Are you spending or saving your HSA $?

[The_Pretender]

We paid for all of our medical events OOP for four years until we had a baby and a 5 night stay at the hospital the year before.  I used a CC to earn sign-up rewards to pay the hospital bills both years.  The two major medical events (hit Max OOP both times) put a dent in our budget.  So this past August, I decided to cash in all the gains from my index fund for the past 4 years.   

I also found out I was very bad at keeping physical records of my Dental and Chiropractic visits.  I do a good job of flagging the item in Mint.  So I called both firms and asked for an itemized receipt of records since the beginning of my HSA date.  I got these records.  I also trained myself on using the Adobe PDF app and scanning in these documents to store as a PDF in my Google Drive and put in a folder for HSA.

+1 for CarolinaGirl... I would call to negotiate the large bills to spread over the 3 months of the CC reward period.  Medical institutions can not charge interest... but they can send you to collections if you don't make good faith effort of contacting them to schedule payments.

With regards to taxes, I claimed more than the max contribution this past year.  I fully expect to get audited in 3 years.  My understanding is that the IRS is 3 years delayed on auditing... so agents auditing individual tax returns right now are auditing 2016.  So, if you use your HSA this year...  you will still need to retain the receipt in the case of an audit.  Now I do not expect an audit to be flagged if you only use an HSA for a couple grand.  When you expect to have HSA withdrawals > than Max contribution, I would assume this would be a flagged activity by the IRS to audit the individual

Are you saying you took out more than the max contribution? Why would you expect this to be a flagged activity? It is kind of the point of allowing the funds to build up, unlike an use it or lose it FSA.

Just a gut feeling.  I go 3 years with no withdrawals, fast-forward to this past year of withdrawing 10K...  Maybe 10K to the IRS is small potatoes, and immaterial. To me, I felt this was a very large amount.  What may help though is previous returns we were MFJ, but added a baby dependent  this year.  Maybe an IRS agent will see the added Dependent and think I had a 10K Max OOP.

[use2betrix]

We just switched to a HSA plan November 1st 2018. I quickly maxed it out for 2018 in November/December. I again maxed it out in January of 2019.

I have already invested it into VTSAX through Ameritrade and have been saving all our medical receipts (glasses AND contacts just kicked my butt, dang dog chewed the lenses on my new glasses lol).

I’m definitely going to take the idea here to start taking pics/scanning/uploading to a cloud annually or so.

[dandarc]

We just switched to a HSA plan November 1st 2018. I quickly maxed it out for 2018 in November/December. I again maxed it out in January of 2019.

I have already invested it into VTSAX through Ameritrade and have been saving all our medical receipts (glasses AND contacts just kicked my butt, dang dog chewed the lenses on my new glasses lol).

I’m definitely going to take the idea here to start taking pics/scanning/uploading to a cloud annually or so.

You did only put 2 months worth for 2018 yet.

[EscapeVelocity2020]

I guess I'm not understanding you. I'm saving nearly 35% in taxes immediately. The HSA grows over the years in the stock market. And then I can remove the money (and its gains) decades down the line tax free. How is that a small tax advantage? It's bigger than any tax advantage of IRA's and 401k's. Everyone is going to have medical expenses at some point in their life. That doesn't mean they can't ER, it just means you need to have a plan to pay medical expenses. And that's what the HSA is for. So I would actually argue the complete opposite of your statement. An HSA is an integral part of an ER plan.

But I guess I might be mis-reading your intent. I do not count my HSA funds as part of my FI "number". An HSA is basically risk reduction so I can pay for my medical expenses during ER. If there's any left at 65 that I can remove tax-free I'll consider it a bonus.

As long as it's used for eligible expenses, then you save the income tax whether you use the funds for current expenses (which I do) or for expenses in the future, so I don't see this as a reason to delay using HSA money.  The tax free gains (again, assuming all the money is going toward medical related expenses) are a plus, but most HSA's have limited investment options and potentially high fees.  IRA's and 401k's typically have better investment options and you can put a lot more money in a 401k.  I also don't count my HSA toward my FI, it may help lower Medicare and dental expenses, but I'm looking at that the same way I'm looking at Social Security - not counting on it, but will be nice whatever I get, so it sounds like we agree for the most part.

