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  • spiritrider
    replied
    Your evaluation is fundamentally false based on a faulty assumption. It assumes that HSA growth from those receipt amounts will be withdrawn as non-qualified distributions after age 65 subject to ordinary income tax.

    Nothing could be further from the truth. You neglect the overwhelming qualified medical expenses you will see in retirement. Current estimates are that someone retiring today will have $250,000 in out of pocket healthcare expenses before they die.

    Tax-free distribution for qualified medical expenses will include: Medicare Part B and D premiums including IRMAA (white coats will likely be in the higher tiers) currently can be as high as $500/month/person. Out-Of-Pocket expenses for medical, dental, vision and hearing care/products. All of which increase with age. Medigap premiums are not qualified, but you can self-insure a high-deductible plan to shift the non-qualified premiums to qualified co-pays and co-insurance. Not to mention, the 800lb. Gorilla, Long Term Care (LTC). You can anticipate significant cost for LTC insurance and/or self-insure.

    For the average person/spouse, it will be virtually impossible for their HSA balance to out-live them/their spouse. Your recommendation and the assumption it is based on is fundamentally flawed.

    This is why I dislike the term Stealth IRA. No one should be thinking about taking non-qualified HSA distributions after 65. You should be using other tax-deferred accounts first to preserve the HSA balance for tax-free distributions for qualified medical expenses. One the other hand, nobody should take Roth distributions before tax-free HSA distributions for unreimbursed qualified medical expenses. It is better to deplete the encumbered tax-free asset before the unencumbered one.

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  • Donnie
    replied
    I already posted it in another thread. The receipt allows you to withdraw an amount tax free either now or later, so there is no difference in taxes on the receipt amount depending on when you withdraw it. The gains on your investment will be taxed at either cap gains (taxable) or ordinary income (HSA as IRA). If you keep the annual tax drag to 50bps or less between taxable and tax free, it can actually be worse to invest in HSA because you are converting cap gains taxes to ordinary income taxes. 50bps of annual tax savings isn’t enough to overcome the 15%+ difference in tax rates between the two.  Of course everyone’s tax situation varies, but this is why people should do the math rather than repeating things they hear without thinking about them.

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  • spiritrider
    replied
    Yes Donnie, please show us this mythical math that moving assets from a tax-fee account to a taxable account is beneficial. Inquiring minds want to know.

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  • docnews
    replied
    Option 1.

    Healthcare costs is one of the top reasons people delay retirement. I think its safe to say it will be used to help you retire.

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  • VagabondMD
    replied




    You should cash out the receipts now and invest in taxable. I’ll show you the math at some point, or you could just trust me ????
    Click to expand...


    That's what I do.

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  • Donnie
    replied
    You should cash out the receipts now and invest in taxable. I’ll show you the math at some point, or you could just trust me

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  • Lithium
    replied
    I do option 1 and put everything in low-cost bonds.  The reason that some prefer to use the HSA for their bond allocation is to maximize the likelihood that it will all go toward health care expenses, which is the only way you can spend it tax free.  Not a reason to buy more bonds or crappy bond options, but if you have them in your overall investing plan and good options in your HSA, you can take advantage of them.

    Then again, if health care costs keep soaring, the number of people who don't exhaust their HSA on health care expenses by age 80 is going to be pretty tiny regardless.

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  • GXA
    replied
    We have been "paying cash and keeping receipts" for years.  The best (and maybe only) low cost investing option I have in my HSA is an S&P 500 index fund which is where all the money goes.  Nice bonus retirement account - pretax on the way in and tax free on the way out!

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  • jhwkr542
    replied
    My wife and I started our HSA this year. Since it's such a small amount, we just throw it in a total stock market fund to start. Once it gets big enough, it'll be option #1 probably since it is triple tax advantaged. Between my 401k, my wife's 403b, 457b, and pension, HSA, and backdoor Roths, balancing across all of these accounts becomes a nightmare.

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  • jfoxcpacfp
    replied
    Fwiw, we go with option 1 if the HSA is intended for long-term goals.

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  • Bott1637
    started a topic HSA treatment

    HSA treatment

    New option for an HSA from employer next year and was wondering how people treat their HSA.  I plan to employ the "pay cash and keep the receipts" method to let the account grow as the stealth IRA.  For those that do this, which of the following is how you treat the money in your HSA?

    1. As part of your overall asset allocation for retirement spending

    2. Separate from your overall asset allocation but with a similar allocation breakdown

    3. Separate from your overall asset allocation but with more/less risk

     
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