Can an HSA get too large?

[dobig]

Late to the party but catching up and have a question going into retirement this year. We're 55 and have $69k in our 2 HSA's. We'll be retired this July and will be going on COBRA for the rest of the year. For 2027 if we get an HSA ACA plan we can contribute $9,750 to the HSA, reduce our MAGI by that $9,750 and use those monies to pay for any out of pocket expenses for our plan. And if we don't use all that money it will continue to grow until we might eventually need it for long term care?

Seems too good to be true so want to verify.

 

[Exit 2024]

Late to the party but catching up and have a question going into retirement this year. We're 55 and have $69k in our 2 HSA's. We'll be retired this July and will be going on COBRA for the rest of the year. For 2027 if we get an HSA ACA plan we can contribute $9,750 to the HSA, reduce our MAGI by that $9,750 and use those monies to pay for any out of pocket expenses for our plan. And if we don't use all that money it will continue to grow until we might eventually need it for long term care?

Seems too good to be true so want to verify.

Correct, except that contribution limits for 2027 are not established yet, they are most likely will be higher than $8750 for family plan in 2026. Plus $1k catch up for each of you, spouse will need to open his/her own HSA to get that additional $1k of contributions. So total is $10750 plus whatever limit adjustment will be set for 2027.

 

[SecondCor521]

Let's take this bit by bit.

Late to the party but catching up and have a question going into retirement this year. We're 55 and have $69k in our 2 HSA's. We'll be retired this July and will be going on COBRA for the rest of the year. For 2027 if we get an HSA ACA plan

Generally you have to have an HSA eligible plan and not have any other disqualifying coverage. In 2027, all Bronze and Catastrophic plans are HSA eligible by law; there could be a Silver plan or two that are HSA eligible, but probably not.

we can contribute $9,750

Assuming you're married and have family coverage, in 2026 the max between the two of you is $8750. The 2027 number will be higher by some inflation adjustment.

In addition, if you are over 55, you can contribute a $1000 catchup to your HSA. Likewise your spouse can contribute a $1000 catchup to their HSA.

to the HSA, reduce our MAGI by that $9,750

Correct. HSA contributions are an adjustment to income and reduce AGI.

and use those monies to pay for any out of pocket expenses for our plan.

As long as they're eligible HSA expenses, which is pretty much OOP stuff. It can also be used for OTC medications and some medical things like bandaids. Menstrual products and I think anti-COVID stuff are also covered.

And if we don't use all that money it will continue to grow until we might eventually need it for long term care?

As long as your LTC expenses are HSA eligible (see IRS Pub 502 to confirm), then yes.

One caveat is that you are not allowed to use HSA funds to reimburse yourself for expenses which you deduct on Schedule A.

Seems too good to be true so want to verify.

I think HSAs are a nice tax thing.

 

[RunningBum]

Just be sure to read this whole thread. I'm sure the topic of lousy tax consequences to your heirs if you die with a balance has been mentioned.

 

[dobig]

Let's take this bit by bit.



Generally you have to have an HSA eligible plan and not have any other disqualifying coverage. In 2027, all Bronze and Catastrophic plans are HSA eligible by law; there could be a Silver plan or two that are HSA eligible, but probably not.



Assuming you're married and have family coverage, in 2026 the max between the two of you is $8750. The 2027 number will be higher by some inflation adjustment.

In addition, if you are over 55, you can contribute a $1000 catchup to your HSA. Likewise your spouse can contribute a $1000 catchup to their HSA.



Correct. HSA contributions are an adjustment to income and reduce AGI.



As long as they're eligible HSA expenses, which is pretty much OOP stuff. It can also be used for OTC medications and some medical things like bandaids. Menstrual products and I think anti-COVID stuff are also covered.



As long as your LTC expenses are HSA eligible (see IRS Pub 502 to confirm), then yes.

One caveat is that you are not allowed to use HSA funds to reimburse yourself for expenses which you deduct on Schedule A.



I think HSAs are a nice tax thing.

Wow, sort of floored of all the advantages and at the same time sort of ticked how frivously we spent HSA money for years having zero idea of all the benefits. Not sure why we didn't pay more attention years ago. Just sort of pure dumb luck we have saved what we have. HSA always seemed like a 'shrug', ok some time in the distant future you can use it like an IRA.

Appreciate the detailed response.