[shingy]

My current insurance plan isn't HSA compatible (sucks, I know!). But, based on what people are saying about saving receipts for reimbursement later, I'm wondering if there is a way I can participate in some way right now. Do the expenses for future reimbursement need to have occurred when I had an active HSA account? Or, can I pay for expenses now, save those receipts, and down the line when I do have a HSA compatible plan with money in it, get reimbursed for those expenses?

No, you can only use it for expenses incurred AFTER the HSA is opened.

However once the HSA is opened, if you become ineligible for an HSA (ie, you switch to a non-HDHP), you can still use your account for any qualified medical expenses.

Yea, thought that would be the case. Thanks for your help!

[Loretta]

I was in the hospital twice in Feb and am tapping into my brand new HSA account to pay some of the bills.  I am doing so because even with great employer provided health insurance, hospital visits are PRICEY.  For all you healthy young whippersnappers out there, consider yourselves warned.  I had never been in the ER or admitted to a hospital as an adult, I only ever had quick outpatient procedures prior to this.  Stay healthy, folks. 

We are maxing out our HSA this year and I've read here and there not to actually spend your HSA money on qualified expenses. I understand that it is triple taxed advantaged, but I'm having such a hard time wrapping my brain around this concept. I keep going to the default of using my HSA funds for medical expenses (i.e. $15 med prescription) because I'd rather use tax free money than taxed.

So my question is: Do you spend or save your HSA funds and why?

[Brother Esau]

Maxing out contributions and investing everything. Hopefully won't touch any of the $ until I'm well into retirement. Will pay any medical expenses out of pocket and save receipts.

[COEE]

We do both, spend the money and save the excess.  I don't want to save a bunch of receipts and paperwork - God forbid the tax law change!  I keep our yearly deductible in cash and the rest I dump into FZROX every few months.  Works for us, but we're relatively healthy.  We max out every year.

[cawiau]

I do both... had about ~20k saved and now down to ~15k because we had an emergency (and insurance does not kick in till you spend 3.5k deductible).

So if you can afford to pay the medical bills (and keep records, I have a binder with all our medical bills since 2016) go for it.

Also on ~1k is kept in cash, the rest is invested.


Sent from my iPhone using Tapatalk

[chasesfish]

I've done both.  I initially started saving HSA receipts but then the account fees and headaches of saving small dollar receipts made it not worth it.  The tax efficiency of index funds is pretty incredible.  I wrote about it back in 2017 (and ironically more people than you'd think ask this question, its my top performing post every month).

I got a letter in mid-2018 and I was given access to almost fee free index funds in the HSA.  When that happened I decided to start saving all receipts over $25 again.  I use a google sheet and scan them into google drive so I won't ever loose them. 

[nereo]

IMHO, way too much time and energy is being spent on blogging about the advantage of optimizing your HSA.  It is but a wee sapling in what should be the mighty oaks supporting your FI.

Speak for yourself - but we stand to have a considerable sum in our HSA by retirement, perhaps more than what's in our IRAs when all is said and done.  It might still be <50% of our overall liquid assets, but given that it comes pre-payroll (equiv. of about $7900 on pre-tax earned income) and will likely be completely tax free for us it will give us tremendous flexibilty to minimize our taxable burden down the line.  One plan we may use is to leverage the money in our HSA while we get our Roth Pipeline going...

Yeah, my HSA is 10% of my NW. I started maxing it mainly because of the tax optimization. But a pleasant side effect is that it has grown so much that now I have a ton less risk of being bankrupt by medical bills in my future. Had I not heard the tax optimization part I (and many others) likely would not have saved enough, or anything, for medical expenses.

That's all well and good, but I hope you realize that the tax advantage beyond income tax is pretty minimal.  And if you are relying on this to fund your FI, then I guess you won't have to pay back the income tax?  Anyway, what I am alluding to is that this will be a small part of a 'real' ER, unless you are needing the funds for health reasons which probably means you are not going to ER.

For us, we are fortunate enough to have contributions taken out from my paycheck, so we benefit by not paying payroll taxes (14.6%) on that contribution, in addition to contributions lowering AGI and being tax-free upon withdraw. Given our medical expenses we wont’ have to pay back income tax nor payroll taxes.  Varies from year-to-year but its the equivalent of $9k-10k in taxable investments.

No idea what you mean by “unless you are needing the funds for health reasons which means probably you are not going to ER”.  One can easily pay $5-10k/year in qualified health expenses and still easily reach FI. 

