Author Topic: how to record HSA expenses  (Read 1756 times)

Josiecat22222

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how to record HSA expenses
« on: June 14, 2022, 08:28:01 AM »
I'm looking for some answers on how to best use HSA. 

We have HSAs for DH and I which I fully fund annually.  My understanding is that they are a great wealth building tool as they are funded pretax and the growth is untaxed as long as it is used to pay eligible health care expenditures and that after a certain age (59.5?) it can be used for any and all expenses.

I also understand that you can "reimburse yourself" out of the HSA for appropriate costs (prescriptions, copays, etc) retroactively.  For example, I can save receipts for prescriptions from 2021 and reimburse myself for that expense in 2025 out of my HSA, I think.

These are my questions:

Is this correct?  (I know you can only reimburse for expenses incurred while HSA was active)

How do other mustachians keep their receipts?  Do you have them in a folder on your desk? Do you upload them to a email file?

I'm currently using the folder on my desk option and it is getting a bit unwieldy and looking for other ideas/solutions.  I don't intend to cashout of my HSA anytime soon and intend to continue to fund it, but rather consider it a source of funds if needed in the future.

Thank you in advance for your thoughts!

EvenSteven

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Re: how to record HSA expenses
« Reply #1 on: June 14, 2022, 08:53:39 AM »
Mostly correct. I would add that if you are withdrawing after 59.5 for non-medical purposes there is no penalty, but is taxed at your nominal rate (just like a traditional IRA).

Also, if you are not maxing your other tax advantaged accounts, it might be easier to reimburse yourself now, and use that money to fund your other tax advantaged accounts. You will get the same tax benefits, but don't need to worry about saving receipts.

I keep the physical paper copy of the paid receipt, along with a digital copy, and keep track of expenses in my financial spreadsheet for easy organization. I don't have a lot of health expenses so the physical space that this takes up is one thin folder in my filing cabinet. Some people also keep the Estimation of Benefits from the insurance company, but I don't.

terran

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Re: how to record HSA expenses
« Reply #2 on: June 14, 2022, 10:17:30 AM »
I scan them using the dropbox app scan feature and keep them in a dropbox folder called unreimbursed HSA. I name the files with the date I made the payment in the format YYYY-MM-DD which keeps them ordered nicely and add some brief description of the purchase or doctor, but the date is the primary way I find them.

I also keep a spreadsheet in this same folder with the date of the payment, the amount, and a memo field that includes a more complete description and and the date of the actual service. If the receipt includes both HSA eligible and non-HSA eligible expenses then write in the PDF file (using the preview app on my mac, so you'd need another PDF editor if you use something else) with the tax on the HSA eligible item(s) and the total of all HSA eligible item(s) and any other notes I think I might need to separate the eligible and non-eligible amounts.

The spreadsheet adds up the total expenses and if I ever wanted to make a partial reimbursement I could just add a running total column and start at the beginning until I'd reached the amount I wanted to reimburse myself for and move those receipt scans and that part of the spreadsheet to a new folder called something like YYYY HSA Reimbursement (which I'd probably keep in the tax folder for that year).

BC_Goldman

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Re: how to record HSA expenses
« Reply #3 on: June 14, 2022, 10:38:10 AM »
I'm in a similar boat. Started an HSA last year. I know I need to keep records for future withdrawals. Looks like the HSA will only let me withdraw if I submit approved receipts Wich sounds like double work.

secondcor521

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Re: how to record HSA expenses
« Reply #4 on: June 14, 2022, 10:42:48 AM »
You can reimburse yourself for qualified medical expenses after the HSA is established, which is generally the date the first deposit was made to the HSA.  Note that in the case of a married couple, these dates very well might be different.

If you're married, you can distribute from your HSA for your spouse's medical expenses and vice-versa.

Prescriptions and copays count.  Also, as of the CARES act, over-the-counter medicines count.  Menstrual care products also count.

The age for penalty-free withdrawals for HSAs is 65.  This is different from IRAs, which is 59.5.

I keep a single Excel spreadsheet with date, amount, brief description.  I keep paper receipts in a hanging file folder in my filing cabinet.

