How to pay medicare premium with HSA money?

[fh2000]

I am starting medicare next January. I figure it is time to use my HSA funds for Part B.

I have HSA account in Fidelity. Can I set up auto pay in Medicare.gov to withdraw premium out of Fidelity account? Or the only way to do it is that I pay from my checking, and ask Fidelity to reimburse me?

 

[cathy63]

Are you collecting Social Security? If so, the Part B premium is automatically deducted. You would need to use Fidelity's EFT service to transfer the same amount of money out of your HSA or have them send you a check.

If you're not collecting SS yet, then you could use Fidelity's BillPay service to pay for Medicare directly. I haven't done this, but my Fidelity HSA account screen says it can be enrolled in BillPay.

Medicare can also pull payments from a checking or savings account, but I don't know if they can pull from an HSA account. If you want to have them auto-pull the funds from your regular bank account, then you can use Fidelity's EFT service to reimburse yourself.

 

[pb4uski]

Not on SS yet. I just pay them like our other expenses and then do a big withdrawal each January for the previous years expenses.

 

[audreyh1]

I am starting medicare next January. I figure it is time to use my HSA funds for Part B.

I have HSA account in Fidelity. Can I set up auto pay in Medicare.gov to withdraw premium out of Fidelity account? Or the only way to do it is that I pay from my checking, and ask Fidelity to reimburse me?

To pay directly from your Fidelity HSA account, you can set up BillPay in your Fidelity HSA account and/or use the Fidelity HSA debit card to pay via Medicare.gov. We do this.

DH started Medicare last May.

We ordered the Fidelity HSA debit card on the account just in case we might need it.

First couple of times we used the HSA debit card to pay via Medicare.gov because of timing and uncertainty over schedule and exact bill amounts.

Then when it came to a regular amount and schedule/deadlines, we used the Medicare instructions to set up bill payment from the HSA account. The first time we paid a month in advance because we didn't know how quickly the payment would be credited. We found that generally the payment was credited within a couple of weeks of receipt. Often sooner.
https://www.medicare.gov/your-medicare-costs/ways-to-pay-part-a-part-b-premiums/online-bill-payment

Nice thing the HSA account shows when the check was withdrawn, and generally Medicare credits your account the next day. Fidelity has to mail CMS MEDICARE a physical check, so they make you schedule at least 3 days in advance. Then Medicare takes some time to process it - the first time took almost 2 weeks, faster thereafter.

Once we felt we understood the timing, we went ahead and scheduled the payments for the rest of the year. Now we have to wait until December to find out what the 2021 amounts are going to be.

Another option is Medicare Easy Pay which drafts from an account, but we weren't comfortable with using this approach to directly withdraw from the HSA account because we can't add funds to the HSA account anymore, and timing could get tricky when the account gets low and we need to switch methods. Plus people have reported having an extra payment withdrawn when starting SS, and then reimbursed later to the account. Well, that doesn't work too good with an HSA account.
https://www.medicare.gov/your-medicare-costs/ways-to-pay-part-a-part-b-premiums/medicare-easy-pay

 

[fh2000]

Thank you all. Sounds like I will start by ordering a debit card from Fidelity.

 

[fh2000]

I have a new question regarding to using HSA account debit card to pay all eligible expenses.

I understand that my HSA funds can also be used to pay DW's eligible expenses since we file MFJ on tax return.

If I use the debit card issued by HSA account administrator, I should receive 1099-SA form listing all the withdraws for the year. I can use it to generate Form 8889. I then have no need to save any receipts. Is that how it works?

 

[audreyh1]

Just to be clear, a person has to be 65 to pay for their spouse’s Medicare premiums from their HSA account. Other qualified medical expenses don’t have that strange restriction when it comes to paying for spouse or dependents.

I think anything that shows premiums were paid to Medicare would be sufficient. In our case I think we’ll just save the online Medicare bill payment history in addition to the 1099-SA form.

This is our first year for HSA withdraws for qualified medical expenses.

 

[BrianB]

Why not pay the premium with a credit card, collect the points / rewards, then reimburse yourself when it's convenient? Medicare.gov states that there is no fee or surcharge for paying by CC.

It is also safer, as a data breach exposing your HSA debit card would be a far greater problem than if it was a credit card.

BrianB

 

[mn54]

Why not pay the premium with a credit card, collect the points / rewards, then reimburse yourself when it's convenient? Medicare.gov states that there is no fee or surcharge for paying by CC.

It is also safer, as a data breach exposing your HSA debit card would be a far greater problem than if it was a credit card.

BrianB

+1 collect the 2% on your credit card with no cost. at the end of the year take the money out of the HSA. this is what I do.

 

[fh2000]

+1 collect the 2% on your credit card with no cost. at the end of the year take the money out of the HSA. this is what I do.

