more HSA fun

I’ve been thinking about how to use this. I don’t think it will be a great investment vehicle, even with the brokerage options. We didn’t have it long enough to contribute that much. So we were thinking…

We can start paying small bills with the HSA, and contribute to the limit each year. Then we get the tax deduction for the contribution (with us being retired, our ordinary income will be from dividends), and then pay for medical tax-free. Since we don’t itemize anymore (the standard deduction is bigger), it is a way to deduct our medical expenses without itemizing.

Any holes in that idea?

1poorguy

Hi 1poorguy,

Ok as long as you are not on Medicare.

Does that help you?

Gene
All holdings and some statistics on my Fool profile page
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Ok as long as you are not on Medicare.

Ummm…kind of. Medicare is not considered to be a high-deductible health plan, so if you are covered by Medicare during any months of the year (including any retroactive coverage), you are not eligible to make contributions to an HSA for those months. You can make a pro-rated contribution for months that you are not covered by Medicare. That said, Medicare premiums for part B and Part B are eligible for tax-free reimbursement from an HSA, along with other qualified medical expenses. So, funds from a previously established HSA can be used by those on Medicare.

AJ

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Not on Medicare for another 6 years. So no problem there. Thanks for the succinct confirmation that I was thinking correctly.

1poorguy

We can start paying small bills with the HSA, and contribute to the limit each year.
Or you can do what I’ve been doing. I contribute to the limit each year, pay out of pocket, and put the bills in a file for future reimbursement. The account grows, and I can draw from it at any point in the future to reimburse myself for prior expenses using the (hopefully) appreciated funds from the HSA.

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How do the mechanics of that work? They issued us a debit card which we can use. But I don’t think that will work if we pull out a bill three years hence. Just do an EFT to our normal checking accounts, and tag it as a medical bill with the specified date of service? Keeping track of that could get messy, unless the IRS requires you to itemize such expenses on a form (which would make tracking a lot easier, I would think).

Or you can do what I’ve been doing. I contribute to the limit each year, pay out of pocket, and put the bills in a file for future reimbursement. The account grows, and I can draw from it at any point in the future to reimburse myself for prior expenses using the (hopefully) appreciated funds from the HSA.

That’s what I’m doing. The HSA is the greatest early retirement vehicle ever created. Some employers even offer a match, and it is all tax-free.

How do the mechanics of that work? They issued us a debit card which we can use. But I don’t think that will work if we pull out a bill three years hence. Just do an EFT to our normal checking accounts, and tag it as a medical bill with the specified date of service? Keeping track of that could get messy, unless the IRS requires you to itemize such expenses on a form (which would make tracking a lot easier, I would think).

There is no time limit on when you can reimburse yourself for expenses. You can withdraw the money this year or ten years from now if you like. You DO have to track your expenses and keep the backup.

If the account gets too large you can withdraw the funds for non-qualified expenses at age 65, although the withdrawals for non-qualified expenses are subject to ordinary income tax. Basically it functions like an IRA at that point. And after 65 you can still make withdrawals for qualified expenses.

It is a great deal, tax-wise.

How do the mechanics of that work? They issued us a debit card which we can use.

Simpler than you might think. Just don’t use the debit card - pay with another card. Every HSA I’ve ever seen has a reimbursement process. You will need to upload an itemized bill, or EOB from your insurance company to get reimbursed. And as syke noted, there is no timeline. I do recommend digitizing your paperwork and putting it somewhere where it’s readily accessible down the line. Mine are currently sitting in a file folder, but I’m contemplating scanning and putting them in the (secure) cloud for safekeeping.

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Presently, all my medical stuff is in my tax folder. I started that back when medical expenses were deductible, and I was able to itemize. With the huge standard deduction introduced a few years ago I have yet to be able to itemize, so the medical doesn’t make any difference. But I still keep all the invoices and receipts in the tax folder because it’s a system I can remember since I’ve been doing it for 30 years.

But I will have to move the funds if I want them to grow. The HSA bank account pays squat. I have yet to delve into their brokerage options, but they do have at least one.

But I will have to move the funds if I want them to grow. The HSA bank account pays squat. I have yet to delve into their brokerage options, but they do have at least one.

You can move your HSA where ever you want. Mine is at Fidelity.

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Cool. Didn’t know that. Ours is at “HSA Bank”, with options available within HSA bank. I’ll have to investigate more. Having another bank to keep track of isn’t my first choice. I like consolidation.

I am keeping ETrade for my ESPP because they will report to the company any sales, which makes life easier for me. But my brokerage is TD Ameritrade (because they bought Scottrade).

You’re in luck. Hsa Bank uses TDAmeriitrade as their investment option. It hasbeen a few years but I recall it was pretty easy to setup the hsa account and very straightforward to move funds from HSA Bank and the linked hsa brokerage account.

-bclstu

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Or you can do what I’ve been doing. I contribute to the limit each year, pay out of pocket, and put the bills in a file for future reimbursement.

I’ve been doing this also. I expect it will come in most handy next year when as a newly-retired 62-year-old, I will be trying to keep my taxable income low to qualify for subsidized health insurance. The HSA will give me a pot of money I can pull from without increasing my taxable income.