[use2betrix]

We just switched to a HSA plan November 1st 2018. I quickly maxed it out for 2018 in November/December. I again maxed it out in January of 2019.

I have already invested it into VTSAX through Ameritrade and have been saving all our medical receipts (glasses AND contacts just kicked my butt, dang dog chewed the lenses on my new glasses lol).

I’m definitely going to take the idea here to start taking pics/scanning/uploading to a cloud annually or so.

You did only put 2 months worth for 2018 yet.

I don’t quite understand your sentence..

I became eligible for the HSA in November 2018, so between November and December I put $6,900 into my HSA.

In January, 2019, I had $3500 taken out of each of my two paychecks, thus maxing it out for 2019 at $7000...

[dandarc]

We just switched to a HSA plan November 1st 2018. I quickly maxed it out for 2018 in November/December. I again maxed it out in January of 2019.

I have already invested it into VTSAX through Ameritrade and have been saving all our medical receipts (glasses AND contacts just kicked my butt, dang dog chewed the lenses on my new glasses lol).

I’m definitely going to take the idea here to start taking pics/scanning/uploading to a cloud annually or so.

You did only put 2 months worth for 2018 yet.

I don’t quite understand your sentence..

I became eligible for the HSA in November 2018, so between November and December I put $6,900 into my HSA.

In January, 2019, I had $3500 taken out of each of my two paychecks, thus maxing it out for 2019 at $7000...

Wow - that was some bad writing. I think I started, then thought "eh maybe shouldn't post this one" and then posted before reading what was actually written.

For 2018 contributions, you're fine if you continue to be HSA-eligible through 12/31/2019. If you switch to non-HSA insurance at any point this year, you'll owe tax / penalty on the excess over the prorated method. That actually goes for 2019 too. Good explanation here:

https://www.benstrat.com/downloads/HSA-GPS_HSAs-and-Partial-Year-Eligibility.pdf

You probably know all this and have planned accordingly already, but that's what I was trying to point out.


ETA: TLDR: Front-loading the HSA could set you up for some extra tax work and extra taxes if you change to non-HSA eligible insurance mid-year.

[The 585]

Currently have our HSAs being saved and invested fully in total bond market. Would only plan to cash out in case of an expensive medical emergency.

[FireAnt]

My HSA has about $2700 in it currently. When I can invest, it's $1.50/month but I recall there being excellent choices for funds.

Looked at my options and I can put it in VTSAX :) So decisions for me to make:
1. Use HSA or not for the $172 monthly medical cost (counseling). Other than that we rarely have medical expenses.
2. Save the receipts or not (and how to save them) if we decide to pay the $172 monthly.
3. At what amount in our HSA account do we start investing it. Having less than $3000 doesn't seem like it's high enough yet when my max OOP is $12000/family.

[chasesfish]

My HSA has about $2700 in it currently. When I can invest, it's $1.50/month but I recall there being excellent choices for funds.

Looked at my options and I can put it in VTSAX :) So decisions for me to make:
1. Use HSA or not for the $172 monthly medical cost (counseling). Other than that we rarely have medical expenses.
2. Save the receipts or not (and how to save them) if we decide to pay the $172 monthly.
3. At what amount in our HSA account do we start investing it. Having less than $3000 doesn't seem like it's high enough yet when my max OOP is $12000/family.

Save the full $6850, its entirely pre-tax, including Social Security.

I use Google Drive.  You could also just take a picture of it and link it to Google Photos.  Saved forever.

Your last comment hit on the biggest risk of the HSA, it takes 2-3 years to accumulate enough to cover your out of pocket max.  We were able to save for eight years before having three straight years of hitting our max. 

[FireAnt]

Okay, wanted to follow up on what we decided.

We are going to focus on building up our HSA savings. Once it hits $7500, we will start investing into VTSAX. We chose that number because that is the max any one individual in a family can hit in a year. The chances that we would both experience a catastrophe is low. Also, any additional medical bills we can finance and pay off slow since there is no interest.

To help build this fund in the meantime, we will use our budget, $200/month that rolls over for our monthly medical bills. We are going to start getting receipts for these items and save them. That will be my husband's job :)

Thanks everyone for the input!

[stepitup]

I didn't see this mentioned previously, so apologies if I'm just repeating.

I'm maxing my HSA, but taking reimbursements throughout the year.

