Author Topic: Are you spending or saving your HSA $?  (Read 4026 times)

FireAnt

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Are you spending or saving your HSA $?
« on: February 27, 2019, 07:30:50 AM »
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?
« Last Edit: February 27, 2019, 07:33:22 AM by italianant »

JLee

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Re: Are you spending or saving your HSA $?
« Reply #1 on: February 27, 2019, 07:41:49 AM »
I save it because gains are tax-free.  $15 today could be $30 in 10 years, which could be $60 in 10 more, and none of that is taxed.

Milkshake

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Re: Are you spending or saving your HSA $?
« Reply #2 on: February 27, 2019, 07:46:23 AM »
I save my HSA funds because the true power is investing those funds. So it goes into the account and into the stock market tax free, then makes roughly 7% on itself every year, tax free, and then when you want to pull it out it's tax free as long as you save all of your medical receipts over the years.

My plan is to use that money as an unexpected expense buffer during my Roth conversion ladder after I retire. Every medical-related receipt is saved in a folder, even for band-aids and contact solution.

FireAnt

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Re: Are you spending or saving your HSA $?
« Reply #3 on: February 27, 2019, 07:59:48 AM »
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.

cassafrass

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Re: Are you spending or saving your HSA $?
« Reply #4 on: February 27, 2019, 08:07:31 AM »
I think this article does a good job of explaining the triple-tax benefits of HSAs and how they're especially helpful for someone that wants to retire early:

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

Basically, they're better than an IRA/401k because with those accounts, you'd eventually pay taxes upon withdrawal, even though growth is protected. But with an HSA, it's not taxed when you deposit, not taxed while it grows, and not taxed when you take distributions. Triple win!

Right now, we're only saving an embarrassingly small amount in our HSA, but next year when my employer lets me change my monthly contribution, I'm planning putting a lot more in.


G-dog

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Re: Are you spending or saving your HSA $?
« Reply #5 on: February 27, 2019, 08:23:48 AM »
Save - in hopes of having a good amount for elder care or catastrophic event(s). I can easily pay for current costs out of pocket, coupled with coverage from the insurance.  So I am playing the long game (which started when I was about 53 yo - so my game isn’t as long as most of you ).

radram

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Re: Are you spending or saving your HSA $?
« Reply #6 on: February 27, 2019, 08:34:44 AM »
I save my HSA funds because the true power is investing those funds. So it goes into the account and into the stock market tax free, then makes roughly 7% on itself every year, tax free, and then when you want to pull it out it's tax free as long as you save all of your medical receipts over the years.

My plan is to use that money as an unexpected expense buffer during my Roth conversion ladder after I retire. Every medical-related receipt is saved in a folder, even for band-aids and contact solution.

The bold part can not be emphasized enough. No proof, no tax free withdrawal. I would consider saving the receipts to take out the money at a later time very similar to the concept of "float" in the insurance world. It is money you have now that is committed to be spent later. You have free use of it until it is spent. Float is an overwhelmingly powerful tool that made Warren Buffet and Berkshire what it is today.

In the HSA case, it is a very small float, since you pay the bill with other cash. The float is the gains growing tax free. In 40 years that figure could be huge.

chaskavitch

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Re: Are you spending or saving your HSA $?
« Reply #7 on: February 27, 2019, 08:35:49 AM »
I'm doing both. 

Years that we don't have high medical expenses, I still max out my HSA, both for the tax savings now and for the use of the money later.

This year, however, I'm definitely reaching my OOP max having a baby, and we're also trying to save up for a house downpayment. 

On the advice of some excellent people on this forum, I've opened a Chase Sapphire Preferred card ($500 or 650 miles points with $4k spend in 3 months) and I'm planning to open a Savor card ($500 on $3k spend in 3 months), putting all of my medical expenses on those, saving my receipts and bills (and scanning them just in case), and reimbursing myself from my HSA.  So I get ~$1070 back in rewards AND I save on my taxes.

