement.

 

[JoeWras]

Some folks seem to think that an HSA is chump change but DH and I each have over $100,000 in our IRAs. This is a significant part of our planning for our retirement.

How many hours on a Netjet will that buy?

I think the whole discussion of "rich" along with the other thread about high NW individuals kind of crossed over here in a few posts of levity.

Certainly, an HSA is not chump change for the audience on this board.

 

[pb4uski]

Some folks seem to think that an HSA is chump change but DH and I each have over $100,000 in our IRAs. This is a significant part of our planning for our retirement.

In our case our HSAs are not chump change, but at the same time they are not life changing.... more of a nice to have. They should cover our Part B and Part D premiums, dental and vision for the rest of our lives... so our Medigap premiums will come from other resources.

 

[Montecfo]

Mine is getting closer to $200k. Meaningful but not life changing.

 

[FIREarly]

I seem to be coming to the conclusion that HSAs are most advantageous for (probably rich) people who have large medical bills...
Except for the case where an HSA turns into a tIRA at age 65 which is nice. Is that the primary reason people in this community would consider HSA? Am I missing something?

HSA is amazing! It is a legal triple tax savings for everyone. This is a great YouTube video from an amazing vlogger that explains how to use them legally for any purchase, but it is helpful to use it like other retirement accounts.

https://youtu.be/yom2QOFCmIM

 

[FIREarly]

DH and I started doing HSAs many years ago, contributed the max, invested the money. Now are HSAs are sizable. We plan to move into a Continuing Care Community (CCRC) in the near future. There is a large entry fee for the CCRC and a portion of that entry fee is considered a medical expense under the HSA rules. We plan to take money out the HSA to pay the portion of the CCRC entry fee that is considered a medical expense.

If you are 65+ years old (confirm exact age with IRS) you can take the HSA money out for ANYTHING and tax free.

"If you withdraw money from your HSA for something other than qualified medical expenses before you turn 65, you have to pay income tax plus a 20% penalty. But after you turn 65, that 20% penalty no longer applies, so withdraw away!"
HSAstore.com

https://hsastore.com/learn/accounts/future-healthy-hsa-age-65

AMAZING triple tax savings!!

 

[pb4uski]

If you are 65+ years old (confirm exact age with IRS) you can take the HSA money out for ANYTHING and tax free.

"If you withdraw money from your HSA for something other than qualified medical expenses before you turn 65, you have to pay income tax plus a 20% penalty. But after you turn 65, that 20% penalty no longer applies, so withdraw away!"
HSAstore.com

https://hsastore.com/learn/accounts/future-healthy-hsa-age-65

AMAZING triple tax savings!!

Huh? If you take distributions that are not qualified you have effectively neutered the third tax advantage that is tax-free distributions for qualified expenses.

 

[pb4uski]

HSA is amazing! It is a legal triple tax savings for everyone. This is a great YouTube video from an amazing vlogger that explains how to use them legally for any purchase, but it is helpful to use it like other retirement accounts.

https://youtu.be/yom2QOFCmIM

For any purchase? In the video they only refer to medical expenses.

 

[Aerides]

yes I always get my nuanced health tax regulations pointers from "hsastore" and youtube....

 

[pb4uski]

Surprisingly, the youtube video had it right (I was sort of expecting that they woudl not)... it is just that FIREarly didn't describe it correctly.

 

[FIREarly]

yes I always get my nuanced health tax regulations pointers from "hsastore" and youtube....

This is only to try and help people on this forum with good retirement information. Located the same information from the IRS:
"Additional tax. There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR.
Exceptions. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die."

Loading…

www.irs.gov

 

[harllee]

After age 65 you don't have to pay the 20% penalty on HSA withdrawals used for non medical expenses but you still have to pay income tax on the withdrawal. Most of us over age 65 have plenty of medical expenses so be sure to use HSA withdrawals to pay yourself back for medical expenses. And note that the medical expenses cannot also be deducted on your income tax return.

 

[FIREarly]

After age 65 you don't have to pay the 20% penalty on HSA withdrawals used for non medical expenses but you still have to pay income tax on the withdrawal. Most of us over age 65 have plenty of medical expenses so be sure to use HSA withdrawals to pay yourself back for medical expenses. And note that the medal expenses cannot also be deducted on your income tax return.

+1

Thank you, good information

 

[RunningBum]

This is only to try and help people on this forum with good retirement information. Located the same information from the IRS:
"Additional tax. There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR.
Exceptions. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die."

https://www.irs.gov/publications/p969#en_US_2019_publink1000204093

Please stop. There's not an additional tax for those withdrawals, but there is a tax. Even your hsastore reference has it correct:

Once you're 65, your HSA is treated like a traditional IRA if you withdraw money for non-medical expenses. A traditional IRA is a retirement account in which the contributions and gains are tax-free, but withdrawals are subject to income tax. And that's exactly how it works with an HSA if you're 65+ and use the money for non-medical expenses.

 

[Smitty700]

if you are using the ACA for health insurance another valuable benefit of an HSA is that it reduces your ACA MAGI income which increases your subsidy. This can be substantial. For us it increased our subsidy by about 12% - 15% of the HSA contribution.

I'm using it to increase ACA subsidies in a different way. I'm taking the non-taxable HSA reimbursements for past expenses now as current income. My income for ACA purposes is reduced, and the subsidies are increased.

This has really made our ACA costs very low. Medicare will cost us much more.

 

[meleana]

When my husband was working he put money in it for the tax advantages and also to use for the out of pocket medical expenses not covered by the high deductible employer insurance.


We still have about $33,000 in it and we do use it for medical/dental expenses via the Mastercard associated with it. We will probably use it for the hearing aids he needs as well. We have only invested it in cash.

 

[pb4uski]

Why not move it to Fidelity and invest it for growth? By keeping it in cash, you're missing out on the second leg of the triple tax-advantage... tax-free growth.

 

[meleana]

Why not move it to Fidelity and invest it for growth? By keeping it in cash, you're missing out on the second leg of the triple tax-advantage... tax-free growth.

We could invest it right through the HSA we have but I guess my thought was if we had big medical bills to pay and the market went down that might not be a good thing. I suppose maybe I should look into at least investing some of it.

 

[HenryD]

We could invest it right through the HSA we have but I guess my thought was if we had big medical bills to pay and the market went down that might not be a good thing. I suppose maybe I should look into at least investing some of it.

Our approach is to keep the deductible in cash and invest the rest.

 

[audreyh1]

Interesting tidbit on contributions in the year one turns 65 that I was unaware of - proration of contribution:

That’s correct. DH turned 65 in May, and signed up for Medicare a outlet of months ahead of time, and coverage started May 1. He made contributions for Jan thru April. So 1/3 of the annual allowed contribution.

 

[audreyh1]

We could invest it right through the HSA we have but I guess my thought was if we had big medical bills to pay and the market went down that might not be a good thing. I suppose maybe I should look into at least investing some of it.

We invested heavily during the earlier years, and when DH got close to 65 moved his HSA to be pretty conservative because the plan was to start paying Medicare premiums with it. We were looking at how much he might need in a five year window.