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

[Aerides]

This may be a dumb question about receipts. For eligible medical expenses paid with our HSA debit card, do we still need to maintain documentation? For those, reimbursement essentially occurs at the point of transaction.

Technically, yes, but I think a lot of us are referring to receipts in the abstract. You don't literally have to save a paper folder, but you do need the means to reconstruct the data in the event of an audit from the IRS.

 

[Aerides]

So then the tax law discriminates against healthy rich folks, 'cuz they won't have the receipts to buy the Porsche?! Sorry, bad Monday morning joke

"Damn, I'm 95 years old and never had enough medical expenses to use my HSA money!" - said no one, ever.

 

[audreyh1]

So then the tax law discriminates against healthy rich folks, 'cuz they won't have the receipts to buy the Porsche?! Sorry, bad Monday morning joke

This may be a dumb question about receipts. For eligible medical expenses paid with our HSA debit card, do we still need to maintain documentation? For those, reimbursement essentially occurs at the point of transaction.

Yes. Have some record of the transaction. And also show it wasn’t used for itemized deduction the year it was incurred.

We are paying for Medicare premiums directly from our HSA and so it’s easy to provide the documentation. An annual report/payment history of premiums we paid from Medicare.

Also, if the rich person makes it to Medicare, they are probably paying large Medicare premiums due to IRMAA. Those expenses are HSA qualified.

 

[RunningBum]

I think you're conflating the "buy a porsche" with the "legally withdraw from your HSA" part.

There are three events:

You put in tax-advantaged money
You incur approved medical expenses
You withdraw money to reimburse these expenses

What you do with it after that - porsche, hookers, liquor - is not relevant.

Yes, this. You can pay medical bills directly from an HSA with a check or debit card attached to the HSA account. You cannot buy a Porsche directly from an HSA account.

 

[big-papa]

Saving and investing in it for the post-retirement years. I joined my current employer in 2017 and this is the first company where I've worked who had this available. Been maxing it out but not spending from it for medical bills.

 

[HenryD]

I think you're conflating the "buy a porsche" with the "legally withdraw from your HSA" part.

There are three events:

You put in tax-advantaged money
You incur approved medical expenses
You withdraw money to reimburse these expenses

What you do with it after that - porsche, hookers, liquor - is not relevant.

Hookers and liquor are likely to lead to more approved medical expenses down the road Could you find a doctor crooked enough to prescribe a Porsche for stress relief?

I've had an HSA available to me, IIRC, in various j*bs since they became available. When times are good I've managed to save receipts and avoid spending from it. Over the last few years we've made infrequent large withdrawals to prepay orthodontics and chiropractic, but we're back in max accumulation mode and our balance is at an all-time high.

I keep exactly one year of deductible in cash and invest the rest. I use the HSA for the most conservative elements of my AA, with the idea that this account would get raided before the IRAs and 401ks in a dire emergency. This allows those other accounts to be more aggressive, of course.

We don't expect to use Medicare. The plan is to largely forgo insurance and use the HSA to pay as we go, assuming we follow through with our plan to reside in a LCOL country.

 

[SecondCor521]

So then the tax law discriminates against healthy rich folks, 'cuz they won't have the receipts to buy the Porsche?! Sorry, bad Monday morning joke

This may be a dumb question about receipts. For eligible medical expenses paid with our HSA debit card, do we still need to maintain documentation? For those, reimbursement essentially occurs at the point of transaction.

Personally when I make an HSA distribution, I'll document to my satisfaction which receipts that distribution was for, either with a printout from my HSA Excel spreadsheet, or my paper receipts, or both. I'll put that documentation with my paper printout of my tax return, which goes into a set of rotating file folders where I keep the last three or four years of returns.

If the IRS chooses to audit any of those returns, I just pull out my paperwork. If not, then eventually the paper copy of the return and the associated documentation gets shredded three or four years down the road.

Technically the IRS can go back further in severe cases of fraud, but since I don't do that I'm fine with just the last three or four years of returns in paper form.

In your case, you might just want to print out a copy of your HSA statements or whatever your HSA custodian does for you that way and put that with your tax paperwork.

I think the IRS rules just say that you have to keep reasonable records. I keep all of my paper receipts and an Excel spreadsheet with date, amount, explanation (so I know why it was qualified), and pointer to my documentation.