I still maxed out my HSA contributions this year, I'll just end up taking all but like $200 back out by mid-summer.


therethere

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Re: Are you spending or saving your HSA $?
« Reply #8 on: February 27, 2019, 08:42:33 AM »
I save mine and I'm kicking myself for not saving sooner. I'm up to almost 50k. My target is to get the HSA high enough that a 4% withdrawl would cover the family OOP max. More of a comfort type of goal. I've been pretty poor about saving receipts. Mainly because I have no idea what receipt you actually keep (EOB, CC, ???).  But by my count we've only had 3k out of pocket in 5 years so I'm not too worried about getting that money out. I'll continue to not withdraw from it for as long as I can cashflow my health expenses.

ixtap

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Re: Are you spending or saving your HSA $?
« Reply #9 on: February 27, 2019, 08:43:12 AM »
Spending because lazy about record keeping. But we haven't needed to spend it all, yet, so we are also saving.

This works for us because we have Roth contributions galore, thanks in large part to mega backdoor Roth.


tygertygertyger

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Re: Are you spending or saving your HSA $?
« Reply #10 on: February 27, 2019, 09:30:46 AM »
Both. I definitely use HSA funds to cover my medical expenses now. But I'm also maxing out HSA contributions, and I only spend a small portion each year, so my HSA total is steadily climbing.

Caoineag

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Re: Are you spending or saving your HSA $?
« Reply #11 on: February 27, 2019, 09:37:16 AM »
Both. My medical expenses are minimal so I don't save receipts, I just use my account as needed. My accounts are still growing as a result.

FireAnt

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Re: Are you spending or saving your HSA $?
« Reply #12 on: February 27, 2019, 09:38:02 AM »
I save mine and I'm kicking myself for not saving sooner. I'm up to almost 50k. My target is to get the HSA high enough that a 4% withdrawl would cover the family OOP max. More of a comfort type of goal. I've been pretty poor about saving receipts. Mainly because I have no idea what receipt you actually keep (EOB, CC, ???).  But by my count we've only had 3k out of pocket in 5 years so I'm not too worried about getting that money out. I'll continue to not withdraw from it for as long as I can cashflow my health expenses.

50K?!?! Impressive.

Cezil

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Re: Are you spending or saving your HSA $?
« Reply #13 on: February 27, 2019, 09:51:41 AM »
My target is to get the HSA high enough that a 4% withdrawl would cover the family OOP max. More of a comfort type of goal.

I've been pretty poor about saving receipts. Mainly because I have no idea what receipt you actually keep (EOB, CC, ???).

I'll continue to not withdraw from it for as long as I can cashflow my health expenses.

Same, same, and same!

Congrats on the 50k!

Highbeam

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Re: Are you spending or saving your HSA $?
« Reply #14 on: February 27, 2019, 09:54:01 AM »
As said above, both. I definitely use HSA funds to cover my medical expenses now. But I'm also maxing out HSA contributions, and I only spend a small portion each year, so my HSA total is steadily climbing.

I do not want to try to save old receipts with the intent of using HSA funds for general spending in the future. Way too much work and risk. Spending HSA funds as I go is still income tax free, payroll tax free, spending.

RelaxedGal

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Re: Are you spending or saving your HSA $?
« Reply #15 on: February 27, 2019, 10:54:53 AM »
As said above, both. I definitely use HSA funds to cover my medical expenses now. But I'm also maxing out HSA contributions, and I only spend a small portion each year, so my HSA total is steadily climbing.

I do not want to try to save old receipts with the intent of using HSA funds for general spending in the future. Way too much work and risk. Spending HSA funds as I go is still income tax free, payroll tax free, spending.

Ditto.

I don't trust myself to keep the receipts, I don't trust that there won't be a house fire, and I don't trust that there won't be a rules change.  But I also max it out and don't use the full amount in any given year so it continues to grow.

