HSA strategies?

[RunningBum]

My understanding is that transfer is taxfree. It does not maintain taxfree status, but there are no taxes on transfer. just like ira.

If anyone but your spouse inherits it, it's transferred to a taxable account, and it is all taxable income. There's no magic with that. Google "inheriting an HSA". Best to try to not die with an HSA balance and no spouse.

 

[Montecfo]

If you use Quicken or similar, a spreadsheet of medical costs for any period can be produced quite readily. And if you transact in details then the credit card receipts and checks will follow the spreadsheet. If you also make a habit to download the EOBs from your insurance provider as appropriate and keep any receipts for uninsured items such as dental if applicable, then you have a pretty good level of detail.

I try to have bills particularly for large expenses also but the above is a pretty good start, without lots of effort.

 

[jollystomper]

We are continuing to contribute to our HSA for (a) the tax deduction and (b) future Medicare premium payments, as we will be subject to the IRMAA surcharge. We have a shorter runway since DW turns 65 near the end of 2022 and I turn 65 in 2023.

I have always tracked our expenses vis our EOB forms, as in days of yore if you had a Flexible Spending Account (FSA) Megacorp required you to turn in EOBs for reimbursement. When we became eligible for an HSA I just continued the practice. My health insurance providers keep them inline for a number of years, so at the beginning of the year I download the EOBs for the previous year and store them away. Also, more of our providers are providing receipts via email (direct or PDF attachments), so those are easy to file away.

I reimbursed myself for one year when we were not eligible to use them in itemized deductions, but it was a small amount. Based on information I received from another thread, my strategy now is to leave the HSA to grow and use our medical expenses for tax deductions (since with them our itemized deductions exceed the standard deduction). We are fortunate so far that our medical expenses have been far less in retirement than we planned for. But as with any strategy I look at it yearly to determine if it needs any tweaking.

P.S. Since DW kept working after I retired, more than a few of her friends and acquaintances assumed she had to work since I was no longer working. I told her to tell them I am now a "kept man" if that comes up, and she has. So far the PC police haven't dragged us out of the house and sent us to rehabilitation school .

 

[pb4uski]

You left out tax free on death too. Like any other IRA. HSA is essentially tax free magic from first contribution until beyond the grave.

No, not tax free on death. It can transfer tax-free to a surviving spouse, but if inherited by a non-spouse then it is taxable... that is one of the reasons that I am using mine now and not letting it grow too big.

 

[pb4uski]

That is not my understanding. As discussed in this thread, on my death, the HSA can go to my wife and it becomes her HSA.

If it went to my kid instead, the whole amount is treated as taxable income the year I die.

Did I get that wrong?

No, you have it right.

 

[pb4uski]

My understanding is that transfer is taxfree. It does not maintain taxfree status, but there are no taxes on transfer. just like ira.

No, you are wrong. If you are a non-spouse beneficiary whatever you inherit is income in the year that you inherit it.

If your beneficiary is a person but not your spouse, the account will be changed to a taxable account in the name of that beneficiary and the full value becomes taxable to your beneficiary in the year of your death. This transfer is completed free of probate. The amount taxable to a nonspouse beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within one year after the date of death.

 

[pb4uski]

Whoa. So I need to track expenses in non-itemized years vs itemized years? My life was so simple before this thread.

Not usually a huge issue because very few people can typically itemize medical deductions since in order to get any benefit they must exceed [-]10%[/-] 7.5% of income... and also, fewer people itemize these days anyway.

 

[pb4uski]

...Based on information I received from another thread, my strategy now is to leave the HSA to grow and use our medical expenses for tax deductions (since with them our itemized deductions exceed the standard deduction). We are fortunate so far that our medical expenses have been far less in retirement than we planned for. ...

I'm confused.... you can only deduct the portion of medical expenses above [-]10%[/-] 7.5% of AGI... so if you have $100k of AGI then you would need over $[-]10k[/-] $7.5k of eligible medical expenses to get any benefit... if you had $10k of medical expenses only $2.5k is included in itemized deductions.

If your medical expenses are far less than you planned for are you really getting a benefit from them worth itemizing?

https://hsastore.com/learn/taxes/itemize-medical-expense

 

[twaddle]

@pb4uski insurance premia are deductible medical expenses when you itemize, even though you can't use your HSA for them.

 

[RunningBum]

I'm confused.... you can only deduct the portion of medical expenses above 10% of AGI...

It's down to 7.5% now.

 

[pb4uski]

@pb4uski insurance premia are deductible medical expenses when you itemize, even though you can't use your HSA for them.

I know that but they also need to exceed [-]10%[/-] 7.5% of AGI before you get any benefit and that excess along with your other itemized expenses (state income taxes, property taxes, mortgage interest, charitable contributions, etc.) need to exceed $25,100 in 2021 in order for you to get any benefit from itemizing.