It sounds like you are, OP, but make sure you are reporting your contributions on your tax return on Form 8889 and Schedule 1 line 13.  Distributions are also reported on Form 8889 in the year taken.

I would add to @EvenSteven's comment in their second paragraph a bit - that is only true if you weren't going to max out your other tax-deferred savings options otherwise.  It is somewhat better from a wealth building perspective to max out tax-deferred savings *and* keep the money in the HSA (as OP notes, it's a tax-deferred vehicle as well) if you can because you're tax-deferring more money in total.  The point about simplicity and receipts is still true.

Finally, note that HSAs are not taxed very kindly if a person dies with an HSA.  For this reason, I plan to drain my HSA by some time in my 70s.

...

@BC_Goldman, you may want to switch HSA custodian, or you might not actually have an HSA account.  The HSA custodian is under no obligation to require receipts for a distribution - the burden is on the taxpayer to prove a distribution is qualified.  While I haven't made a distribution from my HSA yet, my understanding is that Fidelity (my HSA custodian) doesn't require receipts.

BC_Goldman

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Re: how to record HSA expenses
« Reply #5 on: June 14, 2022, 10:59:23 AM »
It's through work. Not a big fan of it. Old rate was $2.50 per month if you were investing funds. They just redid the investment side and now it's $1 to $10 per month depending on amount invested. Mainly doing it because I get a company match if I'm making contributions. Still haven't made sense of what their charges are for actually purchasing investments. Another stupid thing is the investment stuff, including setting up the investment side, can only be done during market hours.

Ah! I think I found a form buried in the site that I can directly withdraw.

secondcor521

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Re: how to record HSA expenses
« Reply #6 on: June 14, 2022, 11:25:53 AM »
It's through work. Not a big fan of it. Old rate was $2.50 per month if you were investing funds. They just redid the investment side and now it's $1 to $10 per month depending on amount invested. Mainly doing it because I get a company match if I'm making contributions. Still haven't made sense of what their charges are for actually purchasing investments. Another stupid thing is the investment stuff, including setting up the investment side, can only be done during market hours.

Ah! I think I found a form buried in the site that I can directly withdraw.

Sounds annoying.  You can probably roll it to Fidelity (or any other custodian you might like) when you leave that job.  You may be able to do partial rollovers while you still work there.

terran

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Re: how to record HSA expenses
« Reply #7 on: June 14, 2022, 02:12:08 PM »
You shouldn't need to submit anything to take a withdrawal from the HSA. That's just a "service" they provide. And if they do insist on it you can roll the HSA over somewhere else (like Fidelity) and take the distribution from there.

Josiecat22222

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Re: how to record HSA expenses
« Reply #8 on: June 14, 2022, 03:23:56 PM »
Thank you all for your insights.

To answer the questions asked above, we are already fully retired/FIRED at 49 and 45 and are no longer contributing to our retirement funds, we documented the HSA on form 8889.  We are currently in our 4th and 2nd years of being FIRE'd respectively.  Not planning to tap the HSA for many years (hopefully.....), but want to see how others are keeping track of eligible expenses as it could be 20 years or more until we activate that funding source.

As always, am grateful for the collective wisdom of the group.  Sounds like the next rainy day will involve making a spreadsheet and scanning in some receipts.  Mr Josiecat is going to LOVE that!!!

Psychstache

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Re: how to record HSA expenses
« Reply #9 on: June 14, 2022, 04:49:21 PM »
Can confirm Fidelity HSA does not require (and in fact will not accept) receipts to receive a distribution. You can take a distribution up to your cash balance and it is on you to have the evidence of allowable expenses.

Josiecat22222

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Re: how to record HSA expenses
« Reply #10 on: June 14, 2022, 04:55:14 PM »
@Psychstache -- I also have Fidelity for my HSA.  Are you saying that you do not need receipts to cash it out for allowable expenses, but just need to have the receipts to justify any distributions?  That is how the distributions from 529s work in my experience as well.

I guess I'm doomed to carry a folder/spreadsheet of HSA expenses for the rest of my days.....

Psychstache

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Re: how to record HSA expenses
« Reply #11 on: June 14, 2022, 07:27:35 PM »
@Psychstache -- I also have Fidelity for my HSA.  Are you saying that you do not need receipts to cash it out for allowable expenses, but just need to have the receipts to justify any distributions?  That is how the distributions from 529s work in my experience as well.

