HSA... Do you use it or let it grow?

[TheHaitian]

I just signed up for the first time for an HSA account... So curious I started doing some research and looking into it.

It seems some people do not use their HSA accounts at all, they just pay for their medical expenses out of pocket and let the HSA account grow.

Since we are usually healthy and do the 1 doctor visit a year I figure I would leave the rest in the account but I fully expected to pay for the doctor visit from the HSA account since it is tax free...

Why would one not use it and continue to pay out of pocket?

[ArchietheDragon]

Oct 30, 2014 13:27:56 GMT -5 TheHaitian said:

I just signed up for the first time for an HSA account... So curious I started doing some research and looking into it.

It seems some people do not use their HSA accounts at all, they just pay for their medical expenses out of pocket and let the HSA account grow.

Since we are usually healthy and do the 1 doctor visit a year I figure I would leave the rest in the account but I fully expected to pay for the doctor visit from the HSA account since it is tax free...

Why would one not use it and continue to pay out of pocket?

If someone is maxing it out and has the cash flow to pay for medical expenses, i could understand just letting it grow.  but if you are not maxing it and you are paying for medical expenses out of pocket it makes no sense because you should be increasing your HSA contribution to get the tax deduction. 

[Deleted]

Oct 30, 2014 13:27:56 GMT -5 TheHaitian said:

Why would one not use it and continue to pay out of pocket?

If you max it for the year, it doesn't really matter if you pay for your doctor appointment out of it now or let it grow and pay for it out of there 10 years from now. 

eta:  I don't mean PAY the doctor 10 years from now.  LOL  I mean take the money out to reimburse yourself.  The tax savings is the same and you've hopefully got some growth to go with it.

[Deleted]

When I left my last employer I had about $8K in mine. I'd started stashing the max away when my $900/month pension from GE kicked in at age 60 (no option to start later). I figured it was a good way to shelter the extra income from taxes.  I rolled it over to another company (HSA Administrators) and added another $2K to it based on my calculations of what max applies.  It was a little complicated since DH is now on Medicare but I still have an HDHP.

This would seem to be a darn good time to use it since my dental implants cost $9K this year and then we've got a pile of insurance premiums we paid, but I've decided I'd rather take them out of other funds and then deduct them on the income taxes.  DH is 76, so we can deduct anything over 7.5% of our adjusted gross.  Unless the laws change, we'll be in much lower tax brackets in future years since I retired last May.

I've also got a $6,600 deductible on my health insurance.  In a normal year I have minimal medical expenses but may decide to tap the HSA if I blow through that deductible sometime.

[TheHaitian]

Oct 30, 2014 13:32:48 GMT -5 minnesotapaintlady said:

Oct 30, 2014 13:27:56 GMT -5 TheHaitian said:

Why would one not use it and continue to pay out of pocket?

If you max it for the year, it doesn't really matter if you pay for your doctor appointment out of it now or let it grow and pay for it out of there 10 years from now. 

eta:  I don't mean PAY the doctor 10 years from now.  LOL  I mean take the money out to reimburse yourself.  The tax savings is the same and you've hopefully got some growth to go with it.

Don't you have to have proof it is going towards a medical expense to deduct it? That means I need to keep the Dr bill around for 10 years?

Uurrgggghhh ... Easier to just pay it out of the HSA account now.

[TheHaitian]

Oct 30, 2014 13:30:04 GMT -5 ArchietheDragon said:

Oct 30, 2014 13:27:56 GMT -5 TheHaitian said:

I just signed up for the first time for an HSA account... So curious I started doing some research and looking into it.

It seems some people do not use their HSA accounts at all, they just pay for their medical expenses out of pocket and let the HSA account grow.

Since we are usually healthy and do the 1 doctor visit a year I figure I would leave the rest in the account but I fully expected to pay for the doctor visit from the HSA account since it is tax free...

Why would one not use it and continue to pay out of pocket?

If someone is maxing it out and has the cash flow to pay for medical expenses, i could understand just letting it grow.  but if you are not maxing it and you are paying for medical expenses out of pocket it makes no sense because you should be increasing your HSA contribution to get the tax deduction. 

I consider the pre-tax aspect of the HSA one of the reason it is attractive. If you are paying for medical expenses with post tax dollars, wouldn't that defeats the purpose of the HSA?

[ArchietheDragon]

Oct 30, 2014 13:56:15 GMT -5 TheHaitian said:

Oct 30, 2014 13:30:04 GMT -5 ArchietheDragon said:

If someone is maxing it out and has the cash flow to pay for medical expenses, i could understand just letting it grow.  but if you are not maxing it and you are paying for medical expenses out of pocket it makes no sense because you should be increasing your HSA contribution to get the tax deduction. 

