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

[RunningBum]

HSA money will very likely be the last money I have.

You might want to rethink that. If you die with an HSA balance and it goes to anyone other than your spouse, the entire balance is taxable to them in the year you die. In other words, it suddenly becomes like a tIRA, but without even the 10 year withdrawal period.

I'm going to use up my HSA before my Roth, to the extent I have qualifying medical receipts or expenses. Once you've contributed to the HSA, it really behaves mostly like a Roth, in that both grow tax-free and withdraw tax free (with the qualifying medical expense caveat). So unless I'm missing something, it makes more sense to keep the Roth for last if you can.

https://www.irahelp.com/slottreport/why-your-kids-don’t-want-your-hsa covers this well.

 

[RobbieB]

I had an HSA that was part of my employer's health plan. They made contributions to off set the higher employee costs with the new plan. I kept contributing after I retired and use the dough for copays and dentist.

Can no longer contribute so I'll run it dry.

 

[pb4uski]

I like HSA's triple tax advantage. Tax-deduction for contributions, not taxes on growth and not taxes on withdrawals for qualified expenses. What is not to like?

My employer offered one near the end of my career and I hopped on board and maximized contributions. Kept it up for a couple years after I retired and we were buying HSA eligible plans. Once we no longer had HSA eligible plans we just let it grow.

Earlier this year I did a withdrawal for our qualified medical expenses from 2010-2019. From here on, we'll reimburse ourselves annually for the prior year Medicare Part B and Part D premiums, dental and vision. Later, we can use if for nursing home costs if needed.

 

[SecondCor521]

Admittedly, my knowledge of money laundering is limited to what I see on Ozarks and Narcos. My analogy was based on the fact that you can invest money in the HSA and later use it to buy a Porsche. You do this by taking distributions and claiming the expense is medical. All perfectly legal right now, but still feels a bit like laundering from a dirty (taxable) account to clean (triple tax free).

Bolding mine.

If you take a distribution for a non medical expense and then claim that it was for medical, you would make that claim on line 15 of Form 8889, which you would file with your taxes in the year that you make that distribution.

That would be perjury (see the "Under penalties of perjury" statement above where you sign on the 1040). It is probably also tax fraud and is 100% illegal. I wouldn't do it and wouldn't recommend it. I'm fairly certain nobody here is doing that or recommending that.

 

[Keim]

Have had an HSA for over 10 years. Have incurred some significant medical costs during that time. Just "cashed in" about 10k worth of receipts to pay for DD 1st semester of college.

 

[athena53]

I always maxed out what I could put into an employer plan when it was available; made too much $$ to contribute on my own in the 4 years post-retirement and pre-Medicare although I had an ACA HD plan. I've got about $35K in mine, which is not a big % of my assets.

I'm still on the fence about how/when to use mine. I just realized that some of my otherwise-eligible expenses, mostly dental and insurance premiums, may have been declared as itemized deductions in the years I paid them. I'm pretty sure you can't "double-dip". Sounds like it's time to consult my brother the retired tax accountant.

Now that this thread has prompted me to think if it, I should probably use it in a year when I have high medical/dental expenses but not enough to go over the threshold (7.5%, 10%, whatever it is) to itemize. That would reduce the draw from my after-tax accounts. So far dental implants have been my major spending in that category and I'm sure I'm not done with those.

 

[Cobra9777]

...Are HSA accounts "Individual"? In other words, can I use my account to pay for DW's expenses and (later) premiums?

...You can have separate or a single account, and sharing is allowed.

...It is a family HSA, so I can use it for DW bills, as well as bills for DS from 2017 until he came off our insurance...

It's my understanding that HSAs are all titled as individual accounts, just like IRAs. There are no "joint" or "family" HSAs. Of course, you can contribute more to the HSA when family members are covered by the HDHP. But the HSA itself is still an individual account. Also, you are always allowed to use HSA funds to pay qualified medical expenses for your spouse, or any dependents on your tax return, even if they are not covered by the HDHP.

 

[JoeWras]

If you take a distribution for a non medical expense and then claim that it was for medical, you would make that claim on line 15 of Form 8889, which you would file with your taxes in the year that you make that distribution.

That would be perjury (see the "Under penalties of perjury" statement above where you sign on the 1040). It is probably also tax fraud and is 100% illegal. I wouldn't do it and wouldn't recommend it. I'm fairly certain nobody here is doing that or recommending that.

Correct. I think the op's "laundering" statement was a bit of hyperbole, but also kind of true. The suggestion of buying a Porche would be as illegal as laundering.

