Can an HSA get too large?

[chemEguy]

Some quick numbers, our one HSA is at about 180K. My wife has been maxing it for quite some time to lower our taxable over the years. It’s invested 50/50 bond and equity funds. We are both 52, plan to retire end of 2027. The HSA is about 3% of our portfolio.

Our strategy for health insurance once retired will be to take a high deductible policy and fund out of pocket with the HSA until we’re eligible for Medicare.

Granted, a major health issue could easily wipe it out. But family health history is generally favorable. I don’t think having a balance this high is a bad thing but I’m curious about feedback.

 

[Aerides]

You're 52 so...nope, not bad at all. Just keep your receipts and track your expenses so you can access it when you want.

Our HSA is getting up there but we still fund it in full every year. I like having it as well in case I ever want to go out of network, or just spring for that whatever that my insurance won't cover.

But, you cannot fund/reimburse your health insurance premiums with HSA money. Only COBRA, if you elect to use that for the short period after you retire. Regular ACA and Medicare premiums cannot be funded with your HSA. But yes, with a HD plan, you can cover all your out of pocket expenses, we do.

 

[FLSUnFIRE]

Tax treatment upon death is not great but otherwise, IMO, no.

Mine is a bit over 3.5% (I keep it off balance sheet as I view it as self-insurance for health and LTC). I still contribute and save my receipts paying from my regular cash flow... it's a source of "emergency" liquidity and is there if I have a major medical event.

 

[audreyh1]

You're 52 so...nope, not bad at all. Just keep your receipts and track your expenses so you can access it when you want.

Our HSA is getting up there but we still fund it in full every year. I like having it as well in case I ever want to go out of network, or just spring for that whatever that my insurance won't cover.

But, you cannot fund/reimburse your health insurance premiums with HSA money. Only COBRA, if you elect to use that for the short period after you retire. Regular ACA and Medicare premiums cannot be funded with your HSA. But yes, with a HD plan, you can cover all your out of pocket expenses, we do.

Regular Medicare premiums Part B and Part D can be funded from your HSA once you are Medicare eligible. Medicare Advantage premiums too AFAIK.

Since there is only one HSA you’ll need to open a second to take advantage of the additional age 55+ $1000 annual catch up contribution for each individual. Also, assuming the owner is older, they can no longer contribute once they become Medicare eligible (usually 65), so a younger spouse would need their own HSA to continue contributing. You can each continue contributing to your HSAs after retiring as long as you have HSA eligible insurance plans until Medicare. Also depending on who owns the HSA, they would have to be 65+ to pay for or reimburse Medicare premiums for spouse, just a timing issue.

 

[Surewhitey]

We're ~half that & are happy to max every year. I consider it part of our Roth-like strategy and have no doubt we'll eventually use it. Dental, eye & med tests dime you to death over time...

 

[Stormy Kromer]

DW and ER'd 10 years ago with $48k in our HSA and stopped funding it. Today it is worth about $110k. I keep enough liquid balance in it to cover one year's out of pocket expense if needed. The rest in an SP 500 index fund. We used it towards our Bronze plan deductible and other medical related expenses. It is VERY comforting to have this available for medical expenses, it reduces the stress of Dr. visits a great deal. DW just enrolled in Medicare and we plan on using the HSA to pay for parts B and D.

Worst case is that we die with funds in the HSA and it gets taxed, similar to if it were in a traditional IRA. That doesn't bother me. Getting sick and not having money to pay the bills would bother me more.

 

[Flieger]

Only about $32k right now, but continuing to contribute.

I think @audreyh1 is correct that can be used for certain Medicare premiums, and of course, deductibles OOP.

Flieger

 

[sengsational]

If you have and plan to have good insurance, you might have a hard time spending all of the $180K and compounding growth. Not a bad problem to have!

 

[Flieger]

If you have and plan to have good insurance, you might have a hard time spending all of the $180K and compounding growth. Not a bad problem to have!