Telecaster

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Re: Are you spending or saving your HSA $?
« Reply #16 on: February 27, 2019, 11:27:01 AM »
I save mine and I'm kicking myself for not saving sooner. I'm up to almost 50k. My target is to get the HSA high enough that a 4% withdrawl would cover the family OOP max. More of a comfort type of goal. I've been pretty poor about saving receipts. Mainly because I have no idea what receipt you actually keep (EOB, CC, ???).  But by my count we've only had 3k out of pocket in 5 years so I'm not too worried about getting that money out. I'll continue to not withdraw from it for as long as I can cashflow my health expenses.

Keep everything.   There is another reason, probably more important reason, why you should keep your receipts, namely if you are ever audited or questioned by the IRS you will need to verify those were legitimate withdrawals.   I believe there is a three year look back, so you should keep these records for at least that long.

However, it is dead simple to archive.   There are various expense report apps that can take a picture of the receipt, pdf it (is "pdf" a verb?) and upload directly to the cloud.   Then once a year tax time when we are organizing everything we make a cloud backup of the cloud backup, just in case.     It is easier than it sounds. 

therethere

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Re: Are you spending or saving your HSA $?
« Reply #17 on: February 27, 2019, 11:44:01 AM »
I save mine and I'm kicking myself for not saving sooner. I'm up to almost 50k. My target is to get the HSA high enough that a 4% withdrawl would cover the family OOP max. More of a comfort type of goal. I've been pretty poor about saving receipts. Mainly because I have no idea what receipt you actually keep (EOB, CC, ???).  But by my count we've only had 3k out of pocket in 5 years so I'm not too worried about getting that money out. I'll continue to not withdraw from it for as long as I can cashflow my health expenses.

Keep everything.   There is another reason, probably more important reason, why you should keep your receipts, namely if you are ever audited or questioned by the IRS you will need to verify those were legitimate withdrawals.   I believe there is a three year look back, so you should keep these records for at least that long.

However, it is dead simple to archive.   There are various expense report apps that can take a picture of the receipt, pdf it (is "pdf" a verb?) and upload directly to the cloud.   Then once a year tax time when we are organizing everything we make a cloud backup of the cloud backup, just in case.     It is easier than it sounds.

That's already way more organization than just about anything in my life other than my net worth tracking spreadsheet! For now, if I remember, I take a picture and send a receipt to my email with "HSA" in the subject. But I've only done this a few times. I haven't pulled any money from my HSA yet, just pay out of pocket.

missundecided

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Re: Are you spending or saving your HSA $?
« Reply #18 on: February 27, 2019, 11:48:15 AM »
I do both. Sometimes, in fact, I'll deposit that reimbursement from my HSA into my Roth in the years that I won't be able to max out that IRA on my own.

Cadman

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Re: Are you spending or saving your HSA $?
« Reply #19 on: February 27, 2019, 12:06:17 PM »
Complexity is what you make of it. As it stands, I simply write 'non-reimbursed' on any qualifying receipt and stick it in an envelope. Couldn't be simpler.

Once a year when I'm doing taxes, I take 15 minutes to tally up the contents, write the value on the front, and start a new one. Old one goes in the fire safe.

My biggest concern is thermal-paper fade, but so far I haven't seen any evidence of that. No reason I couldn't just lay them out on the floor and take a couple high-res pics to capture them all in a couple of groups.

missundecided

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Re: Are you spending or saving your HSA $?
« Reply #20 on: February 27, 2019, 12:56:45 PM »
Remember that the receipts you hang onto can't just show you paid $xx, but what that payment was FOR (ie. something that is covered/eligible). For example, I could go to the dentist and while I'm there, buy from them special toothbrushes or whatever, and have them give me a receipt showing I paid $100.50 without any detail, but that won't fly with the IRS. The itemized receipt, however, needs to list that that $50 was for that magical toothbrush (which wouldn't be covered for reimbursement) but the remaining $50.50 was for the dental visit itself, which IS covered as a medical expense.

nereo

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Re: Are you spending or saving your HSA $?
« Reply #21 on: February 27, 2019, 01:02:00 PM »
Save.  With the family alotment of $6900 (2019) it's amazing how quickly it adds up.