 

[pb4uski]

While the benefits of HSAs are great, there is a peril for non-spouse beneficiaries in that withdrawals for qualified medical expenses for services not within a year of the decedent owner's passing are taxable and are not tax-free withdrawals.

See discussion up thread. Many people who keep a pile of medical receipts thinking that they can withdraw at any time could get caught up in this limitation.

For example. DW and I each have HSAs and we are primary beneficiaries and our 2 kids are contingent beneficiaries. While we don't do it, let's say we have $20k of qualified medical expense receipts from 2024 and earlier years and we don't withdraw because we prefer to have that $20k continue to grow tax free. We die simultaneously and our kids inherit our HSAs. That $20k will be taxed.

Another peril is if I die and DW doesn't realize that she can do that $20k withdrawal tax free so she doesn't and then she dies. Same outcome.

OTOH, if DW or I withdraw that $20k while one of us is alive then it would be tax-free.

So a few years ago I withdrew all of our old receipts and now do annual withdrawals to mitigate that risk.

 

[tulak]

This is why I plan to use the HSA for all medical expenses once I retire, in addition to cashing out all old receipts.

I don’t need to optimize here and using the HSA to pay for medical expenses is fine with me, even at a younger age. At 52 and a 6 figure HSA (just barely), odds are it’ll be a challenge to spend down.

 

[Flyfish1]

I think it will be easy to spend it down to almost nothing as we age. If you start thinking about long term care costs or expensive necessary medical equipment or in home nursing..heck that money is gone in a year. We are sitting on about $240K at age 62/63 but we are tapping it for expensive treatments as needed.
My trust is my contingent beneficiary, wife is primary.

 

[Aerides]

This is why I plan to use the HSA for all medical expenses once I retire, in addition to cashing out all old receipts.

I don’t need to optimize here and using the HSA to pay for medical expenses is fine with me, even at a younger age. At 52 and a 6 figure HSA (just barely), odds are it’ll be a challenge to spend down.

I will be doing it that way after getting onto Medicare, but pre-that, while on the ACA, I'm letting the receipts stack up. That way, I can get a cash infusion without creating income-via-withdrawal of capital gains, and without risking hitting the MAGI cap, since we're riding closer to it as the years go by.

 

[Montecfo]

At 52 and a 6 figure HSA (just barely), odds are it’ll be a challenge to spend down.

It should be quite easy actually, statistically speaking. The experts say out of pocket medical spend for an insured couple post retirement is 300k+ It's about half that for a single person. This excludes LTC, dental and vision.

And you have 13 years pre-Medicare.

 

[Exit 2024]

Our plan is to start cashing out receipts during ACA years before Medicare, I am contemplating to try to keep taxable income just below 150% of poverty level, that will allow to have decent silver plan for little money or bronze plan for free. So that will require a lot of non taxable income and saved HSA receipts will be very handy.

 

[tulak]

It should be quite easy actually, statistically speaking. The experts say out of pocket medical spend for an insured couple post retirement is 300k+ It's about half that for a single person. This excludes LTC, dental and vision.

And you have 13 years pre-Medicare.

I’m single, so that’s 150-200k. At just over a 100k, and still contributing, it’ll be a sizable amount. I doubt my withdrawals will match growth. No doubt, it’s a good problem to have.

And 13 years doesn’t sound too bad. It’s a shame we can’t use HSA for ACA premiums.

 

[pb4uski]

It should be quite easy actually, statistically speaking. The experts say out of pocket medical spend for an insured couple post retirement is 300k+ It's about half that for a single person. This excludes LTC, dental and vision.

And you have 13 years pre-Medicare.

I think that $300k+ includes Medigap premiums that can't be withdrawn tax free so reduce that number by 20-40%.

 

[Montecfo]

I think that $300k+ includes Medigap premiums that can't be withdrawn tax free so refund that number by 20-40%.

true. But it is also an average. It also excludes IRMAA.

And a 90% confidence figure is much higher.

 

[Aerides]

It should be quite easy actually, statistically speaking. The experts say out of pocket medical spend for an insured couple post retirement is 300k+ It's about half that for a single person. This excludes LTC, dental and vision.

And you have 13 years pre-Medicare.

Every month it seems I have some conversation with my parents that includes one of these:

not getting/delays in getting pre-approval for something time sensitive
the copays for physical therapy
some extra test a doctor recommends that isn't covered, or an MRI that won't be covered until after PT
a specialist they'd like to see for a 2nd opinion who isn't in network

I've told them every time, this is what having a little money is good for. Write the check and get on with it.

