The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FireAnt on February 27, 2019, 07:30:50 AM
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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?
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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.
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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.
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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.
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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/ (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.
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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 ).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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!
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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??
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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.
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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.
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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?
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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.
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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.
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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.
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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.
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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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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.
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I aim to save, but I did use some of it when our twins were born.
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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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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.
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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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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?
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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.
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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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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.
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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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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...
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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.
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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.
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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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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.
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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.)
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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.
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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.
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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.
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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.
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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.
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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!
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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?
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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.
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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.
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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
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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 (http://stopironingshirts.com/2017/10/17/why-i-stopped-saving-hsa-receipts/) (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.
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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.
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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...
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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 (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.
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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.
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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.
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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.
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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!
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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.
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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!
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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).
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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.
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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.
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We do both and hopefully will save a lot more as the kids grow up.
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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.