I doubt the big time rich people would bother, though. The amount one can amass in an HSA is chump change for them.

 

[FireFool]

My reading is that an HSA is the best savings vehicle from a tax perspective that there is. Tax free - including FICA - going in. Tax free growth while in the account and no taxes coming out to the extent you have out of pocket medical cost receipts.

If you are a HCE that's passing the FICA wage limit, my understanding is that HSA's merely shift that limit by a comparable amount. When I was working we had my wife who was below the FICA limit hold our family HSA. Since we both worked for the same company we didn't have to contend with any decisions/differences in health coverage.

 

[RunningBum]

...

I'm still on the fence about how/when to use mine. I just realized that some of my otherwise-eligible expenses, mostly dental and insurance premiums, may have been declared as itemized deductions in the years I paid them. I'm pretty sure you can't "double-dip". Sounds like it's time to consult my brother the retired tax accountant.

Now that this thread has prompted me to think if it, I should probably use it in a year when I have high medical/dental expenses but not enough to go over the threshold (7.5%, 10%, whatever it is) to itemize. That would reduce the draw from my after-tax accounts. So far dental implants have been my major spending in that category and I'm sure I'm not done with those.

https://www.early-retirement.org/forums/f28/distributions-from-an-hsa-88977.html quotes the tax code on no double dipping. I was thinking I could at least use the amount under that threshold for HSA reimbursement, but people here convinced me I couldn't.

This year I'll probably be over the threshold in medical expenses, but probably not enough to overtake the standard deduction. I'll probably have $0 for federal taxes anyway, but I will owe state taxes, so I will probably run the numbers to see whether to use medical expenses as part of my itemized deduction, or for future HSA distributions.

 

[bada bing]

You might want to rethink that. If you die with an HSA balance and it goes to anyone other than your spouse, the entire balance is taxable to them in the year you die. In other words, it suddenly becomes like a tIRA, but without even the 10 year withdrawal period.

I'm going to use up my HSA before my Roth, to the extent I have qualifying medical receipts or expenses. Once you've contributed to the HSA, it really behaves mostly like a Roth, in that both grow tax-free and withdraw tax free (with the qualifying medical expense caveat). So unless I'm missing something, it makes more sense to keep the Roth for last if you can.

https://www.irahelp.com/slottreport/why-your-kids-don’t-want-your-hsa covers this well.

I have assumed that an estate can clear the HSA balance covered by unused, outstanding qualifying medical receipts on the final tax return. I don't know that for a fact though. The article you linked made no mention, which seems odd if it is an oversight. It is an arcane factoid that could be useful to know.

The "last money" comment by me is an individual situation because I am fairly unlikely to incur enough qualifying medical expenses to clear my HSA before I croak. The important concept is to treat your HSA more like a Roth by waiting for expenses rather than like a tIRA by withdrawing before you have a qualified expense to cover it. If you don't have enough qualified medical expenses to currently clear your HSA balance, you may get there "on the way out" without an opportunity to do it yourself. I may be wrong about the way taxes work on that though.

 

[bada bing]

https://www.lordabbett.com/en/persp...unts-rollovers-beneficiaries-other-rules.html

I was right Doesn't happen that often
The amount that is required to be included in gross income by any beneficiary (other than the estate) is reduced by the amount of qualified medical expenses that were incurred by the decedent prior to death and paid by the beneficiary within one year of death.

 

[Rianne]

You might want to rethink that. If you die with an HSA balance and it goes to anyone other than your spouse, the entire balance is taxable to them in the year you die. In other words, it suddenly becomes like a tIRA, but without even the 10 year withdrawal period.

I'm going to use up my HSA before my Roth, to the extent I have qualifying medical receipts or expenses. Once you've contributed to the HSA, it really behaves mostly like a Roth, in that both grow tax-free and withdraw tax free (with the qualifying medical expense caveat). So unless I'm missing something, it makes more sense to keep the Roth for last if you can.

https://www.irahelp.com/slottreport/why-your-kids-don’t-want-your-hsa covers this well.

Good advice, I did not think about that.

 

[SecondCor521]

Correct. I think the op's "laundering" statement was a bit of hyperbole, but also kind of true. The suggestion of buying a Porche would be as illegal as laundering.

I doubt the big time rich people would bother, though. The amount one can amass in an HSA is chump change for them.

I didn't read OP's post #17 on this thread as hyperbole. I read it literally.

Agree with you on the second point that the standard HSA loophole strategy that many here (including me) follow is more of an enhancement than a key to wealth.

