Author Topic: Lets talk HSAs  (Read 1737 times)

use2betrix

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Lets talk HSAs
« on: October 25, 2018, 05:18:58 PM »
So starting November 1st I have access to a HSA for the first time. Ive already set it up for the 2018 max ($6900) to be pulled out of my two November paychecks, and the 2019 max ($7000) to be pulled out of my first four 2019 paychecks.

Our insurance plan (wife, myself) is obviously a HDHP plan. I know the intent of the HSA is to use for medical costs, however it can also be used as a pre-tax investment avenue like a 401k (cant be rolled into an IRA, but can be withdrawn at 65 penalty free to my understanding). It can also - of course - be held in the HSA Plan investment accounts.

So with all the obvious information laid out, Im curious how everyone used their HSAs. Im basically curious if someone has done the math as to whether its more worthwhile to use it as intended, on qualifying medical expenses, or do I pay the expenses out of pocket and just let the HSA grow for retirement?

What other tips and tricks should be considered?

On a side, very good note, this might bring my income low enough that Ill now be able to contribute to a Roth IRA this year, but itll be close and wont know til I do my taxes.

MDM

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Re: Lets talk HSAs
« Reply #1 on: October 25, 2018, 05:27:10 PM »
Im basically curious if someone has done the math as to whether its more worthwhile to use it as intended, on qualifying medical expenses, or do I pay the expenses out of pocket and just let the HSA grow for retirement?
If you can afford to pay the expenses from cash flow, then leaving the money in the HSA allows it to grow and be withdrawn tax free later.  If you paid the expenses immediately from the HSA and invested taxably instead, you would be paying whatever taxes on the dividends, capital gains, etc. in the taxable account.

Quote
On a side, very good note, this might bring my income low enough that Ill now be able to contribute to a Roth IRA this year, but itll be close and wont know til I do my taxes.
Can you do a backdoor Roth with no pro-rata concerns?

letired

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Re: Lets talk HSAs
« Reply #2 on: October 25, 2018, 05:31:23 PM »
I use my HSA strictly for investment. Sometimes I am tempted to pull it out, but if we look at the Investment Order, we see that contributing to the HSA is one of the best accounts to keep money in, tax-wise. It's tax-free going in, grows tax-free, and if you spend it on medical expenses, it's tax-free coming out. I suspect I'll have some medical expenses in retirement, so that's my plan. :)) All dollars are interchangeable with other dollars, so if I'm going to invest a dollar, it makes sense to prioritize putting them into and leaving them in special accounts that reduce taxes.

It also depends on your income-to-expense ratio. My income is high enough that I can do the HSA/401k/ira trifecta and still have a little leftover after living for after-tax investing. If you don't, or have really high medical expenses, and need the money, it might make sense to use it 'as intended' for the tax-free in and tax-free out, skipping the tax-free growth. I have a big expense coming up, and to cover it with cash-flow, I'll pause my after-tax investing for a few months instead of pulling HSA money to cover medical expenses. If push really came to shove, I'd reverse my way up the Investment Order in terms of what I cut. The HSA is at the top of the investment order because you will likely be able to never pay taxes on that money, assuming you continue to have medical expenses :P

ETA: to be clear, if you withdraw HSA money for non-medical expenses after 65, it is like a traditional IRA where you pay income taxes. If you withdraw HSA money at any age for medical expenses, it is tax-free. That's why it is so mega good to leave the money in the HSA while you are working.
« Last Edit: October 25, 2018, 05:33:28 PM by letired »

MoolahLula

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Re: Lets talk HSAs
« Reply #3 on: October 25, 2018, 06:10:22 PM »
I am planning to sign up for an HSA this open season, but I am also planning for a surgery that may have some larger out of pocket bills due.  I have always had a FSA account until now.  I have just recently learned how great HSAs can be from some savvy coworkers.  They however are all fit and trim. 

bacchi

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Re: Lets talk HSAs
« Reply #4 on: October 25, 2018, 07:43:05 PM »
Im basically curious if someone has done the math as to whether its more worthwhile to use it as intended, on qualifying medical expenses, or do I pay the expenses out of pocket and just let the HSA grow for retirement?

If you can afford to pay the expenses from cash flow, then leaving the money in the HSA allows it to grow and be withdrawn tax free later.  If you paid the expenses immediately from the HSA and invested taxably instead, you would be paying whatever taxes on the dividends, capital gains, etc. in the taxable account.

This is a clear, succinct, way to look at it.