 

[DangerousNachos]

Wow, sort of floored of all the advantages and at the same time sort of ticked how frivously we spent HSA money for years having zero idea of all the benefits. Not sure why we didn't pay more attention years ago. Just sort of pure dumb luck we have saved what we have. HSA always seemed like a 'shrug', ok some time in the distant future you can use it like an IRA.

Appreciate the detailed response.

Yes, @dobig, when I gave employee presentations on benefits, I referred to the HSA account "kind of like" a medical IRA. I have yet to see where you have to reimburse yourself within a certain time of incurring the expense. Therefore, if you can afford it, you could pay your expenses out of pocket, hold onto the receipt, and reimburse yourself years later. Take advantage of tax-free growth and eventually tax-free withdrawals.

 

[Mulligan]

I’m single, so that’s 150-200k. At just over a 100k, and still contributing, it’ll be a sizable amount. I doubt my withdrawals will match growth. No doubt, it’s a good problem to have.

And 13 years doesn’t sound too bad. It’s a shame we can’t use HSA for ACA premiums.

I have a long time lady as a non govt recognized wife, so I am tax wise single also. But with high pension income, pulling HSA monies out just to be taxed rather heavily and push me into higher Medicare B premium makes no sense for me. So I will let it grow and likely wont ever put much of a dent in it, and I am fine with that. I can use HSA to pay my Medicare B premium. Also may go on a Medigap plan with a higher deductible, so in effect can be on a Medigap plan and still use HSA to some degree. Even then it likely will continue to grow.

 

[tulak]

No pension here, so that makes income easier to manage. But I wouldn't complain if someone gave me a pension!

 

[pb4uski]

...I have yet to see where you have to reimburse yourself within a certain time of incurring the expense. ...

See post #106 above.... there are some admittedly limited situations where you cannot reimburse yourself tax-free at all... or more precisely, a non-spouse beneficiary cannot make withdrawals for what would otherwise be qualifying medical expenses for services provided moer than a year before your passing!

If one gets caught up in this it sort of defeats the whole purpose, no?

 

[The Cosmic Avenger]

I have a long time lady as a non govt recognized wife, so I am tax wise single also. But with high pension income, pulling HSA monies out just to be taxed rather heavily and push me into higher Medicare B premium makes no sense for me. So I will let it grow and likely wont ever put much of a dent in it, and I am fine with that. I can use HSA to pay my Medicare B premium. Also may go on a Medigap plan with a higher deductible, so in effect can be on a Medigap plan and still use HSA to some degree. Even then it likely will continue to grow.

HSA withdrawals are not counted as income, technically they're supposed to be a reimbursement, so they are tax-free.

 

[Mulligan]

HSA withdrawals are not counted as income, technically they're supposed to be a reimbursement, so they are tax-free.

Not if you dont have the receipts to offset the withdrawals. I keep my receipts but they are pittance in relation to how big the HSA is. Plus past several years running (and until Medicare), I have robust health insurance that has a $400 annual deductible and covers dental. So I really dont have a way to accumulate a material amount of receipts. If not for my CLR eye surgery receipt, its all a speck. I’ll just let it grow for now. Who knows “The Home” may come calling in the advanced years, or better yet an expensive cure for male pattern baldness may happen!

 

[Flyfish1]

better yet an expensive cure for male pattern baldness may happen!

Right there with you - that's why I am letting the HSA grow as well!

 

[Mulligan]

Right there with you - that's why I am letting the HSA grow as well!

If our hair cant grow, at least maybe our HSA will.
Maybe there is hope on the horizon… PP405 is not currently available to the public and is expected to be released between 2027 and 2029 at the earliest. While early Phase 2a trials showed promising results, the treatment is entering crucial Phase 3 trials in 2026, which must be completed before regulatory approval, such as from the FDA, can be obtained.

 

[Aerides]

Right there with you - that's why I am letting the HSA grow as well!

I'm sure you're both joking a bit, but it would never be covered, unless medically necessary. Just because it's "medical" doesn't mean it's HSA-eligible. Or my med-spa is gonna be getting a whole lot more visits...

 

[Mulligan]

I'm sure you're both joking a bit, but it would never be covered, unless medically necessary. Just because it's "medical" doesn't mean it's HSA-eligible. Or my med-spa is gonna be getting a whole lot more visits...

Well it looks like I will be paying full rake rates if the miracle pill ever transpires!