We keep a binder of medical expenses, and a digital copy as well.

CarolinaGirl

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Re: Are you spending or saving your HSA $?
« Reply #22 on: February 27, 2019, 01:23:52 PM »
I absolutely save it!  What is also interesting is that most medical billing departments will even let you pay the bill over a period of time INTEREST free. 

I plan on maxing my HSA out for the year(aka frontloading) in May so the money will also have more time in the market.  Would have loved to do that earlier in the year but we’re currently maxing our 2018 contributions to our SEP and Roth accounts before the April deadline. 

The_Pretender

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Re: Are you spending or saving your HSA $?
« Reply #23 on: February 27, 2019, 01:32:10 PM »
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

FireAnt

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Re: Are you spending or saving your HSA $?
« Reply #24 on: February 27, 2019, 05:49:27 PM »
For those that are posting about saving receipts... I'm not sure I'm understanding completely, or maybe I am. You are saving your receipts so you can reimburse yourself with your HSA later on in life? Like decades later so you can use the money now to invest and allow it to grow?!

Edited to add: Okay I just read the madfientist article posted here and read an article by JH Collins. Dang, I'm not sure I'm prepared to save decades worth of receipts. Is it still worth paying OOP??
« Last Edit: February 27, 2019, 06:09:30 PM by italianant »

ixtap

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Re: Are you spending or saving your HSA $?
« Reply #25 on: February 27, 2019, 05:52:11 PM »
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.

Telecaster

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Re: Are you spending or saving your HSA $?
« Reply #26 on: February 27, 2019, 06:28:33 PM »
For those that are posting about saving receipts... I'm not sure I'm understanding completely, or maybe I am. You are saving your receipts so you can reimburse yourself with your HSA later on in life? Like decades later so you can use the money now to invest and allow it to grow?!

Absolutely!   Even once you reach age 65 and receive Medicare, you still may have substantial out of pocket medical expenses, such as purchasing a Medicare Advantage plan.   My wife and I have basically no health problems (knock on wood) and are both working, so we can easily cover anything out of pocket right now.

But the grim reality is your health care costs will increase as you get older.  They just do.  So the idea of getting a tax deduction now (including FICA!) AND getting tax free gains, AND getting tax free withdrawals in order to pay for what are likely higher medical cost down the road is huge.   

There is a counterargument that you are saving fully valued dollars in order to spend inflation-ravaged dollars in the future.   For example, you save $100 now, and in 20 years you withdraw $100 dollars tax free, but by that time it is only worth the equivalent of $50.   Some truth to that.     But if invested over a long period of time (and 20 years is a long time) your investment returns should be well ahead of inflation (if they aren't we are all in trouble).

Regardless, we are all saving and investing for the future.  Because health care expenses will almost sure rise as we get older, the amazing tax advantages of an HSA are hugely beneficial. 






FireAnt

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Re: Are you spending or saving your HSA $?
« Reply #27 on: February 27, 2019, 06:40:00 PM »
For those that are posting about saving receipts... I'm not sure I'm understanding completely, or maybe I am. You are saving your receipts so you can reimburse yourself with your HSA later on in life? Like decades later so you can use the money now to invest and allow it to grow?!

Absolutely!   Even once you reach age 65 and receive Medicare, you still may have substantial out of pocket medical expenses, such as purchasing a Medicare Advantage plan.   My wife and I have basically no health problems (knock on wood) and are both working, so we can easily cover anything out of pocket right now.

But the grim reality is your health care costs will increase as you get older.  They just do.  So the idea of getting a tax deduction now (including FICA!) AND getting tax free gains, AND getting tax free withdrawals in order to pay for what are likely higher medical cost down the road is huge.   

There is a counterargument that you are saving fully valued dollars in order to spend inflation-ravaged dollars in the future.   For example, you save $100 now, and in 20 years you withdraw $100 dollars tax free, but by that time it is only worth the equivalent of $50.   Some truth to that.     But if invested over a long period of time (and 20 years is a long time) your investment returns should be well ahead of inflation (if they aren't we are all in trouble).