 

[pb4uski]

OP here.

I will try to settle the debate. It was not hyperbole and was literal. But I was not talking about anything that is illegal. Keep in mind that in my OP I said my conclusion was that it is most beneficial for a rich person with large medical bills. A person in that situation could do the following:

1) Contribute $7200 annually (family max) to HSA with triple tax free benefits for 20 years. Rich person has no problem doing that.
2) Invest entire HSA account in $TSLA and potentially grow the account to $500k or more. Rich person doesn't need this money to be safe.
3) Save all of my receipts for medical expenses which are very high, lets say $30k/year. Never use the HSA to pay these expenses (rich person). Over the course of 20 years I amass receipts for $600k.

Now, I buy a Porsche 911 Turbo S for $300k. I take a $300k distro from my HSA by using the receipts I have saved up for the past 20 years. This was triple tax free money. Might just buy DW one too because she had medical receipts too.

Man, you definitely have way too much time on your hands. Time to get a hobby. I am skeptical that you had this in mind when you wrote the OP. I guess we'll agree to disagree whether someone able to contribute $7,200 a year to a HSA is rich or not. I also doubt that you could find many HSA's that are all-in on TSLA or similar high-flyer stocks... or that would have $30k/year of medical expenses for 20 years in a row. But definitely a valiant attempt to rationalize any illegitimate activity that you might have had in mind when you wrote the OP.

 

[pb4uski]

I think you're conflating the "buy a porsche" with the "legally withdraw from your HSA" part.

There are three events:

You put in tax-advantaged money
You incur approved medical expenses
You withdraw money to reimburse these expenses

What you do with it after that - porsche, hookers, liquor - is not relevant.

+1

 

[harllee]

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.

 

[pb4uski]

^^^ Interesting use of HSA money that I had never heard of.

 

[LiveBelowMeans]

I’ve been taking advantage of the HSA for years. Max contributions with no withdrawals so far. Account is invested in a Vanguard stock fund. Balance now well into 6 figures.

 

[bada bing]

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.

Having helped structure my mom's move into her CCRC a couple years ago, I'm somewhat informed. What you propose is certainly do-able by my read of the rules, but there is a caveat. The single year "medical cost" for a CCRC entrance fee will almost certainly be above the threshold for general destructibility of annual medical spend for that year. The beauty of the HSA is as a mechanism to make medical expenses "Tax deductible" from the first dollar. It would be a bit of a waste to use HSA money paying for the portion of annual medical expenses that are already deductible, should you potentially be able to itemize and get the deduction that way.

Likewise, the monthly rental fee for a CCRC has a component that is considered as medical cost. The same optimization between amounts above/below the deduction threshold applies. Moving into a CCRC is a good way to insure you'll have enough qualified medical expenses to utilize even a big HSA balance.

 

[Montecfo]

I also doubt that you could find many HSA's that are all-in on TSLA or similar high-flyer stocks...

Mine is invested in high-flying stocks Not TSLA, but mostly high multiple long-term long-term secular growers.

Since it is for fast growth medical costs I figured my investments should mirror that.

I could not cash it out and buy a Porsche, tax-free, as my receipts to date are not high enough, a high quality problem.

 

[clobber]

Man, you definitely have way too much time on your hands. Time to get a hobby. I am skeptical that you had this in mind when you wrote the OP. I guess we'll agree to disagree whether someone able to contribute $7,200 a year to a HSA is rich or not. I also doubt that you could find many HSA's that are all-in on TSLA or similar high-flyer stocks... or that would have $30k/year of medical expenses for 20 years in a row. But definitely a valiant attempt to rationalize any illegitimate activity that you might have had in mind when you wrote the OP.

Geez pb4. Yes, it is exactly what I had in mind. It is the reason I wrote the quoted paragraph below. I mean, word for word. Were you just trying to add to your 27,000 posts for no reason? I think we know who has to much time on their hands.

"I seem to be coming to the conclusion that HSAs are most advantageous for (probably rich) people who have large medical bills. They can effectively launder that money into a very tax advantaged account and use it to buy things later in life. If you currently have low medical expenses, then you won't be able to withdraw much tax free down the line."

 

[audreyh1]

^^^ Interesting use of HSA money that I had never heard of.