 

[Trooper]

You might want to rethink that. If you die with an HSA balance and it goes to anyone other than your spouse, the entire balance is taxable to them in the year you die. In other words, it suddenly becomes like a tIRA, but without even the 10 year withdrawal period.

I'm going to use up my HSA before my Roth, to the extent I have qualifying medical receipts or expenses. Once you've contributed to the HSA, it really behaves mostly like a Roth, in that both grow tax-free and withdraw tax free (with the qualifying medical expense caveat). So unless I'm missing something, it makes more sense to keep the Roth for last if you can.

https://www.irahelp.com/slottreport/why-your-kids-don’t-want-your-hsa covers this well.

Great points. thanks. We've been covered by an HDHP since ER and have contributed the max to the HSA each year since, mainly to allow a higher level of Roth conversions.

We haven't dipped into it much as medical premiums are not yet a qualified expense (we're under 65). And I'm probably guilty of ultra-conservative investing -- I have the HSA in a Fidelity MMF -- thereby losing out on tax-free growth. Just can't force myself to put in equities, which I know is not very rational.

 

[JoeWras]

I realized I didn't answer the original question.

Right now, we are using the HSA as an investment vehicle. In my first year of having it, I used it to pay some medical bills. After I did my taxes, I realized the paperwork was a bit unwieldy. So for now, just letting it ride.

The plan is to use it for LTC premiums and/or Medicare premiums after age 65 to 70, or so. The paperwork on that should be very simple.


...


Or, I could buy a Porsche.

 

[RunningBum]

The amount that is required to be included in gross income by any beneficiary (other than the estate) is reduced by the amount of qualified medical expenses that were incurred by the decedent prior to death and paid by the beneficiary within one year of death.

The part I bolded makes me uncomfortable. I've got receipts going back to 2009, when I first opened an HSA. I can use those to draw from my HSA tax-free. But if I die, it doesn't seem my beneficiary gets a tax break on those, because they were paid by me, not the beneficiary.

My read on this is, if I get sick and rack up a bunch of bills, and die, my beneficiary can pay those bills (within a year of death), and the amount they pay reduces the income from the inherited HSA.

I could be wrong. I could consult a tax expert, but it's not a huge amount, and I see no drawbacks at all from withdrawing from the HSA to the extent of my medical receipts before withdrawing from a Roth, so that's my plan.

 

[RunningBum]

I didn't read OP's post #17 on this thread as hyperbole. I read it literally.

I didn't take it literally, but if it is, that's tax fraud, and I would hope they get audited on it and charged.

I'm all set if I happened to get audited. I have a spreadsheet, with correlated paper receipts and scanned copies of those saved as backup. I won't even break a sweat about it.

 

[EastWest Gal]

Yes, HSA accounts are individual, although you can pay for qualified medical expenses for spouses and dependent children out of your HSA account.

There are family HSA plans under an employer sponsored plan. I had one through my former employer. It’s in my name but I contributed for myself and DH. I was able to contribute the max for both of us.

Going forward, even if you aren’t working, you can contribute to an HSA as long as your health insurance is HSA eligible. We will contribute to my HSA and open one for DH if we need it to stay under the ACA cliff next year.

 

[audreyh1]

There are family HSA plans under an employer sponsored plan. I had one through my former employer. It’s in my name but I contributed for myself and DH. I was able to contribute the max for both of us.

Going forward, even if you aren’t working, you can contribute to an HSA as long as your health insurance is HSA eligible. We will contribute to my HSA and open one for DH if we need it to stay under the ACA cliff next year.

That was your HSA account, not a joint HSA account. If both spouses want to contribute the over 55 catchup contribution of $1000, then the other spouse must open a second HSA account for themselves.

https://www.peoplekeep.com/blog/how-hsa-contribution-limits-work-for-spouses
https://thelink.ascensus.com/articles/2019/3/19/family-coverage-does-not-mean-family-hsa

 

[clobber]

I didn't take it literally, but if it is, that's tax fraud, and I would hope they get audited on it and charged.

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.

 

[JoeWras]

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.

Hey OP, thanks for the clarification! Hey, as long as you have the medical bills, what you say is legal. I'm sorry I mentioned hyperbole.

Actually, you do have a good point about rich folks. Many self-insure, so there's a good chance they'll have significant bills to pay.

Now, there's only one small glitch: you have to find the TSLA to invest in. That ain't easy.

 

[SecondCor521]

OP, thanks for the clarification.

Yes, that is legal. While money is fungible so you can think of it that way, in the IRS' eyes what you did is reimburse yourself for those medical expenses and then used your reimbursement money to buy a Porche (or two).

 

[Aerides]

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.

 

[Trooper]

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.