Regardless, we are all saving and investing for the future.  Because health care expenses will almost sure rise as we get older, the amazing tax advantages of an HSA are hugely beneficial.

I agree HSA's have great tax advantages which is why I quickly jumped on board to max it out (dummy me for not doing it years before). I don't know if I'm prepared to save decades worth of receipts. Also, after reading a couple articles there is concern that the government will realize this "loophole" and change the law to only allow reimbursement within the same year. I just wonder if it would still be worth playing OOP without saving those receipts. We have a monthly medical bill that is about $172 a month which was being paid with our HSA. I'm curious, is it worth it then?

ixtap

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Re: Are you spending or saving your HSA $?
« Reply #28 on: February 27, 2019, 06:42:24 PM »
For those that are posting about saving receipts... I'm not sure I'm understanding completely, or maybe I am. You are saving your receipts so you can reimburse yourself with your HSA later on in life? Like decades later so you can use the money now to invest and allow it to grow?!

Absolutely!   Even once you reach age 65 and receive Medicare, you still may have substantial out of pocket medical expenses, such as purchasing a Medicare Advantage plan.   My wife and I have basically no health problems (knock on wood) and are both working, so we can easily cover anything out of pocket right now.

But the grim reality is your health care costs will increase as you get older.  They just do.  So the idea of getting a tax deduction now (including FICA!) AND getting tax free gains, AND getting tax free withdrawals in order to pay for what are likely higher medical cost down the road is huge.   

There is a counterargument that you are saving fully valued dollars in order to spend inflation-ravaged dollars in the future.   For example, you save $100 now, and in 20 years you withdraw $100 dollars tax free, but by that time it is only worth the equivalent of $50.   Some truth to that.     But if invested over a long period of time (and 20 years is a long time) your investment returns should be well ahead of inflation (if they aren't we are all in trouble).

Regardless, we are all saving and investing for the future.  Because health care expenses will almost sure rise as we get older, the amazing tax advantages of an HSA are hugely beneficial.

I agree HSA's have great tax advantages which is why I quickly jumped on board to max it out (dummy me for not doing it years before). I don't know if I'm prepared to save decades worth of receipts. Also, after reading a couple articles there is concern that the government will realize this "loophole" and change the law to only allow reimbursement within the same year. I just wonder if it would still be worth playing OOP without saving those receipts. We have a monthly medical bill that is about $172 a month which was being paid with our HSA. I'm curious, is it worth it then?

The post you quoted isn't actually talking about saving receipts; it is talking about expecting increased medical costs down the road.

dandarc

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Re: Are you spending or saving your HSA $?
« Reply #29 on: February 27, 2019, 06:44:24 PM »
Edited to add: Okay I just read the madfientist article posted here and read an article by JH Collins. Dang, I'm not sure I'm prepared to save decades worth of receipts. Is it still worth paying OOP??
I'd say yes. In the event you don't need the money for medical expenses down the road, an HSA is basically additional traditional IRA space. You'd want to run your own numbers of course.

Telecaster

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Re: Are you spending or saving your HSA $?
« Reply #30 on: February 27, 2019, 07:45:28 PM »
I agree HSA's have great tax advantages which is why I quickly jumped on board to max it out (dummy me for not doing it years before). I don't know if I'm prepared to save decades worth of receipts. Also, after reading a couple articles there is concern that the government will realize this "loophole" and change the law to only allow reimbursement within the same year. I just wonder if it would still be worth playing OOP without saving those receipts. We have a monthly medical bill that is about $172 a month which was being paid with our HSA. I'm curious, is it worth it then?

No one knows what the tax code will look like in the future.  Let's say you are correct and the law will be rewritten to exclude bills from years past.   In that case, you will have a saved big pot of tax free money that you can use when your health care expenses are likely to be high, instead of using it now, when your expenses are likely to be low.  That sounds pretty good.  And after age 65 if the pot of money is too big you can use the money for regular expenses, as you would a traditional IRA.   I'm a big fan of the traditional IRA, so that sounds pretty good to me too.  In other words, the worst case scenario sounds pretty good. 