Radagast

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Re: Lets talk HSAs
« Reply #5 on: October 25, 2018, 08:31:55 PM »
So far mine has been strictly invested, with so far minor health expenses paid from cash flow. In theory that is better. I recall several finance bloggers use theirs to pay for ongoing medical expenses though, because; there is no guarantee the program will last until you are 65; loss of receipt documentation is easy to imagine and will make money hard to get out early; receipt documentation takes up time; the account is not tax free unless spent on medical expenses or both you and the tax structure make it to 65. So far in my situation the HSA is clearly better for investing, but there is a good chance I will cash out whatever I can within the next 10 years.

MustacheAndaHalf

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Re: Lets talk HSAs
« Reply #6 on: October 26, 2018, 06:18:41 AM »
When you pick your own HSA (when changing employers), consider the benefit of more money in the market against higher fees.  The fees at HSA Bank were higher than my prior plan, but putting $1000 or $2000 into the market outweighed the difference.  My prior plan had a certain amount that had to be in cash, while HSA Bank allows the entire 100% to be invested (they partner with TD Ameritrade, $7/trade).

talltexan

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Re: Lets talk HSAs
« Reply #7 on: October 26, 2018, 07:14:07 AM »
Major Health Savings Account fan here!

Another poster in the MMM community suggested paying small expenses like $10 or even $30 from the HSA, but holding major bills until later (paying those from taxable, but keeping the paperwork) so that you're not inventorying a bunch of papers about very small transactions. I've been really health so far, so it hasn't been an issue.

Because of the requirement to keep a minimum cash balance, the HSA money is more conservatively allocated than my other accounts.

EvenSteven

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Re: Lets talk HSAs
« Reply #8 on: October 26, 2018, 07:55:13 AM »
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What other tips and tricks should be considered?

One thing that was alluded to by Radagast, is that you shouldn't be withdrawing for non-qualified expenses at age 65, because you will be paying taxes on it. However, you can reimburse yourself for medical expenses incurred at any point that you are covered by HSA, even if the expense was decades ago. Or you can pay for health costs in old age. Worst case scenario is that your life time health costs end up being very low, which seems like an awesome worst case.

One feature that I don't see mentioned a lot, is that you can mix and match your families coverage. You can use your HSA to pay for expenses for your spouse or child even if they are covered under a different, non-HSA plan. This may or may not be helpful to you.

DS

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Re: Lets talk HSAs
« Reply #9 on: October 26, 2018, 08:33:13 AM »
Everything I needed to hear to sign up / only use for investment:

https://www.madfientist.com/ultimate-retirement-account/

Paul der Krake

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Re: Lets talk HSAs
« Reply #10 on: October 26, 2018, 08:42:19 AM »
Regarding reimbursing yourself later: keep in mind that you will be reimbursing with nominal dollars, not inflation-adjusted dollars. There is an incentive to not wait too long.

I plan on strategically withdrawing some out of mine during a year where we need to look low-income on paper.

EvenSteven

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Re: Lets talk HSAs
« Reply #11 on: October 26, 2018, 08:51:51 AM »
Quote
Regarding reimbursing yourself later: keep in mind that you will be reimbursing with nominal dollars, not inflation-adjusted dollars. There is an incentive to not wait too long.

This only matters if your lifetime HSA account is larger than your lifetime medical expenses.
« Last Edit: October 26, 2018, 08:55:54 AM by EvenSteven »

charis

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Re: Lets talk HSAs
« Reply #12 on: October 26, 2018, 09:09:07 AM »
I started maxing an HSA and invested most of it for the first three years.  I've started reimbursing myself for oldest health care costs with some 2018 contributions.  I plan to continue that trend and keep the unreimbursed medical costs fairly current, within 1 year or so, so it's easy to get another invoice if I need it. 

Keeping track of medical receipts for the next 30-40 years is my nightmare, and with kids and a chronic condition, there are a lot of them.  So I'm still investing, but keeping things simple and more current. 
« Last Edit: October 26, 2018, 01:29:12 PM by charis »

NathanP

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Re: Lets talk HSAs
« Reply #13 on: October 26, 2018, 09:17:44 AM »
Thanks to being in good health, my family's out of pocket expenses are usually less than $1000 per year. I pay them out of the HSA and allow the remainder to remain invested.

When you are talking about such small amounts, the difference in tax-free growth isn't worth the hassle of keeping receipts.

harvestbook

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Re: Lets talk HSAs
« Reply #14 on: October 26, 2018, 10:25:10 AM »
We pay current expenses out of our HSA but the bulk of it is still growing. To me, it's hedging out the risks a little--like, dying before you use it, something changes regarding personal health care in the future, taxation rules change, etc.

use2betrix

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Re: Lets talk HSAs
« Reply #15 on: October 26, 2018, 03:05:10 PM »
Lots of good feedback here. Thanks for all the input.

We will plan to max HSA and pay expenses out of pocket. We have a filing cabinet/safe with all our important documentation, and adding a file for medical receipts to be reimbursed some day down the road would be no issue, or scan them in and save them to a cloud/Dropbox/email acct.