I consider the pre-tax aspect of the HSA one of the reason it is attractive. If you are paying for medical expenses with post tax dollars, wouldn't that defeats the purpose of the HSA?

it is not like you are losing the pre-tax aspect of the money in the HSA.   You are just saving it to use later.    If you have the money to cash flow it with post tax dollars it is not the end of the world.  I probably wouldn't do it, because I don't yet view my HSA as a long term investment vehicle.  I view my HSA as a short term savings account. 

[yogiii]

Oct 30, 2014 13:54:57 GMT -5 TheHaitian said:

Oct 30, 2014 13:32:48 GMT -5 minnesotapaintlady said:

If you max it for the year, it doesn't really matter if you pay for your doctor appointment out of it now or let it grow and pay for it out of there 10 years from now. 

eta:  I don't mean PAY the doctor 10 years from now.  LOL  I mean take the money out to reimburse yourself.  The tax savings is the same and you've hopefully got some growth to go with it.

Don't you have to have proof it is going towards a medical expense to deduct it? That means I need to keep the Dr bill around for 10 years?

Uurrgggghhh ... Easier to just pay it out of the HSA account now.

She meant you could use the HSA to pay for a future doc appt in 10 years (even if you no longer have an HSA the money is still there and usable for medical expenses).

[gooddecisions]

I max it out and don't touch it. The HSA is part of my early retirement plan. The IRS rule 72T allows you to retire from your company at 55 and- assuming you don't work anywhere else and are really retired, begin taking distributions from your 401(k)- the one sponsored by the company you retired from. I would also be eligible to retire from my company by 55, but they don't offer a health insurance package other than we can stay on their insurance but without any contributions from the company. So, if I'm responsible for the full premium, it will be super expensive. If I'm lucky, there will be okay options via ACA, but unlikely. So, having a huge balance in my HSA will hopefully help me pay the premiums until medicare, then I can use it to continue to pay (hopefully more reasonable) medicare premiums and actually enjoy my retirement while maintaining my health.

[Deleted]

Oct 30, 2014 13:54:57 GMT -5 TheHaitian said:

Oct 30, 2014 13:32:48 GMT -5 minnesotapaintlady said:

If you max it for the year, it doesn't really matter if you pay for your doctor appointment out of it now or let it grow and pay for it out of there 10 years from now. 

eta:  I don't mean PAY the doctor 10 years from now.  LOL  I mean take the money out to reimburse yourself.  The tax savings is the same and you've hopefully got some growth to go with it.

Don't you have to have proof it is going towards a medical expense to deduct it? That means I need to keep the Dr bill around for 10 years?

Uurrgggghhh ... Easier to just pay it out of the HSA account now.

Well, I would keep a "shoebox" of receipts in case I needed money, but realistically there's going to come a time somewhere down the line where you have a big medical expense or you retire and use your HSA to pay medicare premiums and bills then when they're likely much higher. 

[midjd]

I've maxed it without touching it for 2 years. A few weeks ago I got the bill from DH's September surgery - $6200. So I think that's probably where most of next year's contribution is going to go. The one-off $40 doctor's appointments or $10 prescriptions still get paid from regular cash flow.

I have about $5K in saved receipts that I can use to reimburse myself at any time -- so it's kind of like a backup EF.

[bean29]

I think I will come close to Maxing it this year, but unfortunetely I have been spending it as I go.

My goal is to accumulate $$ in there though. 

Remember you want to contribute to your 401K to caputre the company match, then max your HSA, then put additional funds in your 401K. 

Why did you say keep your receipts for 10 years?  They used to say 7, but now they are saying 3-4 years from date you filed your return for IRS and possibly additional for state. 

[NancysSummerSip]

For things like maintenance drugs and copays, the normal expenses, no I don't use it.

If I get a sizable bill (like the one I got for what my insurance did not pay for my emergency CT scan), I'll use it. But I try to touch it as little as possible. I consider it part of my retirement.

[Deleted]

Oct 30, 2014 14:28:32 GMT -5 bean29 said:

Why did you say keep your receipts for 10 years?  They used to say 7, but now they are saying 3-4 years from date you filed your return for IRS and possibly additional for state. 

He's talking about saving the receipts to make tax-free withdrawals of the expenses later instead of getting reimbursed right after they occur. 