I use the reimbursement money to contribute toward my IRA.

Since I'm not yet maxing out all my my retirement vehicles I like that this allows me to claim the benefit of the HSA this year while not missing out on the tax free savings on the growth of it. If I had already filled up my other retirement plans I would probably do different.

[EscapeVelocity2020]

The other thing to keep in mind, since you are pursuing this, is that you need to move money you intend to spend within 1 - 5 years from VTSAX in to something more conservative.  Nothing worse that having that fund lose 25 - 50% right when you need it.  I was miserable in 2008/9 with our 529 dipping below our contribution amount because it was invested aggressively.  Our children were still young and it has bounced back and then some (effectively, I just ignored it), but boy would I have felt foolish contributing for tax free gains only to lose money when I needed to pay for college. 

Our son is 15 now, 10 years later, and we have locked in the gains by moving to a Vanguard conservative age-based Nevada fund.  A little more gain would be nice, but more important to me now is not to lose money. 

It's not market timing when you know you will spend the money relatively soon and the gains from the last 10 years have given you more than enough for a good college education (120k), aka the plan (contributing $400/mo) has been successful!

[pdxvandal]

Saving 95% of it. I had fancy, fully subsidized health insurance, then got laid off several years ago and learned about the HSA via MMM. Maxed that out for a few years, then found an employer who offered it with also kicking in $1,500 yearly for the family plan.

Now, I have 30k invested (2k cash) in Vanguard funds. I don't save paper receipts, but scan them and upload them to the provider site. I used a few thousand dollars for moving expenses a few years ago, but outside of that, haven't touched it. I could probably withdraw about 5-6k tax free now, but waiting until I really need to (FIRE or other random expenses, medical or otherwise).

[FireAnt]

The other thing to keep in mind, since you are pursuing this, is that you need to move money you intend to spend within 1 - 5 years from VTSAX in to something more conservative.  Nothing worse that having that fund lose 25 - 50% right when you need it.  I was miserable in 2008/9 with our 529 dipping below our contribution amount because it was invested aggressively.  Our children were still young and it has bounced back and then some (effectively, I just ignored it), but boy would I have felt foolish contributing for tax free gains only to lose money when I needed to pay for college. 

Our son is 15 now, 10 years later, and we have locked in the gains by moving to a Vanguard conservative age-based Nevada fund.  A little more gain would be nice, but more important to me now is not to lose money. 

It's not market timing when you know you will spend the money relatively soon and the gains from the last 10 years have given you more than enough for a good college education (120k), aka the plan (contributing $400/mo) has been successful!

Yeah this part is somewhat worrisome for me. However, both of us are very healthy. With the exception of one surgery my husband had to do last year, we've never had to spend much of our HSA. Before all of these changes within the last 6 months, we used our HSA money for those fancy glasses, copays for dental cleanings, etc. We also did not max our contributions so although we had enough to cover his surgery last year, it depleted the HSA funds we had. If anything catastrophic came around, we could do a payment plan I'm hoping.

[Dicey]

Currently have our HSAs being saved and invested fully in total bond market. Would only plan to cash out in case of an expensive medical emergency.

Seems more than a little sub-optimal. If you don't plan to use it in the short term, why lock it up in bonds? If you're determined to stick with bonds, just pay your bills as they are incurred. The point of doing the extra legwork involved in this strategy is so your money can compound for your future benefit. Parking it in bonds negates most of the magic of compounding interest.

[meandmyfamily]

We do both and hopefully will save a lot more as the kids grow up. 

[The 585]

Currently have our HSAs being saved and invested fully in total bond market. Would only plan to cash out in case of an expensive medical emergency.

Seems more than a little sub-optimal. If you don't plan to use it in the short term, why lock it up in bonds? If you're determined to stick with bonds, just pay your bills as they are incurred. The point of doing the extra legwork involved in this strategy is so your money can compound for your future benefit. Parking it in bonds negates most of the magic of compounding interest.

Yes, bonds should be held in tax-advantaged accounts, and Roth would definitely be the least optimal location for them... so that leaves pre-tax 401k and HSA. And if you retire early with low enough withdrawal rate, you pay no taxes on 401k income anyways right? So in that case I see no difference in putting them in HSA vs 401k. Also, the HSA balance makes up just a small portion of our total net worth so I think its just simpler to make it part of the bond allocation.