Of course you can use the HSA to pay qualified medical expenses during retirement. These can include insurance premiums, including Medicare premiums. They also include expenses that generally aren’t covered by Medicare, such as dental and vision services and hearing aids.
To be clear, I am not talking about Medicare. Anybody know the truth?
To be clear, I am not talking about Medicare. Anybody know the truth?
Most insurance premiums are not eligible HSA expenses. There are some specific insurance premiums that are eligible: Long-term care insurance, COBRA premiums, premiums while you are receiving unemployment compensation and some Medicare premiums, including Parts A (Hospitalization - most people pay nothing), B (general coverage - often taken from your SS check), C (Medicare Advantage) and D (prescription drug) premiums, but not Medigap supplement premiums. From IRS Pub 969 https://www.irs.gov/pub/irs-pdf/p969.pdf
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.
1. Long-term care insurance. 2. Health care continuation coverage (such as coverage under COBRA). 3. Health care coverage while receiving unemployment compensation under federal or state law. 4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. See Limit on long-term care premiums you can deduct in the Instructions for Schedule A (Form 1040).
Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, aren’t 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) aren’t generally qualified medical expenses.
2. Health care continuation coverage (such as coverage under COBRA).
Thanks AJ.
#2 is interesting because I am considering pre-Medicare retirement, and one option for healthcare coverage is to continue with my employer’s plan (but not subsidized like now). To the best of my knowledge the cost and coverage would be identical to COBRA. But the premiums would not be HSA eligible like COBRA is.
All that said, I’m not sure I would use the HSA in this manner. But if I did I could do COBRA for 18 months and then the retiree health insurance.
On the other hand, what exactly qualifies as “health care continuation coverage”?
You should read Publication 502, which lays out exactly what medical expenses may or may not be paid for out of an HSA.
From the publication: You can include in medical expenses insurance premiums you pay for policies that cover medical care. You can’t include in medical expenses insurance premiums that were paid and for which you are claiming a credit or deduction.
You should read Publication 502, which lays out exactly what medical expenses may or may not be paid for out of an HSA.
From the publication: You can include in medical expenses insurance premiums you pay for policies that cover medical care.
Pub 502 only specifies deductible medical expenses. Just because it’s deductible doesn’t necessarily mean that it’s reimbursable by an HSA. There is a lot in common between the two, but which insurance premiums can be reimbursed from an HSA are specified in Pub 969 (as referenced upthread), not Pub 502.
#2 is interesting because I am considering pre-Medicare retirement, and one option for healthcare coverage is to continue with my employer’s plan (but not subsidized like now). To the best of my knowledge the cost and coverage would be identical to COBRA. But the premiums would not be HSA eligible like COBRA is.
All that said, I’m not sure I would use the HSA in this manner. But if I did I could do COBRA for 18 months and then the retiree health insurance.
Yes, I’m on COBRA now and am saving the expense documentation as eligible HSA expenses. For next year, I will move to either ACA or retiree coverage from my former employer because the COBRA runs out in early Jan, 2023. At that time, I could use the previously documented HSA expenses to pay for some/all of the non-eligible premiums because money is fungible.
On the other hand, what exactly qualifies as “health care continuation coverage”?
COBRA and insurance covered by state specific laws that mandate coverage eligibility in addition to COBRA.
At that time, I could use the previously documented HSA expenses to pay for some/all of the non-eligible premiums because money is fungible.
AJ, are you saying that you are currently using HSA to pay your COBRA premiums, but you are paying out-of-pocket for any 2022 medical expenses? Then, starting in 2023 you will use HSA to get reimbursement for those 2022 expenses to offset paying out-of-pocket for insurance?
If I got that right, why not use HSA for 2022 medical expenses now – why wait?
This thread made me wonder what would happen if we died before spending our HSA, which we tend not to touch. In case anyone else is wondering, here’s what I found:
If your beneficiary is your spouse, the account becomes their HSA. The transfer of ownership is completed free of probate. For the year in which you die, a contribution can be made based upon your eligibility. Beginning in the year after you die, your surviving spouse’s ability to contribute to the account is determined by their eligibility for that year.
If your beneficiary is a person but not your spouse, the account will be changed to a taxable account in the name of that beneficiary and the full value becomes taxable to your beneficiary in the year of your death. This transfer is completed free of probate. The amount taxable to a nonspouse beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within one year after the date of death.
If I got that right, why not use HSA for 2022 medical expenses now – why wait?
Not AJ, but based on my imperfect understanding of the HSA, we would wait to use the HSA funds and pay the bills with cash from taxable accounts to let the money accumulate tax free in the HSA, and simply accumulate the HSA eligible receipts to be applied against the HSA down the road when there is a need to liquidate it.
AJ, are you saying that you are currently using HSA to pay your COBRA premiums, but you are paying out-of-pocket for any 2022 medical expenses?
No, I’m not currently using my HSA to pay COBRA premiums, or any medical expenses. I’m paying everything out of pocket, and saving documentation of what I’m paying, so I can withdraw those eligible expenses later. That’s one of the nice things about HSAs - if you can afford to pay any/all eligible expenses out of pocket, by saving the documentation, you can pull money out tax-free for those expenses in later years. The eligible expense just has to occur after you’ve had an HSA open and funded.
Then, starting in 2023 you will use HSA to get reimbursement for those 2022 expenses to offset paying out-of-pocket for insurance?
I may. I expect the insurance from my retiree benefits to be more expensive than the COBRA I’m on, since I’m on COBRA from my partner’s insurance, not my old insurance. The additional expense will be an add to my spending, so rather than pulling that additional spending from sources that would be taxed, I may pull some from the HSA - it’s one option. But I won’t know how much of an add to my spending it will be until I find out what the 2023 premiums will be for my retiree insurance, so that’s a decision for next year.
That’s one of the nice things about HSAs - if you can afford to pay any/all eligible expenses out of pocket, by saving the documentation, you can pull money out tax-free for those expenses in later years. The eligible expense just has to occur after you’ve had an HSA open and funded.
I’ve probably heard about this before (perhaps on this board) but it didn’t sink in because I wasn’t thinking I could exploit it. Now I realize it could be a part of the strategy to get cheap Obamacare insurance. (I believe that has been mentioned here once or twice).
Just to be clear, does this mean that medical expenses claimed on Schedule A over the years can be used later to offset HSA withdrawals?
No. You only get one benefit per expense. So if you claimed a Schedule A medical deduction for eligible medical expenses, you don’t get to re-use those expenses as HSA reimbursements. The same goes for any medical expenses that you were reimbursed by insurance or you used another type of account (typically FSA or HRA) to get a tax benefit.