I guess I'm doomed to carry a folder/spreadsheet of HSA expenses for the rest of my days.....

To the bold, yes. I am in the same boat with a digital locker of all my old receipts.

reeshau

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Re: how to record HSA expenses
« Reply #12 on: June 17, 2022, 12:46:52 AM »

Is this correct?  (I know you can only reimburse for expenses incurred while HSA was active)


@secondcor521 gave a very complete answer, but I want to call this out specifically.  You do not need to be on an HDHP to get HSA reimbursement for qualified expenses; only to contribute to it.  Even past expenses, as long as they occurred after the HSA was funded.

The usage I settled on for my HSA is as a buffer / medical emergency fund while FIRE'd and on an ACA plan.  In case of a major medical expense, I will pull from the HSA, so as not to end up increasing my income--which not only would incur income tax, but also could jeopardize my ACA subsidies.  Of course, a Roth could fulfill this, too, if you have set up to pull money early.  Once I hit Medicare age, I will switch to draining the HSA; while there are consequences for higher income with Medicare, too, I then have access to my full Roth balances for that purpose.  (Of course, I have that at 59 1/2, prior to Medicare beginning.  I'm not yet decided if I should start ASAP or allow the Medicare milestone to be my trigger)

Josiecat22222

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Re: how to record HSA expenses
« Reply #13 on: June 17, 2022, 06:17:37 AM »
Thank you @secondcor521 and @reeshau for those detailed and nuanced answers! I really appreciate it.  After 30+ years of accumulation phase, we are learning the ins and outs of  how best to deploy our resources.  The idea of limiting income to not only limit income tax, but also to maintain ACA coverage is a good thought.  Usually, I convert from tIRA to Roth in Nov with the goal of at least meeting the standard deduction, but maybe this year I will do a bit more since there is no cliff.  Thoughts?

BC_Goldman

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Re: how to record HSA expenses
« Reply #14 on: June 17, 2022, 06:45:57 AM »
Related question to only being able to use for expenses incurred after the HSA is established. If I roll over from current HSA to a better one, do withdrawals from it have to be for expenses incurred after the NEW one is established or does it stay with the original date?

secondcor521

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Re: how to record HSA expenses
« Reply #15 on: June 17, 2022, 11:19:28 AM »
Related question to only being able to use for expenses incurred after the HSA is established. If I roll over from current HSA to a better one, do withdrawals from it have to be for expenses incurred after the NEW one is established or does it stay with the original date?

It stays with the original date, because it's considered the same HSA.

secondcor521

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Re: how to record HSA expenses
« Reply #16 on: June 17, 2022, 11:20:54 AM »
Thank you @secondcor521 and @reeshau for those detailed and nuanced answers! I really appreciate it.  After 30+ years of accumulation phase, we are learning the ins and outs of  how best to deploy our resources.  The idea of limiting income to not only limit income tax, but also to maintain ACA coverage is a good thought.  Usually, I convert from tIRA to Roth in Nov with the goal of at least meeting the standard deduction, but maybe this year I will do a bit more since there is no cliff.  Thoughts?

How much Roth conversion to do is a semi-complicated topic.  I'd suggest searching for and reading all the Roth conversion threads over at early-retirement.org forums (either search by tag or with Google).

LightStache

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Re: how to record HSA expenses
« Reply #17 on: July 03, 2022, 12:30:58 PM »
I also have a Fidelity HSA and only keep digital copies of receipts in my Google Drive. There's really no need to keep a spreadsheet unless you want to know exactly how much you could theoretically withdrawal. My account balance is still relatively small so I haven't felt the need to put in that extra effort.

achvfi

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Re: how to record HSA expenses
« Reply #18 on: July 03, 2022, 03:54:09 PM »
We did it until last year. I put them receipts in google drive, organized by year and also maintained a google sheets list per year.

After doing it few years I noticed that I was not very enthused to keep the records anymore. So one day I made the call to reimburse all the receipts and use it reduce our cash flow needs.

It was amazing how large balances grew overtime close to six figures. Its a great strategy. Its not for me anymore.