That sounds good. Since I have never done this before, do you just call HSA firm, and ask them to send you a check? Will that be recorded on 1099-SA for tax processing?

 

[BrianB]

I can only speak about Fidelity, that is where we have ours.

We asked for a book of paper checks (no fee) for our HSA account. When we want to do a reimbursement I write a check out payable to *me*, signed by *me*, and endorsed on the back by *me*. It may seem a little strange but that's how it works.

Then I use photo-deposit on my cell phone to deposit the check to our Fidelity Cash Management account or Investing Account. I keep a copy of the check with copies of the invoice(s) being reimbursed in the tax file for the year of the reimbursement.

Fidelity only tracks the amounts distributed from your HSA. You don't send any of the details with your tax return, but it is your responsibility to keep records of what you are taking the reimbursement for.

BrianB

 

[RetireAge50]

I have a Fidelity HSA. Both the funding and reimbursement is done by doing a transfer to/from my linked credit union checking account. No paper. Done on either the computer or phone app.

 

[Happyras]

I guess I am not clear as to why someone would pull funds from an HSA account that is earning on its investments tax free. The only reason I could see to do so would be if we had no other after tax funds to pay. We consider the HSA a quasi Roth account, whereas if we keep our receipts we can withdraw a reimbursement anytime if needed, but it is such a great tax break to have earnings without future taxes, why else would one withdraw it?

 

[SecondCor521]

I guess I am not clear as to why someone would pull funds from an HSA account that is earning on its investments tax free. The only reason I could see to do so would be if we had no other after tax funds to pay. We consider the HSA a quasi Roth account, whereas if we keep our receipts we can withdraw a reimbursement anytime if needed, but it is such a great tax break to have earnings without future taxes, why else would one withdraw it?

The taxation of HSA accounts at death is worse than IRAs IMHO. So my plan is to build up my HSA to about age 70 then try to deplete it.

(Possibly dumb) question:

I have a Fidelity HSA but it's nearly entirely invested in ETFs. What happens if I attempt a disbursement when there isn't enough cash in the account?

 

[MichaelB]

The taxation of HSA accounts at death is worse than IRAs IMHO. So my plan is to build up my HSA to about age 70 then try to deplete it.

(Possibly dumb) question:

I have a Fidelity HSA but it's nearly entirely invested in ETFs. What happens if I attempt a disbursement when there isn't enough cash in the account?

Interesting question. I would assume the transaction would be rejected. If you don’t have the cash available in the HSA account, why not just put it on your credit card or use your regular bank account, then reimburse yourself from the HSA account when the funds are available.

 

[SecondCor521]

Interesting question. I would assume the transaction would be rejected. If you don’t have the cash available in the HSA account, why not just put it on your credit card or use your regular bank account, then reimburse yourself from the HSA account when the funds are available.

I'm not personally worried, just more of a curiosity thing.

My plan is to make my first HSA disbursements in 19 years, so I've got time to put in a sell order before then

 

[bada bing]

I guess I am not clear as to why someone would pull funds from an HSA account that is earning on its investments tax free. The only reason I could see to do so would be if we had no other after tax funds to pay. We consider the HSA a quasi Roth account, whereas if we keep our receipts we can withdraw a reimbursement anytime if needed, but it is such a great tax break to have earnings without future taxes, why else would one withdraw it?

+1
One of the beauties of an HSA account is collecting receipts, possibly for years, that can be used at anytime in the future to withdraw against tax free. Taking money from an HSA for qualified bills when you have taxable funds available is akin to pulling from a Roth under the same circumstance.

The taxation of HSA accounts at death is worse than IRAs IMHO. So my plan is to build up my HSA to about age 70 then try to deplete it.

Your estate can use un-used qualifying medical receipts you've collected on your final return to withdraw the money tax free. Most people will have final medical expenses "on the way out" that qualify as well. If you leave the funds in your HSA for tax free growth after incurring qualifying medical expenses it is important to keep the records of your unused receipts for your potential estate. The estate taxes on HSA funds that are not covered by qualified expenses are less advantageous.

I would guess it isn't common to have an HSA balance that is larger than a person's total qualifying expenses. The majority of people won't need to worry about taxes on their HSA, paid by themselves or their estate if they manage their receipts.

 

[audreyh1]

That sounds good. Since I have never done this before, do you just call HSA firm, and ask them to send you a check? Will that be recorded on 1099-SA for tax processing?

I can only speak about Fidelity, that is where we have ours.

We asked for a book of paper checks (no fee) for our HSA account. When we want to do a reimbursement I write a check out payable to *me*, signed by *me*, and endorsed on the back by *me*. It may seem a little strange but that's how it works.

Then I use photo-deposit on my cell phone to deposit the check to our Fidelity Cash Management account or Investing Account. I keep a copy of the check with copies of the invoice(s) being reimbursed in the tax file for the year of the reimbursement.