A lot of people have mentioned the hassle of record keeping.  It get it.  That was me not-so-very-many-years-ago.   But here's the thing:  1) You're going to have to learn to deal with the recording keeping issue anyway.  There is an entire raft of shit that you need to keep track of for tax purposes, and the sooner you get organized and deal with it the better.  In this specific case you are an idiot if you don't do it because the IRS could ask you at anytime for validation of your past withdrawals.   I'm dealing with the IRS right now for a mistake they made.  It is a barrel of fucking monkeys, I tell ya.   And I have proof I'm right.  Try that exercise without backup documentation.  You'll be one sorry hombre.   

And in general, the sooner you get your shit organized the better.   You need to know where your money is going, that means you should be tracking it already.   That's FIRE 101.   And 2) It isn't very hard.  If you have smartphone and the bill in front of you, you're done.  So don't be a sorry hombre. 

Telecaster

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Re: Are you spending or saving your HSA $?
« Reply #31 on: February 27, 2019, 07:54:42 PM »
The post you quoted isn't actually talking about saving receipts; it is talking about expecting increased medical costs down the road.

Yes, and that's my fault because I didn't really answer the question he was asking.  Some people point out you could withdraw money from an HSA for normal expenses if you save your receipts and the withdraw the money tax free in future years and use it for ordinary spending. 

That's all true.  I got side tracked and didn't talk about that in my post.  You should archive your expenses for that reason.  But HSAs are still a good deal for most people because you are shifting withdrawals to future years.   I apologize for not being direct on the original question. 

ReadySetMillionaire

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Re: Are you spending or saving your HSA $?
« Reply #32 on: February 27, 2019, 09:06:24 PM »
I'm trying to digest this thread.  I've heard of this type of strategy but I have not seen it anywhere in a single article.  My basic understanding is that the pro-save crowd are:

(1) Maxing the HSA contribution every year;
(2) Not withdrawing that money, but instead investing it;
(3) Using other cash to pay medical expenses;
(4) Saving receipts;
(5) Reimbursing your medical expenses WAY down the road; and
(6) Either using the HSA money for medical expenses way later, or taking it out penalty free (but taxed as income).

Has my brain absorbed this at this late hour?

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Re: Are you spending or saving your HSA $?
« Reply #33 on: February 28, 2019, 12:15:30 AM »
I'm trying to digest this thread.  I've heard of this type of strategy but I have not seen it anywhere in a single article.  My basic understanding is that the pro-save crowd are:

(1) Maxing the HSA contribution every year;
(2) Not withdrawing that money, but instead investing it;
(3) Using other cash to pay medical expenses;
(4) Saving receipts;
(5) Reimbursing your medical expenses WAY down the road; and
(6) Either using the HSA money for medical expenses way later, or taking it out penalty free (but taxed as income).

Has my brain absorbed this at this late hour?

You absorbed it pretty well.  The only thing to add is

7)  Making with withdrawals down the road for normal expenses, but taking those withdrawals tax free offset by past medical costs. In other words,  taking future penalty free untaxed withdrawals to use for whatever you want.   

That's not crazy.  Like I said above, you need to consider inflation.  Keep that in mind.  The final outcome will vary based on the situation.   Best case scenario is that you get access to money where the income (including FICA) was deductible, and the gains and withdrawals are never taxed, and you can spend the money on whatever you want.

Worst case is that it functions like a traditional IRA.  That's a good outcome in most scenarios as well. 