Ive had 3 hernia surgeries (gonna need a 4th) and skin cancer. My wife and I are planning to have 1-2 kids, so Id imagine in the long run well be able to be reimbursed a good amount much further down the road.

Whats awesome - I just read - is that the HSA can be used to pay for COBRA premiums! Since Im a contractor, during future sabbaticals I plan on using COBRA a lot more, so those will also be receipts to hold onto. The marketplace plans are typically complete garbage compared to what I get through employers.

effigy98

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Re: Lets talk HSAs
« Reply #16 on: October 26, 2018, 07:13:45 PM »
I max HSA out and we get a generous employee match. Then I set it to automatically invest anything over the yearly max out of pocket deductible of 6500 which seems to do this on $50 over increments for free. It is a cool program.

goes into:

34% Vanguard Total Stock Market Index
33% International Total Market Index
33% Small Cap Value Index

I occasionally use it for deductibles, but usually we do not use it. Ideally I would never touch it and use taxable only money. I figure I should keep the deductible liquid in case I really needed it for some reason and I really don't want to sell stock when we might have a downturn by accident.
« Last Edit: October 26, 2018, 07:19:36 PM by effigy98 »

AccidentalMiser

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Re: Lets talk HSAs
« Reply #17 on: October 27, 2018, 07:35:26 AM »
Everything I needed to hear to sign up / only use for investment:

https://www.madfientist.com/ultimate-retirement-account/

Highly recommend this MF article also.  I use it for an investment account primarily but do use it to pay for medical expenses for the few times they arrive.  My tax rate now is 25%, in retirement it will be much lower so it makes more sense to me to save the taxes.  Having said that, we probably don't draw more than a few hundred dollars a year from it and the account balance is about 50k after seven years of funding.

If you don't withdraw from it, at least keep your receipts for out-of-pocket expenses so you can reimburse yourself in the future if needed.

use2betrix

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Re: Lets talk HSAs
« Reply #18 on: October 27, 2018, 08:40:51 AM »
Ok so I have another question:

As I mentioned, the $6,900 is going to be withdrawn equally from my two November paychecks. Since this is pre-tax, how does that effect my 401k contribution?

I.e. if my taxable income on one check is $10,000, and my 401k contribution is 5%, but Im also having $3,450 pulled for an HSA, does that 5% come out of the $10,000, and then the $3,450 is pulled after?

Or:

Is the $3450 pulled from the $10,000 ($6,550), so then my 401k contribution is 5% of the $6,550?

Im not a salary employee and I switched jobs mid year, so my current contributions have me about $1500 shy of the 401k max for the year. I want to adjust them to make sure I hit the max, but theres these other factors involved. Between that extra $1500 and the HSA, Im hovering right around the max limit for Roth, so I need to have everything perfectly in check. My employer also matches 5% on my 401k so I dont want to max it out too early as well.

terran

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Re: Lets talk HSAs
« Reply #19 on: October 27, 2018, 08:48:24 AM »
Since this is pre-tax, how does that effect my 401k contribution?

This will be company dependent depending on how they run payroll, so you'll have to ask HR. My guess would be that all percentages you put in will be based on gross income for the month before any deductions are taken.

talltexan

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Re: Lets talk HSAs
« Reply #20 on: October 29, 2018, 07:55:53 AM »
I'd heard there was some ambiguity about the maximum contribution into the HSA this year because of an error in the TCJA code. Can someone clarify their understanding of the maximum they contributed for TY 2018?

DS

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Re: Lets talk HSAs
« Reply #21 on: October 29, 2018, 08:00:09 AM »
I'd heard there was some ambiguity about the maximum contribution into the HSA this year because of an error in the TCJA code. Can someone clarify their understanding of the maximum they contributed for TY 2018?

$3,450 / $6,900

https://www.irs.gov/pub/irs-drop/rp-17-37.pdf

https://tax.thomsonreuters.com/blog/irs-announces-2018-hsa-contribution-limits-hdhp-minimum-deductibles-and-hdhp-out-of-pocket-maximums/

Rural

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Re: Lets talk HSAs
« Reply #22 on: October 29, 2018, 07:00:30 PM »
I'd heard there was some ambiguity about the maximum contribution into the HSA this year because of an error in the TCJA code. Can someone clarify their understanding of the maximum they contributed for TY 2018?


It wasn't so much that it was ever ambiguous, but that the IRS announced one family limit at the beginning of the year, then changed their mind (lowered it by $50), then changed it back again - all by around the middle of February, as I recall, but it led to a series of changes that very nearly cost me a whole months' worth of contributions this year. But they haven't changed anything since early in the year. I suppose that's a win.