Why am I hesitant to withdraw from my Roth?

[sengsational]

I think you will end up with a crazy amount in your HSAs and your heirs will end up with a big tax bill. By sitting on that $50k of receipts you risk it not being taken out tax free if you die and your heirs don't know about them or forget to do it or delay (has to be done within a year).

Just because I wasn't sure the tax advantage would be exercised if I didn't do it, I started pulling HSA money out. I've still got receipts roughly equal to the HSA balance, but spreading it out over many years.

My original plan was to treat HSA and Roth accounts are roughly equal, but preferentially pull from HSA. But I've never needed to pull from either of these types of account, other than to make sure the advantage isn't squandered if I'm not around to take care of it.

 

[pb4uski]

... Gist of the article was more psych than science.

Absolutely.

 

[pb4uski]

... to make sure the advantage isn't squandered if I'm not around to take care of it.

Absolutely. That risk is why I did a big catch-up withdrawal a few years ago for the prior years and annually in January eligible expenses since then.

 

[Koolau]

Just because I wasn't sure the tax advantage would be exercised if I didn't do it, I started pulling HSA money out. I've still got receipts roughly equal to the HSA balance, but spreading it out over many years.

My original plan was to treat HSA and Roth accounts are roughly equal, but preferentially pull from HSA. But I've never needed to pull from either of these types of account, other than to make sure the advantage isn't squandered if I'm not around to take care of it.

How long do you have to apply HSA funds to receipts on payments already made. Is that not an issue?

 

[imjustawarrior]

There currently is no deadline to apply HSA funds to receipts. My oldest receipts are more than 15 years old.

 

[sengsational]

There currently is no deadline to apply HSA funds to receipts. My oldest receipts are more than 15 years old.

How long do you have to apply HSA funds to receipts on payments already made. Is that not an issue?

I'm not an expert, but I am operating under the assumption that there's no time restriction.

What I've been doing is pulling amounts equal to the oldest year. I move those receipts and associated report to that year's tax return folder, add 7 years, and write "destroy on..." date... a records management technique I learned in the megacorp. I haven't got any receipts that have aged out yet, but maybe in a year or two.

 

[audreyh1]

The only rule is the expense must not have occurred before you opened your first HSA account.

 

[pb4uski]

There currently is no deadline to apply HSA funds to receipts. My oldest receipts are more than 15 years old.

To my knowledge the limit is 12 months after you die. So if your loved ones don't know about it of forget then you lose the tax benefit.

 

[RunningBum]

I'm not an expert, but I am operating under the assumption that there's no time restriction.

What I've been doing is pulling amounts equal to the oldest year. I move those receipts and associated report to that year's tax return folder, add 7 years, and write "destroy on..." date... a records management technique I learned in the megacorp. I haven't got any receipts that have aged out yet, but maybe in a year or two.

I have a vague discomfort with that, probably unfounded, but as I type out my scenario I think you have it covered.

Suppose I take out $10K now, and move the receipts (and mark my spreadsheet).
7 years from now I destroy.

10 years from now I empty the account, say $90K, and have $90K receipts to match.

The IRS can't claim that $10K of those receipts were used 10 years ago, so I only have $80K receipts for this, can they? Since they didn't audit me for that $10K, they can't question that any longer and have to accept that I had receipts for those even though they are destroyed, right?

I've been thinking I'd save the receipts forever until X years after my HSA is emptied but I think your method works. OTOH, I only have my shoebox of receipts about half filled, and I have most of them scanned, so it's not a big deal to keep them all.

Anyway, thanks for stating your strategy. I like it.

 

[sengsational]

I'm no expert, but if I got audited after I threw out the >7 year old receipts, I'd shrug and say "you're the one with the 7 year rule." Maybe there's a clause in there somewhere that requires saving proof until 7 years after the last HSA dollar comes out. Wouldn't THAT audit be fun! I would probably have the reports for all years, but I have not scanned anything...not quite that motivated. I get the reports "for free" because I enter all spend transactions into my personal finance software anyway.

 

[Koolau]

There currently is no deadline to apply HSA funds to receipts. My oldest receipts are more than 15 years old.

Wow. I had no idea. Thanks.

 

[Perryinva]

So is the gist of this to pull from HSA as long as you need to pull money from retirement funds for income (to spend)? I only have about $50k in HSA (& $500k in Roth) and except for lumpy expenses to lower income, I’m still struggling as to why pull any of it out when it grows tax free, as long as pulling from tIRA or taxable accounts for lumpy expenses keeps me under my threshold (12%). Once RMDs hit, in 5 years, I will be forced, like many, in to the current 22%, with nothing really to use it for, except to put it backnin to taxable accounts.

Basically, I only pull out $2k/qtr now to pay quarterly estimated taxes. Maybe I should pull that amount out of HSA?

 

[Koolau]

^^^^^^^

My thinking on pulling from Roth would be ONLY to reduce taxes significantly. Otherwise, I'd let it grow tax-free and use other funds. Only you can decide so YMMV.

 

[pb4uski]

There currently is no deadline to apply HSA funds to receipts. My oldest receipts are more than 15 years old.

Actually, there is. Withdrawals need to occur while you are living or within 12 months of your death. So if one has an unexpected death or disability where you are no longer able to communicate, the tax benefit of those receipts might be lost.