 

[pb4uski]

It's down to 7.5% now.

I thought so too but just read something that said it was 10%, but I agree. Congress has jerked it around over the last 5 years.

My main point is that not very many people are in situations where they get a benefit from deducting medical expenses because of the income hurdle and also the itemized deductions hurdle.

 

[twaddle]

If you ER'd, you're probably paying for individual health insurance. And you're probably old enough that those premia are OUTRAGEOUS.

The ACA subsidy goes away at an income level of $68,960. 7.5% of that is $5172.

Take my word for it, it is not hard to reach that number even if you're in perfect health.

 

[pb4uski]

It's situational but even with over $100k of income and two homes we never come close to being able to itemize deductions... nor do any of the 5 other people that I do tax returns for. Especially if you don't have a mortgage.

I read somewhere recently that only 12% of taxpayers itemize even to begin with.

 

[Montecfo]

It's situational but even with over $100k of income and two homes we never come close to being able to itemize deductions... nor do any of the 5 other people that I do tax returns for. Especially if you don't have a mortgage.

I read somewhere recently that only 12% of taxpayers itemize even to begin with.

I think I have itemized every year since 1982. Small mortgage but high state taxes and charity.

DMIL also itemized every year...with no mortgage (but in Texas with high property taxes).

It happens.

 

[jollystomper]

I'm confused.... you can only deduct the portion of medical expenses above [-]10%[/-] 7.5% of AGI... so if you have $100k of AGI then you would need over $[-]10k[/-] $7.5k of eligible medical expenses to get any benefit... if you had $10k of medical expenses only $2.5k is included in itemized deductions.

If your medical expenses are far less than you planned for are you really getting a benefit from them worth itemizing?

https://hsastore.com/learn/taxes/itemize-medical-expense

We anticipated 25K-30K of total annual medical expenses before Medicare. My pension alone put us over the ACA cliff. Fortunately, under the terms of my retirement, I am able to get Megacorp subsidized retiree insurance at much better rates and copays/deductibles than ACA policies, so our medical expenses are more around $16K.

Premiums alone are $12K, which are not eligible for HSA reimbursement. By themselves they put us over 7.5% of AGI. Medical, state/property taxes, charitable contributions, and (through last year) mortgage interest pushes us well over the standard deduction.

 

[harllee]

I know many people who are able to itemize because of large property taxes

 

[GreenER]

@pb4uski insurance premia are deductible medical expenses when you itemize, even though you can't use your HSA for them.

It's my understanding that Cobra premiums are an exception and can be paid out of HSA funds as can Medicare premiums.

 

[ChrisC]

I know many people who are able to itemize because of large property taxes

It's got to be a combination of charitable contributions, medical expenses, mortgage interest, and state and local taxes (including property taxes) that permits them to itemize. I have friends, retired like myself, who pay $21K in real estate taxes (with limited charitable deducations and no major medical expenses) and the standard deduction ($26K) for MFJ still beats their itemized deductions.

I haven't been able to itemize the last two years myself, since they capped SALT at $10K. On the other hand, my BIL with $43K in medical expenses is able to itemize.

 

[tpkinsl]

HSA contributions

I am retired, age 59, and paying for a high detectable medical plan via COBRA. I was contributing to an HSA while working. Can I contribute to an HSA this year?

 

[FIREarly]

Chuck Norris turned his HSA into a pot of gold.

No more, no less, that's it.

 

[KarenF]

My thoughts too. Well said.

 

[GreenER]

I am retired, age 59, and paying for a high detectable medical plan via COBRA. I was contributing to an HSA while working. Can I contribute to an HSA this year?

As long as your high deductible plan is HSA compatible you can continue to contribute this year. I had to open a new account outside of work when I retired. I'd advise opening an HSA account at Fidelity which has no fees and unlimited investment options and you can transfer your work place HSA into that account as well. You may have to have other accounts at Fidelity however.

 

[NancyH]

Retired in 2020 and the funds I accumulated in my HSA were automatically switched to a new (HSA Bank) account when my HDHP coverage ended. Husband and I are currently on an ACA plan to bridge the gap until we age into Medicare (approx. 18 mos.) Once we're on Medicare, if it looks like we don't have enough eligible expenses to spend down the balance in a reasonable amount of time, I'll use the leftover HSA $ to reimburse ourselves for the LTC insurance premiums we've been paying the last 10 years or so.

 

[FIREarly]

Retired in 2020... I'll use the leftover HSA $ to reimburse ourselves for the LTC insurance premiums we've been paying the last 10 years or so.

Possibly rookie question, what are the LTC insurance premiums?

I am early in funding my HSA and want to maximize it so there is "extra" money.

Congratulations on your 2020 retirement!!