Mine is at Fidelity.

As is mine.

So…

HSA Bank requires $1000 in the bank, and everything above that can move to a brokerage. I started to think about that, and then realized we have a weird situation this year. We both had individual HSAs starting this year (the first year our company offered it), governed by individual contribution limits.

My wife retired in April. After that, she was covered by me. I retired 7/1. So how do the limits work this year? Family limits apply after April when she retired. I know that in 2023 we will be limited to the family limit between both accounts (i.e. add up the contributions to both accounts, they must not exceed family limits). But how would we prorate the contribution limits this year? I assume the IRS has a picky way to do that. Maybe Jan-Mar we had the individual limits (divided by four, since that is one quarter), and then April-Dec will be governed by 3/4 family limits??

It may be obvious to do it that way, but that doesn’t mean that’s the way the IRS did it.

I will pursue consolidation later. I only just got my account out from under my employer so I wouldn’t have to pay any fees. I do have retirement funds at Fido. They just rolled my 401K into an IRA. I will contact them about HSA soon. Right now some of my funds couldn’t roll, and were deposited into the government money market. The guy they assigned to me is concerned that I have too much in stocks, and is offering me three tiers of help/direction. I’m OK with a blend fund for those assets, but I’m not a big fan of bonds. I don’t want to move too much into bonds. A blend fund seems appropriate to me. As he -rightly- said: I don’t have to hit a home-run anymore. I already have enough to retire. But I do think he is too paranoid about preservation. We’ll see.

1poorguy

We both had individual HSAs starting this year (the first year our company offered it), governed by individual contribution limits.

And in order for both of you to make additional $1000 contributions for being over 55 by the end of the year, you will need to keep your individual accounts. Those $1000 additional contributions are required to be made to each individual’s account.

My wife retired in April. After that, she was covered by me. I retired 7/1. So how do the limits work this year? Family limits apply after April when she retired. I know that in 2023 we will be limited to the family limit between both accounts (i.e. add up the contributions to both accounts, they must not exceed family limits). But how would we prorate the contribution limits this year? I assume the IRS has a picky way to do that. Maybe Jan-Mar we had the individual limits (divided by four, since that is one quarter), and then April-Dec will be governed by 3/4 family limits??

When a husband and wife are both covered by family limits, the total contribution limit between their HSAs is limited to the family contribution amount. From IRS Pub 969 https://www.irs.gov/pub/irs-pdf/p969.pdf

Rules for married people. If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2021 is $7,200. You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses’ Archer MSAs. After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division.

The rules for married people apply only if both spouses are eligible individuals.

If both spouses are 55 or older and not enrolled in Medicare, each spouse’s contribution limit is increased by the additional contribution. If both spouses meet the age requirement, the total contributions under family coverage can’t be more than $9,200. Each spouse must make the additional contribution to his or her own HSA.

Since for 2022, the family contribution limit is $7,300, which is exactly twice the individual limit of $3,650, you don’t need to worry about pro-rating by coverage months - the combined contribution that you can split any way between the two accounts is $7,300, in addition to the $1,000 you can each put into your individual accounts if you will each be 55 or older by the end of 2022. Thus,if you are both 55 or older, you can put a total of $9,300 into the two accounts, provided at least $1,000 goes into each account.

I would also point out the pro-ration for HSA contributions is done by months, not quarters, and it’s done by your status on the first day of the month. So if your wife was still covered by individual coverage on April 1, 2022, you and she would each have 4 months of individual coverage and 8 months of family coverage.

AJ

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I will pursue consolidation later.

HSAs are like IRAS - individual. You can’t consolidate individual accounts into a joint account. You must each keep your own account, although money in each account may be used to pay for expenses for either of you.

I only just got my account out from under my employer so I wouldn’t have to pay any fees. I do have retirement funds at Fido.

Since you do have money at Fidelity already, I would strongly urge that you look at rolling your HSAs to Fidelity, just because they don’t have the requirement to keep $1000 ‘in the bank’ before being able to invest. I moved my HSA to Fidelity for precisely that reason.

AJ

3 Likes

I should have been more clear about “consolidate”. I meant not having my money scattered all over the place. Right now I have two brokerage accounts, for example. ETrade, which holds my ESPP and RSUs, and TD which is my “ordinary” brokerage for everything else. I’m keeping ETrade just because they’ll track my sales and report qualifying dispositions as needed. But, in general, I don’t like have to look into multiple institutions to see what I have.

My IRA is in Vanguard. Set-up while I was in college. My 401K (now rollover IRA) is in Fido. My HSA is in HSA Bank. Etc. By “consolidate”, I was referring to minimizing the number of institutions. For example, moving everything except my brokerage to Vanguard. Or Fido, though I don’t like that Fido has to report to shareholders. Vanguard doesn’t. Fido is making money off of me, and is incentivized to make more so shareholders will be happy.

But, yes, removing the HSA from HSA Bank, and moving to another institution is very attractive. One less institution I have to track. I should probably contact Fido and roll it there. Fido is a MF company, primarily, so having HSA funds in mutuals would be less aggressive than individual stocks.

1poorguy