Pull from HSA now?

[qwerty3656]

I also am targeting a certain level of income and use HSA/Roth to fill in the gaps.

After you've gotten the tax benefit of funding HSA, money staying in Roth is better than money staying in HSA. So if I have the medical costs, I pull from HSA, before Roth.

 

[pjm-7]

I was not able to participate in the HSA until after I retired in 2014. I funded it every year until last year when I went on Medicare. I want to draw the account down since it is one more account that I need to handle. I add all of my expenses for the year and take out the money early in the next year and file the required form 8889 for the year when the money is withdrawn. I use the exact dollar amount and do not use a round number. As long as you have all of the documentation you are good.

As to the question about moving the money from one HSA to another HSA and then taking the funds, the IRS does not track the time with a certain custodian (think IRA). I have had three different custodians for my HSA, it is considered one account regardless of the time it was at a particular custodian.

 

[Montecfo]

No, and it was large but I had good documentation so I wasn't concerned. They've never asked.

One thing to remember though is that even though the HSA withdrawal is tax-free that you still need to report it and fill out a form and tick the box on the form that the withdrawal was used for qualified medical expenses.

Yes. No issue there. But I have a very large account and contemplating beginning to draw it. But all expenses since I began are a rather small dent in the total but probably more than I want to risk doing at once.

 

[pb4uski]

@Fermion, perhaps it’s time to clean the barn!

So your executor or executrix doesn't have to!

 

[Phroig]

If you have a good money market option in your HSA and you don't need cash pronto, you could put your planned distributions into the MMF, and withdraw at year-end. (If you're with Fidelity, you can obviously do treasuries/CDs.) I skipped withdrawals entirely in 2023, and won't take any in 2024 until rates come down. I'd rather earn the 5%+ in my HSA than in my taxable account.

 

[Fermion]

If you have a good money market option in your HSA and you don't need cash pronto, you could put your planned distributions into the MMF, and withdraw at year-end. (If you're with Fidelity, you can obviously do treasuries/CDs.) I skipped withdrawals entirely in 2023, and won't take any in 2024 until rates come down. I'd rather earn the 5%+ in my HSA than in my taxable account.

Yes, that is a good point. Might as well wait until Dec 2024 to pull it out.

 

[Rianne]

My HSA is well-funded and growing. I have a beneficiary in case I die. I'm saving it for dental work. Our health expenses are minimal these days. I used it for IPL treatments which are expensive for dry eye. IPL is good for rosacea as well. That was paid with the interest and gains earned over time.

 

[audreyh1]

I think the important thing is figuring out what makes sense to spend the HSA money on and thus have a plan for using up the account. This is somewhat driven by the amount accumulated in the HSA.

For example, some folks with very large balances target long-term care, whereas others may target more modest expenses.

 

[DuluthGA]

My HSA was filled while covered as single life (wife covered at her work). Can I use it to reimburse her expenses?
We never used it thinking we’d save it to old age bills kick in.

 

[imnontrad]

I believe you can only get a reimbursement when the person the bills are for is still being covered (so no reimbursing the kids expenses once they are no longer on your health insurance).
The HSA is great to pay Medicare B&D premiums starting at age 65. But it is absolutely the worst account to inherit since it must be liquidated immediately - and taxes paid.
I just reimbursed myself for the first time this year with the accumulated receipts. I did not want to die and my Executor knowabout that or risk losing the receipts completely.

 

[meleana]

We use our HRA funds first as incurred and then our HSA funds if necessary submitted at the end of the year.

 

[Carbon8]

I've kept totals by year since I had the HDHP, but didn't pull any money out of the HSA for many years. Then, when I wanted tax-free cash, I pulled an amount equal to the oldest year's total. I could have pulled any amount, but figured I'd move that oldest year receipts fold out of the HSA cabinet into the tax history cabinet and mark it "used". That starts the 7 year clock, so I also wrote a "destroy on" date, after which I'm not obligated to defend the total.

I've got enough expenditures to eat up my entire HSA balance, so as long as I'm around to do my taxes, I should get this money out with tax free gains. I've also tried to make it obvious that there's documentation to support tax free withdrawal of the rest. Quite a PITA, but I guess it's kind of worth the trouble. Kind of.

Elegant system, sengsational. I've had something like this in mind but not implemented anything yet. Thank you for sharing.

For the OP:
My suggestion is that you pace the withdrawals from the HSA vs. draining it quickly as it is still a tax deferred investment vehicle so you can trade in it and continue getting growth without tax implications. If you ever do need a large tax free cash infusion, you can always tap the HSA up to the limit of your accrued expenses at that time.

 

[meleana]

I never invested my HSA money. Kept it in cash figuring it was money to spend on needed health expenses.

Also- can the receipts used be tossed out after seven years?

 

[Fermion]

I never invested my HSA money. Kept it in cash figuring it was money to spend on needed health expenses.

Also- can the receipts used be tossed out after seven years?

You at least have it earning 5% in some form of money market or treasuries, right?

 

[meleana]

You at least have it earning 5% in some form of money market or treasuries, right?

Nope. Barely makes any interest.

 

[Montecfo]

I have invested mine fairly aggressively and that has worked out.

 

[audreyh1]

We planned for future use of the HSA funds so we invested more aggressively at first and then gradually pulled back as we started to use the funds for planned medical expenses. But we generally have only a year’s worth to cover payments in cash, still offering a very good yield these days. Our HSA accounts allow FDRXX as the core account.

 

[Fermion]

Nope. Barely makes any interest.

I transferred our HSA to Fidelity last year as there were limited investing options and monthly fees with the old company.

I actually did invest the HSA some during the years and it now throws off $4,000 a year just from the money market at Fidelity. Makes me not feel so bad pulling some out now for medical expenses.

 

[pb4uski]

Nope. Barely makes any interest.

Move it to Fidelity and invest in in their money market paying 5%+ or something else.