[travelnut11]

I have about $7K in mine and for little things like prescriptions and doctor visit fees not covered by insurance I've been paying out of pocket but am now pregnant and facing some steeper bills so plan to use it.  I'm due in April so expect to hit my out-of-pocket max both this year and next which the $7K should cover.  So in my head: baby=paid for.  I understand it's a kind of mental accounting and I could pay my medical expenses out of my regular savings account but just decided to use the account for what it's intended. 

I'm also switching to my husband's insurance on Jan. 1 which is not an HSA though I expect they will be moving in that direction in the coming years.  I'm actually kind of bummed because I like the HSA account but my insurance has a very limited network of doctors so I'm switching to his.  After the baby-making part of our life is over I can see us using the HSA account as more of a retirement account as so many people recommend.  The part about saving receipts to reimburse myself 20 years later sounds like a giant pain to me so I'd rather just use it now I guess.

[seriousthistime]

I planned not to touch it except for a pretty price prescription med, until I hit my $1,500 deductible. But then this past year I got called back on a mammogram which was not considered a preventative test (and thus not covered 100% by insurance). So that whole thing came out of pocket and I had to dip into the HSA to pay that bill. Still, my deductible is only $1,500, and my employer makes a $750 contribution to my HSA, so I'm still ahead even after being in the HDHP for 2 years.

My pricey med goes generic in 2016. I'm counting the months...

[Deleted]

I use it for all qualifying expenses. I had about 2k rolled in from last year. Maxing it at 6550 this year. But i will end up with 1-2k due to high expenses this year. I am hoping next year i won't have as many expenses. Between an ER visit and therapy for my son, it's been an expensive year.

[teen persuasion]

I'm leaving the money in the HSA and paying bills out of pocket.  I think of the HSA like an EF.  If big medical bills come up, that's what it is for.  If other emergency bills come up, I can reimburse myself from/for the bills I've already paid.  If all goes well, it's another retirement pot.  Plus, for the FAFSA, it is assets that are invisible.  Which makes more sense, save that EF money inside the HSA (invisible), or reimburse myself and save it in a visible account?

[schildi]

We max our HSA and never use it. We have the HSA since 2008. The money is invested in a TDAmeritrade account - no transaction fee Vanguard funds.

The reason to not use it now is that the money grows tax free over the years. I keep all receipts that we pay for with after tax money well sorted on the computer (with regular backups of course, and a second backup stored outside of the house). So in 20 or 25 years, we will reimburse ourselves with hopefully a lot left over for medical expenses during retirement.

If you pay from the HSA now, you lose the ability of tax free growth. The HSA is one of the best retirement vehicles. Money goes in tax free, and comes out tax free if used for medical expenses (even insurance premiums during retirement if I am not mistaken).

This year, we can have a FSA in parallel (limited use FSA), that's for dental and vision only. Up to $500 can be rolled over to the next year, so I'll probably contribute $500 to that as well.

[skubikky]

Oct 30, 2014 21:06:39 GMT -5 schildi said:

The reason to not use it now is that the money grows tax free over the years. .......

If you pay from the HSA now, you lose the ability of tax free growth. The HSA is one of the best retirement vehicles. Money goes in tax free, and comes out tax free if used for medical expenses (even insurance premiums during retirement if I am not mistaken).

Yes, the HSA is fabulous from a tax stand point and all the other reasons you've noted.  I've had mine since 2010.

The issue for some people is that for those medical expenses that are occurring in the here and now, one would have to be able to cash flow them.
In your scenario you're putting let's say $6500/yr into the HSA,  paying I would guess some premium for your HDHP insurance, and then paying any medical expenses up to the deductible in addition.    For some that level of cost within each fiscal year is not possible therefore they will understandably use the HSA account.

Same for those that don't max their 401(k), then their Roth if they qualify.    It all depends on your income.
For 2015  the 401(k) limit will be $18,000 with a catch up of $6000 for those 50 and older.
For 2015, the Roth IRA limit will be $5500 with a catch up of $1000 for those 50 and older.
For 2015, the HSA limit will be $6650 for a family, with a catch up of $1000 for those 55 and older.

For an individual age 50 or older, with a family,  add up these max amounts and you come up with $38150 as the max they can put away.
Now, if you make $200k/yr, that's about 19% of your income.   $100k/yr that jumps to 38%. 
You make $75/yr with a family of 4 to support, you're looking at  about 51%.

  

[8 Bit WWBG]

Interesting angle... its like another savings account you pad for expenses you know you are going to have later in life.  Once you retire, you no longer have the ability to contribute, so that is when you start depleting it...

I think I just ascended a bit...

