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Medical Deduction vs. HSA
Old 12-15-2016, 01:00 PM   #1
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Medical Deduction vs. HSA

So I am doing my 2016 taxes. I discover I can take the medical deduction for the first time in my life. Income is low and of course I paid insurance premiums after tax.
This puts a spanner into the works of my current plans. I was saving receipts from each year for many years to pull out of my HSA in the future. So I had to go through the big un-ordered envelope and pull out 2016 receipts.
Now I can burn 2016 receipts as part of the medical deduction. I have to clear the 10% hurdle and of course the standard deduction. The deduction of premiums helps a lot with that for a family of 4.
I am thinking I burn them in 2016 even though the 'return' is low. Inflation makes them worth less in the future and I figure I will have a lot of expenses in the future. I already have a lot saved up. Way more than the money in the HSA.
Now once you burn them you can't use them in the future for the HSA as they would become income in the future year (unless there was some maximum cutoff I hit).
I would use the extra deduction to convert to Roth. Problem with that is that it increases AGI and reduces the medical deduction. I have to model once I know the dividend distributions of my ETF's for this year. I should make a wild guess and play with it but I am too lazy.
I am sure others have thought about this and done it in the past and would like to hear your thoughts.
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Old 12-15-2016, 01:22 PM   #2
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I took the medical deduction one year, knowing I wouldn't be able to use what I wrote off for HSA distributions. I figure eventually in my life I'll still have enough medical expenses to use against my HSA that I won't ever get taxed on distributions. You can even pay medicare premiums with HSA money.

I don't recall what games I played juggling Roth conversions with the schedule A deduction. I know I did a partial distribution that year. I'm not at all convinced I knew how to optimize it all 5 years ago (or even now, if I'm honest), so I don't think I can help there. Sounds like you have a good handle what the trade-offs are, and maybe you just need to fill out some sample tax returns to see what works best for you.
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