It’s been discussed here. Just another variant of using an HSA to pay for long term care.

We didn’t want to wait that long to start to draw down our HSAs. But if we’d accumulated well over 6 figures we would have definitely considered that option. Meanwhile we have the itemized medical deductions option for the medical expense portion of CCRC fees.

 

[clobber]

It’s been discussed here. Just another variant of using an HSA to pay for long term care.

Yes, this is a good one. Can you cite the source for what is considered the medical portion?

 

[audreyh1]

Yes, this is a good one. Can you cite the source for what is considered the medical portion?

Friends who bought into a CCRC. Sorry, I don’t have a link for that.

Regardless, a simple google search provides many sources of discussion. https://www.google.com/search?q=por...ense&ie=UTF-8&oe=UTF-8&hl=en-us&client=safari

 

[harllee]

Yes, this is a good one. Can you cite the source for what is considered the medical portion?

The CCRC we are interested in gives you a letter that states the portion of the entrance fee (and annual fee) that is considered a medical expense. If I remember correctly they cite an IRS ruling that backs this up.

 

[teetee]

I do not have a HSA plan.

I do not foresee ever having a HSA plan.

The US Navy provides my health care coverage.

HSA is different from health coverage. It is similar to Roth IRA account with several minor difference and you can sign up your own HSA at a broker such as HSA bank

https://www.hsabank.com/hsabank

Good FAQ for applying your own HSA account:
https://www.merrilledge.com/ask/investing/open-health-savings-account-on-my-own

 

[Trooper]

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

Loss of Eligibility in Month You Turn 65. You lose eligibility as of the first day of the month you turn 65
and enroll in Medicare.

Example. Sally turns 65 on July 21 and enrolls in Medicare. She is no longer eligible to contribute
to her HSA as of July 1. Her maximum contribution for that year would be 6/12 (she was eligible
the first 6 months of the year) times the applicable federal limit (remember to include the catch-up
amount).

 

[pb4uski]

...I seem to be coming to the conclusion that HSAs are most advantageous for (probably rich) people who have large medical bills. They can effectively launder that money into a very tax advantaged account and use it to buy things later in life. If you currently have low medical expenses, then you won't be able to withdraw much tax free down the line.

I think you're misinformed on the last sentence. At a minimum you will each have $1,782/year in Medicare Part B premiums. Then many have Part D premiums which can vary but would likely be $10-25/month. Then add in a couple dental visits a year each and an eye exam and at a minimum you're talking at least $2k a year per person. On top of that you'll have an occasional crown or glasses or contacts so over 20 years you could easily end up spending $50k each even if you're relatively healthy.

If $7,200 a year is so much that only "rich" people can contribute to a HSA, how is it that the ~$4k a year that same couple is later withdrawing for medical expenses isn't "much"?

 

[Sue J]

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. The years we had an HSA plan we contributed the max amount plus the $1000 extra each for age. We both started Medicare early this year and did not have an HDHP HSA plan for those few months so we are done with contributions.

We’ve only taken withdrawals twice, when we had large medical expenses. We had already paid out of pocket and I used the withdrawn money to make the next years contribution. For now we’ll let the balances stay in the HSAs as it is nicely invested and we don’t need the money (isn’t that a lovely concept.)

Also, for us in 2019 the HSA contribution lowered our Federal AGI, which carried over to our State AGI, which got us under the threshold for our Property Tax Homestead Exemption. This will save us $40/month on our property taxes next year. Unfortunately, that’s the only year that we will be under the threshold. Thanks, HSA!

 

[Aerides]

An HSA is simply a way to prepay for medical expenses, and the tax-advantage event occurs with the loading rather than with the medical event.

The added fact that your money, whilst at the HSA, could be invested and growing is irrelevant. You could have put that money in a fund anyway. The only difference is you take the tax savings with the HSA the year you make the deposit, not the year you incur the medical expense. (although of course they could be the same year).

HSAs were not designed for "rich" people. They were designed to encourage folks to save so they aren't floored when they have a big medical expense.

 

[JoeWras]

The added fact that your money, whilst at the HSA, could be invested and growing is irrelevant. You could have put that money in a fund anyway. The only difference is you take the tax savings with the HSA the year you make the deposit, not the year you incur the medical expense. (although of course they could be the same year).

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?