Yes. It can be used as an "IRA" at/after 65 (paying ordinary income on withdrawals) if you are in the enviable situation of having too much.

Flieger

 

[SecondCor521]

Tax treatment upon death is not great but otherwise, IMO, no.

Because of the tax treatment on death, I've chosen to make a charity the beneficiary of my HSA rather than leave it to my kids as I will the rest of my assets.

My current decision is to fund my HSA only to the level to where I can deplete it at my life expectancy based on known or incurred expenses. I may fund it beyond that point but I have a few years to decide that.

 

[engineernerd]

In addition to COBRA and Medicare (but not Medigap) premiums, HSAs can be used to pay long-term care insurance premiums as well, though there are limits on the amounts.

As audreyh1 pointed out, the benefits of each spouse having his/her own HSA account (if there is an age difference) include
(1) the older spouse being able to pay Medicare premiums from theirs while the younger spouse is not yet eligible for Medicare,
(2) the younger spouse being able to continue to contribute after the older spouse loses the ability at age 65,
(3) both spouses being able to contribute 55+ catch-up contributions.

Link to IRS Pub 969 for 2025: Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans | Internal Revenue Service

 

[Stormy Kromer]

Because of the tax treatment on death, I've chosen to make a charity the beneficiary of my HSA rather than leave it to my kids as I will the rest of my assets.

My current decision is to fund my HSA only to the level to where I can deplete it at my life expectancy based on known or incurred expenses. I may fund it beyond that point but I have a few years to decide that.

That's a great idea. I'll look into updating the beneficiary on ours to a worthy charity.

 

[audreyh1]

Only about $32k right now, but continuing to contribute.

I think @audreyh1 is correct that can be used for certain Medicare premiums, and of course, deductibles OOP.

Flieger

I’m positive about that because that’s exactly what we use it for.

How Your HSA Can Reimburse You for Medicare Premiums and Expenses

Your HSA can reimburse you with tax-free withdrawals even if your Medicare premiums are automatically deducted from your Social Security check.

www.kiplinger.com

https://www.uhc.com/news-articles/medicare-articles/hsas-and-medicare

Medicare | HSAs and Medicare | Fidelity

Know when you can and cannot use HSA dollars to pay for medical expenses before, during, and after you enroll in Medicare at age 65.

www.fidelity.com

 

[audreyh1]

If you have and plan to have good insurance, you might have a hard time spending all of the $180K and compounding growth. Not a bad problem to have!

It can also be used to cover qualified LTC expenses including LTC insurance premiums up to certain age-based annual limits.

 

[pb4uski]

Contrarian view. At one point we had a joint brokerage account, 2 traditional IRAs, 2 Roth IRAs and two HSAs and a pile of 10 years of medical receipts.

I got spooked when I learned that if I died that my non-spouse beneficiary could not do a tax-free withdrawal from my HSA for all those old, paid for receipts ( but could for any unpaid medical bills, but that is a nit, especially now that we are on Medicare and our annual deductible is only $283).

So I did a withdrawal for all those old medical receipts and now do annual withdrawals for the prior calendar year of medical expenses. At the current rate our HSAs will be exhausted in the next 3-5 years. Then there will be two less accounts to keep track of and deal with once we are gone.

As others have said, the tax implications of HSAs for non-spouse beneficiaries is not great. I'd rather that our non-spouse beneficiaries inherit a Roth or even a traditional IRA.

A big HSA might be useful if you or your spouse need many years of nursing home care late in life, but if you don't then it's suboptimal IMO.

 

[Flyfish1]

Nope - grow it. We have about $240K, only just started using it to pay for some expensive injections for DW. Then will leave it alone for a while...hopefully.

 

[Exchme]

It can also be used to cover qualified LTC expenses including LTC insurance premiums up to certain age-based annual limits.

Note that then you cannot deduct the LTC costs from your taxes. You only get one bite at the tax-preferenced apple for any given expense.