ShoulderThingThatGoesUp

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Re: Are you spending or saving your HSA $?
« Reply #34 on: February 28, 2019, 04:35:11 AM »
I aim to save, but I did use some of it when our twins were born.

slappy

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Re: Are you spending or saving your HSA $?
« Reply #35 on: February 28, 2019, 06:21:01 AM »
I save the money, but I don't save receipts. My plan is to use the money for same year expenses in retirement, such as Medicare premiums. I know a lot of people plan to use it for regular withdrawals and then use the past medical receipts to claim is as tax free income, but that is not my plan currently. My medical expenses are fairly large, so I suppose it would be easy enough to start keeping receipts. (For example, my OOP max is $4k and last year I maxed it it two separate events. It wasn't a bunch of small stuff that added up. So I would really only have two large receipts to save from last year, instead of a bunch of small ones. With three little kids, I expect it to be similar for the next few years. One ER visit for a kid=halfway to OOP max.)

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Re: Are you spending or saving your HSA $?
« Reply #36 on: February 28, 2019, 06:35:39 AM »
I started my first HSA last year. I spent around $2,000 and invested $4,000. It is nice to get the 12% "discount" on current medical expenses via reduction in our AGI, and I don't trust that I'm going to keep those records for 30+ years. I didn't quite max it in 2018, but plan to going forward.

Also, after 15 years of investing at least $5k annually, there should be enough to last through a good portion of my retirement.

des999

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Re: Are you spending or saving your HSA $?
« Reply #37 on: February 28, 2019, 07:17:20 AM »
I spend some, as I hit my out of pocket max for the year, every year (which is 10k).  but, I generally save more than I spend (maxing out).

My thought on receipts, is that I have so many, and am on a long ongoing payment plan, that I could reach out to our children's hospital at any time and get records of what I've paid over the years.

that may be a horrible assumption, but I do not do a good job of keeping my receipts.  The best I do is that I have the hospital email me receipts every month. 

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Re: Are you spending or saving your HSA $?
« Reply #38 on: February 28, 2019, 07:43:08 AM »
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?

oldmannickels

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Re: Are you spending or saving your HSA $?
« Reply #39 on: February 28, 2019, 07:58:12 AM »
Currently have about $33k and this year is the first year we hit our OOP max with having a kid. For most smaller things we save our receipts, but with the big bills this year we paid out of the HSA.

radram

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Re: Are you spending or saving your HSA $?
« Reply #40 on: February 28, 2019, 08:51:51 AM »
I save the money, but I don't save receipts. My plan is to use the money for same year expenses in retirement, such as Medicare premiums. I know a lot of people plan to use it for regular withdrawals and then use the past medical receipts to claim is as tax free income, but that is not my plan currently. My medical expenses are fairly large, so I suppose it would be easy enough to start keeping receipts. (For example, my OOP max is $4k and last year I maxed it it two separate events. It wasn't a bunch of small stuff that added up. So I would really only have two large receipts to save from last year, instead of a bunch of small ones. With three little kids, I expect it to be similar for the next few years. One ER visit for a kid=halfway to OOP max.)

One important reason it might be worth it to save those receipts is to plan for changes in tax laws we can not control. What if the rules change? What if, in 10 years, you have spent $4,000 per year($40,000) and you  are no longer allowed to take payments out without penalty due to a tax change(like means testing as an added condition of tax free withdrawal). Any new law would most certainly begin the following year it was passed, allowing the receipt saver to take out $40,000 tax free, while you might be forced to pull that out and pay taxes on it.

Sounds worth it to save a few receipts a year just in case.

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Re: Are you spending or saving your HSA $?
« Reply #41 on: February 28, 2019, 08:57:22 AM »
Spending in expectation of either Affordable Care / Medicare expansion / Medicare or foreign medical care being a better option than overpaying (with tax advantaged dollars) for US care.  So we pay as we go, enjoying the break on income taxes and what little break we get on investment gains.

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.

slappy

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Re: Are you spending or saving your HSA $?
« Reply #42 on: February 28, 2019, 09:17:24 AM »
I save the money, but I don't save receipts. My plan is to use the money for same year expenses in retirement, such as Medicare premiums. I know a lot of people plan to use it for regular withdrawals and then use the past medical receipts to claim is as tax free income, but that is not my plan currently. My medical expenses are fairly large, so I suppose it would be easy enough to start keeping receipts. (For example, my OOP max is $4k and last year I maxed it it two separate events. It wasn't a bunch of small stuff that added up. So I would really only have two large receipts to save from last year, instead of a bunch of small ones. With three little kids, I expect it to be similar for the next few years. One ER visit for a kid=halfway to OOP max.)