Fidelity only tracks the amounts distributed from your HSA. You don't send any of the details with your tax return, but it is your responsibility to keep records of what you are taking the reimbursement for.

BrianB

You can do a simply online transfer out of your HSA account to other Fidelity accounts.

 

[audreyh1]

Interesting question. I would assume the transaction would be rejected. If you don’t have the cash available in the HSA account, why not just put it on your credit card or use your regular bank account, then reimburse yourself from the HSA account when the funds are available.

Agreed. I think you have to have the funds available in your core account.

 

[SecondCor521]

+1
Your estate can use un-used qualifying medical receipts you've collected on your final return to withdraw the money tax free. Most people will have final medical expenses "on the way out" that qualify as well. If you leave the funds in your HSA for tax free growth after incurring qualifying medical expenses it is important to keep the records of your unused receipts for your potential estate. The estate taxes on HSA funds that are not covered by qualified expenses are less advantageous.

I would guess it isn't common to have an HSA balance that is larger than a person's total qualifying expenses. The majority of people won't need to worry about taxes on their HSA, paid by themselves or their estate if they manage their receipts.

Yes, I know.

Starting an HSA at age 50, making maximum annual contributions to age 65, investing the account into equities, not withdrawing until age 70, and hopefully dying cheap means that I may face a runaway HSA where there are not enough expenses to deplete it, even taking my final medical expenses into consideration.

Another factor for me is to avoid complicating my heirs' lives. With my HSA strategy, there's a worthwhile amount of gain; I don't feel the need to extract every last cent out of the process (and the potential taxes on the remaining excess HSA balance are a counterbalancing risk to me trying to do so).

 

[audreyh1]

I guess I am not clear as to why someone would pull funds from an HSA account that is earning on its investments tax free. The only reason I could see to do so would be if we had no other after tax funds to pay. We consider the HSA a quasi Roth account, whereas if we keep our receipts we can withdraw a reimbursement anytime if needed, but it is such a great tax break to have earnings without future taxes, why else would one withdraw it?

You’ve gotta use it up sometime. We chose to use it for something very easy to document and able to do direct billpay from the HSA account. For us it bridges Medicare premiums from 65 until drawing SS at 70. Once we each are no longer able to contribute, we start drawing down. We have plenty of tax deferred funds and are very tired of saving medical receipts. And we can get rid of two more accounts and associated tax filings sooner rather than later.

 

[gauss]

Don't throw out the medical receipts!

If I use the debit card issued by HSA account administrator, I should receive 1099-SA form listing all the withdraws for the year. I can use it to generate Form 8889. I then have no need to save any receipts. Is that how it works?

NO!
You should save the receipts until the statue of limitations to audit your return has expired.

If you return is audited, in general, you will need to show bills for qualified medical expenses AND proof that you paid them in order to not risk having the expense disallowed.

If you don't like having the paper receipts around, perhaps you could scan them and save digital copies instead.

-gauss

 

[fh2000]

NO!
You should save the receipts until the statue of limitations to audit your return has expired.

If you return is audited, in general, you will need to show bills for qualified medical expenses AND proof that you paid them in order to not risk having the expense disallowed.

If you don't like having the paper receipts around, perhaps you could scan them and save digital copies instead.

-gauss

Thank you. After googling 1099-SA form, I can now see why the receipts should all be saved in case of audits. HSA firm only reports one Gross Distribution number on Line 1. It is up to us to track what all those detail transactions are.

 

[audreyh1]

I guess I am not clear as to why someone would pull funds from an HSA account that is earning on its investments tax free. The only reason I could see to do so would be if we had no other after tax funds to pay. We consider the HSA a quasi Roth account, whereas if we keep our receipts we can withdraw a reimbursement anytime if needed, but it is such a great tax break to have earnings without future taxes, why else would one withdraw it?

You’ve gotta use it up sometime. We chose to use it for something very easy to document and able to do direct billpay from the HSA account. For us it bridges Medicare premiums from 65 until drawing SS at 70. Once we each are no longer able to contribute, we start drawing down. We have plenty of tax deferred funds and are very tired of saving medical receipts. And we can get rid of two more accounts and associated tax filings sooner rather than later.

I should add that once we pass 70 (knock on wood), financial simplification becomes a priority. I’ll be gradually getting rid of excess credit cards and accounts. And simplifying investments - a process I have already begun by identifying the simpler setup so that we can make judicious moves as opportunities arrive. The idea is that by the time the 80s arrive the financial picture is as simple as possible - including tax returns. Spending down our HSA accounts makes sense to us in that context. It also matches the amounts. If we’d had the accounts longer and built up 6 figures we might have held out for CCRC/LTC. But administering specifically nursing home expenses from an HSA is leaving it rather late unless you have a child who can manage your expenses for you.