[Baby Fawkes]

Oct 31, 2014 11:21:12 GMT -5 8 Bit WWBG said:

Interesting angle... its like another savings account you pad for expenses you know you are going to have later in life.  Once you retire, you no longer have the ability to contribute, so that is when you start depleting it...

I think I just ascended a bit...

That's how I boil it down to the simplest form. I have medical expenses now and a job that allows me to cash flow it. I'll still have medical expenses later on but at some point my income is going to change / not be as guaranteed so I'd rather cover the costs now than when I may not have a steady income.

[Angel!]

Oct 30, 2014 13:56:15 GMT -5 TheHaitian said:

Oct 30, 2014 13:30:04 GMT -5 ArchietheDragon said:

If someone is maxing it out and has the cash flow to pay for medical expenses, i could understand just letting it grow.  but if you are not maxing it and you are paying for medical expenses out of pocket it makes no sense because you should be increasing your HSA contribution to get the tax deduction. 

I consider the pre-tax aspect of the HSA one of the reason it is attractive. If you are paying for medical expenses with post tax dollars, wouldn't that defeats the purpose of the HSA?

The only time it would make sense to pay with post-tax dollars is if there is an advantage to letting the money grow tax-free.

The only time there is an advantage is when you are already maxing out the HSA & all retirement options. Paying out of pocket if you aren't maxing out the HSA, with the intention of reimbursing yourself later is pointless & painful....As you said you have to save receipts & you have gained nothing by putting yourself through the exercise.

I did an analysis in posts 69 & 75 in this thread: notmsnmoney.proboards.com/thread/41997/fsa-hsa?page=3

But, basically unless you are maxing out all other options, it is a wasted effort.  The only thing that is gained is the growth is not taxed yearly, as it would be with a savings account.  But, unless you are actually investing your HSA funds, the growth is going to be pretty minimal.  Paying a 4K bill out of pocket & saving the receipt for 10 years would save you like $100 in taxes over that time.  But that growth is now limited to be spent on medical bills or anything if taxed in retirement.  You would be better off paying the bill with the HSA & putting the 4K into an IRA/401k if you are looking for tax advantages & planning to save money for retirement.  Which is why I say only do it if you are maxing out all other options.

[schildi]

Winner, I think your analysis does not take the tax free growth into account.
Also, if handled correctly, the money in the HSA goes in tax free, and comes out tax free. Pretty much everybody will have medical and dental costs during retirement, including insurance premiums.

[Angel!]

Oct 31, 2014 13:00:13 GMT -5 schildi said:

Winner, I think your analysis does not take the tax free growth into account.
Also, if handled correctly, the money in the HSA goes in tax free, and comes out tax free. Pretty much everybody will have medical and dental costs during retirement, including insurance premiums.

How specifically did I not account?

I did mention that the money grows tax-free, which is an incentive, but not huge IMO depending on how it is invested & your returns.  But, if you are referring to the fact that it is money that has been invested tax-free, that doesn't really matter when you are deciding whether to pay with savings or use HSA. Either way you are taking $X to pay a bill & leaving $X saved. 

At the end of the day if you are not maxing out the HSA & all retirement options before opting to pay out-of-pocket, then you are trading tax-free growth for the fact you paid taxes on the out-of-pocket money when you did not need to do so.  Instead of paying $1K out-of-pocket (post-tax), you could pay it out of the HSA & invest $1300 back in (pre-tax).

[Baby Fawkes]

Yeah, Angel! was having a debate with minnesotapaintlady and I on the other thread and we ended up agreeing that the ultimate goal result is really about getting the most cashflow through the account for the medical expenses you have and that only really makes sense if you are maxing the account. 

[SVT]

Angel is right.  I've stated here multiple times that if you're not maxing out all tax advantaged retirement accounts, including the HSA, pay current medical expenses out of the HSA.

[schildi]

I am assuming maxing the HSA. Never really thought about the other scenario.
But I think you are right. If not maxed, then put the money into the account, and then pay the bill out of the account.

[Deleted]

Oct 31, 2014 15:36:34 GMT -5 SVT said:

Angel is right.  I've stated here multiple times that if you're not maxing out all tax advantaged retirement accounts, including the HSA, pay current medical expenses out of the HSA.

My maxing is not fully utilizing the space. Once I hit about 12K pretax there is no more savings to be had. Dependent care FSA sucks up about half of that.

[Deleted]

I did use the HSA when I started my last job. It was September and he had an endoscopy in November, which ate up the $2,500 deductible. Then he needed a follow-up in January. Oops. It came in handy.

I did enjoy putting the costs in a credit card to get brownie points before getting reimbursement.