One important reason it might be worth it to save those receipts is to plan for changes in tax laws we can not control. What if the rules change? What if, in 10 years, you have spent $4,000 per year($40,000) and you  are no longer allowed to take payments out without penalty due to a tax change(like means testing as an added condition of tax free withdrawal). Any new law would most certainly begin the following year it was passed, allowing the receipt saver to take out $40,000 tax free, while you might be forced to pull that out and pay taxes on it.

Sounds worth it to save a few receipts a year just in case.

Good point. I guess I'm just being optimistic. I tend to imagine that if such a clause was instituted, it would have to grandfather in people who were already participating. I can't imagine a scenario where they would change the rules on people who were already participating and playing by those rules. I can certainly imagine a scenario where the change the rules moving forward. But you are right, I should pull out my receipts from last year while they are still possible to find.

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Re: Are you spending or saving your HSA $?
« Reply #43 on: February 28, 2019, 09:25:53 AM »

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...

therethere

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Re: Are you spending or saving your HSA $?
« Reply #44 on: February 28, 2019, 09:29:11 AM »

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.

Milkshake

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Re: Are you spending or saving your HSA $?
« Reply #45 on: February 28, 2019, 11:22:21 AM »
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.

EscapeVelocity2020

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Re: Are you spending or saving your HSA $?
« Reply #46 on: February 28, 2019, 11:46:33 AM »

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.

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Re: Are you spending or saving your HSA $?
« Reply #47 on: February 28, 2019, 11:48:39 AM »
We spend our HSA. For a few years, we tried to save & invest it, then save the receipts, but when I finally had to dig into the HSA to scrape together a down payment, holy shit that was a a pain in the arse. Three years worth of receipts to sort through. We are a little unusual in that our out-of-pocket medical expenses are higher than normal ($6000-10,000/year).

Now we just pay medical bills out of the HSA, and the HSA itself keeps track of our medical payments, which is way easier than having go back through years or decades worth of receipts when you want to dip into the HSA.

One other factor in my decision to spend, rather than invest, the HSA: We are unable to save enough to fund a 401k ($27,000 including match), 2 IRAs ($12,000) and an HSA ($7000) every year. So basically what we do is like taking money tax-free from the HSA and using it to further reduce our current taxable income in an IRA. We realize all of the benefits today, rather than waiting into the distant future, and it reduces our paperwork. Win-win.

Slow&Steady

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Re: Are you spending or saving your HSA $?
« Reply #48 on: February 28, 2019, 12:20:05 PM »
We do both, we max the HSA contributions but we do pay for medical bills out of the HSA too.  Most years it grows but not as fast as if we just saved it.  Our plan is similar to the below for the savings that do accumulate in the HSA.  We anticipate very large, ongoing medical cost for DH, large enough that retiring before Medicare might not be an option for me, depending on what happens with the healthcare mess that is in the US, and having medical specific funds set aside is very important to our FIRE calculations.

I save the money, but I don't save receipts. My plan is to use the money for same year expenses in retirement, such as Medicare premiums. I know a lot of people plan to use it for regular withdrawals and then use the past medical receipts to claim is as tax free income, but that is not my plan currently. My medical expenses are fairly large, so I suppose it would be easy enough to start keeping receipts. (For example, my OOP max is $4k and last year I maxed it it two separate events. It wasn't a bunch of small stuff that added up. So I would really only have two large receipts to save from last year, instead of a bunch of small ones. With three little kids, I expect it to be similar for the next few years. One ER visit for a kid=halfway to OOP max.)

therethere

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Re: Are you spending or saving your HSA $?
« Reply #49 on: February 28, 2019, 12:32:45 PM »

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.

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.
« Last Edit: February 28, 2019, 12:36:45 PM by therethere »