I have $150K in my HSA. Use it to pay for COBRA?

[rmcelwee]

So, I am married and retiring in a few months at age 55. My company will give me $1100 monthly towards my healthcare from 55 to 65. I have $150K in an HSA that is invested in the S&P. I haven't really done much thinking about this but I had always intended to pay for my healthcare (above the $1100) out of my pocket and save my HSA until I was 65. Now I am starting to wonder if I should just use my HSA to pay for the entirety of my COBRA premiums and pocket the $1100. I'm thinking that 401K RMD's @ 72 (75?) will have no problem funding my medical coverage so the HSA will just sit there forever. Pros / Cons on using HSA now, especially for the next 18 months for COBRA premiums?

 

[Dtail]

401k RMD at age 65?

 

[RunningBum]

The Pro is that you don't want to die with an HSA balance, because your heirs are taxed on it.

The Con is that you could let it grow tax free longer, if you have other funds to use to pay COBRA now. Just save receipts and you can reimburse at any time.

I plan to tap my HSA if I have a need for any expenses and don't want to generate more income. So far I've only used $1000 of it. I have receipts for about 40% of it to use anytime.

 

[rmcelwee]

401k RMD at age 65?

OOPS, typo...

 

[Z3Dreamer]

You do know that you don't have to pull it out in the year in which you incur the medical costs, right? You just keep a list and pull out at some future time.

You don't say how much you could pull out today, based on prior medical expenses incurred. I imagine you have a bunch. Maybe you could tank most of it now. Maybe not.

DW and I will have about $6,000 a year of medical when we are both on Medicare. If this is all you will have, and you are getting a 4% return (S&P), you will never tank the HSA. We have LTC premiums of about $2,500 a year. Even if you have these, you would not tank the funds with that.

So, yes, use it to pay your COBRA. And I mean just keep track of the expenses and pull out at some future date.

Great problem to have.

 

[rmcelwee]

You do know that you don't have to pull it out in the year in which you incur the medical costs, right? You just keep a list and pull out at some future time.

I started a spreadsheet last year and came up with about $3000 in receipts from Walgreens to take a some point. I'm guessing we have maybe another $5K in Dr/Hospital we could come up with.

I'm pretty conservative with most of my money and I started to worry that the account will just continue to grow and never be used. Yes, I guess it is a good problem to have. I'll start burning through it next year with new expenses when I retire. Thanks!

 

[RunningBum]

If you have $150K in it you must have started it years ago. You haven't been saving receipts?

 

[rmcelwee]

You haven't been saving receipts?

Of course I have.

 

[RunningBum]

OK. I thought you meant that you had $3K + $5K in expenses last year, when you started tracking in a spread sheet. If you've only had $8K in medical expenses in however long it took to build a $150K balance, I congratulate you on your health. I was like that in my 40s, but my 50s have been a lot harder on me.

 

[Clover5]

If you have $150K in it you must have started it years ago. You haven't been saving receipts?

If I have 5 year old medical expense documented can I use HSA monies tax free? Can’t find any specifics about that.

 

[RunningBum]

If I have 5 year old medical expense documented can I use HSA monies tax free? Can’t find any specifics about that.

As long as you opened your HSA account before you incurred the expense.

 

[Clover5]

Wish I had realized that back in April, I’ll see what I can find. Still have 5 years to collect new receipts. Always learning something new, much appreciated.

 

[skyking1]

OP, that sounds like a great plan. Use the HSA for health care costs? who would have thunk it?

 

[RunningBum]

Wish I had realized that back in April, I’ll see what I can find. Still have 5 years to collect new receipts. Always learning something new, much appreciated.

You have the rest of your live to collect new receipts.

 

[SecondCor521]

OP, what are the requirements to get that $1100 a month from your former employer? Are you required to be on COBRA, or can you have any health insurance you like?

If you're not required to be on COBRA, I would consider pocketing the $1100 a month, going on an ACA plan, and save the HSA for other stuff. That would only be if I reasonably thought I could come up with $150K+ of medical expenses if I didn't sign up for COBRA.

 

[rmcelwee]

OP, what are the requirements to get that $1100 a month from your former employer? Are you required to be on COBRA, or can you have any health insurance you like?

If you're not required to be on COBRA, I would consider pocketing the $1100 a month, going on an ACA plan, and save the HSA for other stuff. That would only be if I reasonably thought I could come up with $150K+ of medical expenses if I didn't sign up for COBRA.

I'm pretty sure the only requirement to get the $1100 is to spend it on some sort of healthcare insurance. If I get ACA for only $300 a month then I would submit a receipt for the $300 and would be reimbursed for $300. "Losing" the other $800/month. I believe I have to submit a receipt monthly to my former employer.

 

[Hopeful]

I'm pretty sure the only requirement to get the $1100 is to spend it on some sort of healthcare insurance. If I get ACA for only $300 a month then I would submit a receipt for the $300 and would be reimbursed for $300. "Losing" the other $800/month. I believe I have to submit a receipt monthly to my former employer.

It is my understanding HSA funds can not be used for ACA premiums, only COBRA premiums.

 

[SecondCor521]

I'm pretty sure the only requirement to get the $1100 is to spend it on some sort of healthcare insurance. If I get ACA for only $300 a month then I would submit a receipt for the $300 and would be reimbursed for $300. "Losing" the other $800/month. I believe I have to submit a receipt monthly to my former employer.

Ah, well then that's a different kettle of fish.

If it's use it or lose it, I'd still look at ACA plans compared to COBRA. You could get a Gold or Platinum level plan that may (or may not) have better benefits than COBRA.

Also, I personally would look into whether the former company reimburses the subsidized or unsubsidized premium. You do have the option to decline the up-front subsidy on ACA plans, so you could get a Gold plan with a $1100 a month premium, get reimbursed by your employer, then collect the premium tax credit on your return the following April. Please note this idea is just spitballing - if it runs afoul of IRS rules or your employer rules or your personal ethical compass I wouldn't do it.