 

[Kings over Queens]

Contrarian view. At one point we had a joint brokerage account, 2 traditional IRAs, 2 Roth IRAs and two HSAs and a pile of 10 years of medical receipts.

I got spooked when I learned that if I died that my non-spouse beneficiary could not do a tax-free withdrawal from my HSA for all those old, paid for receipts ( but could for any unpaid medical bills, but that is a nit, especially now that we are on Medicare and our annual deductible is only $283).

So I did a withdrawal for all those old medical receipts and now do annual withdrawals for the prior calendar year of medical expenses. At the current rate our HSAs will be exhausted in the next 3-5 years. Then there will be two less accounts to keep track of and deal with once we are gone.

As others have said, the tax implications of HSAs for non-spouse beneficiaries is not great. I'd rather that our non-spouse beneficiaries inherit a Roth or even a traditional IRA.

A big HSA might be useful if you or your spouse need many years of nursing home care late in life, but if you don't then it's suboptimal IMO.

I share the contrarian view.

To the op's question, can an HSA get too large? My reply, yes, but only to the degree that you can't, don't or won't spend it all before dying.

What a shame to defer all that money and have it grow tax free only to give it all up and pay the taxes on it. T-deferred money is taxed anyway, and Roth's pass tax free anyway. Why not focus on depleting the HSA?

 

[audreyh1]

Note that then you cannot deduct the LTC costs from your taxes. You only get one bite at the tax-preferenced apple for any given expense.

Of course, if you pay from the HSA, you can’t use it as a schedule A tax deduction. That’s true for any eligible medical expense.

 

[pb4uski]

Note that then you cannot deduct the LTC costs from your taxes. You only get one bite at the tax-preferenced apple for any given expense.

No, you can deduct qualifying LTC costs exceeding 7.5% of AGI, as long as you itemize. You can't withdraw them from your HSA and deduct them... no double dipping... perhaps that is what you meant and just worded it incompletely.

 

[Texas Proud]

I will just answer the question in the title... YES..

Back when I was being paid... I was taking a course on investing and the guy who was teaching had an HSA at that time over $1 million... he had invested all his money in Apple stock when it was cheap.. I wonder how big it is now as this was over 15 years ago...

 

[fognostic]

I view the HSA as part of our LTC self-insurance, and it is in no danger of getting too big for that. If we end up not needing it, we or our heirs will get a refund of those "insurance premiums" that gets taxed, but I consider that better than getting no actual LTC insurance premiums returned at all. We're keeping ours and letting it grow from its current $160K.

Withdrawal penalties on HSA's do not apply once you reach age 65, just taxes. At that point, it seems the question becomes can an IRA or 401K get too large? Except that the HSA will always have additional flexibility for paying medical expenses.

 

[Stormy Kromer]

Nope - grow it. We have about $240K, only just started using it to pay for some expensive injections for DW. Then will leave it alone for a while...hopefully.

Hope your wife is OK.

 

[SecondCor521]

What a shame to defer all that money and have it grow tax free only to give it all up and pay the taxes on it. T-deferred money is taxed anyway, and Roth's pass tax free anyway. Why not focus on depleting the HSA?

I agree with you in principal, but there is the question of timing. I'd like to deplete mine before I pass away, but I'd also like to wait before doing so to let the money grow tax free as long as possible.

I have a spreadsheet which targets depletion at my life expectancy. I'm unlikely to get it exactly right, but I at least have a reasonable plan.

 

[audreyh1]

We didn’t amass nearly as much, but we had already allocated the HSA accounts for covering Medicare premiums once each of us reached 65. We pay Medicare.gov directly from each HSA. At some point SS covers the Medicare Part B premiums plus IRMAA on both B and D, thereafter we reimburse ourselves for those premiums until the HSA accounts are depleted. Basically this is very easy to document as a qualified Medical expense. The goal was to deplete the HSA accounts before too long. We have lots of other long term investments and prefer to reduce the number of accounts and associated tax forms.