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  • jfoxcpacfp
    replied




    I will hopefully be the voice for some of the other inexperienced members of the forum. Besides, I have long since gotten over my fear of looking dumb by asking likely overly basic questions.

    This thread is by and large over my head. This year will be the first year my wife and I use an HSA with a high deductible health insurance plan. We will contribute the max $6,750 this year. We have the option of using a debit card for the costs. Let’s say I hurt myself playing in my flag football league and need an X-ray and MRI. My plan would be to use the debit card for the out of pocket medical expenses. It is permissible to take this approach correct?

    Sorry, I got lost at the “paying cash and keeping receipts” talk and even more lost with the physics professor’s math. Please let me know if using the HSA in the above way is permissible. I honestly do not understand the Stealth IRA thing. I will read about it at another time. I am still trying to figure out “elementary school” white coat investing.
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    Don't worry, that was over my head, too. As Donnie said, you are fine paying for your qualified medical expenses with your HSA debit card.

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  • Donnie
    replied
    Yes, you can do as you propose.

    You can (i) use the HSA debit card to pay for qualified medical expenses as they are incurred like the ones you describe or (ii) pay the expenses using cash in your checking account, save the receipts, and withdraw from the HSA account in the future.

    People advocate saving receipts and withdrawing later because you can invest in your HSA, and that money grows tax free, so people want to keep it working as long as possible.

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  • ChristopherMD20
    replied
    I will hopefully be the voice for some of the other inexperienced members of the forum. Besides, I have long since gotten over my fear of looking dumb by asking likely overly basic questions.

     

    This thread is by and large over my head. This year will be the first year my wife and I use an HSA with a high deductible health insurance plan. We will contribute the max $6,750 this year. We have the option of using a debit card for the costs. Let's say I hurt myself playing in my flag football league and need an X-ray and MRI. My plan would be to use the debit card for the out of pocket medical expenses. It is permissible to take this approach correct?

     

    Sorry, I got lost at the "paying cash and keeping receipts" talk and even more lost with the physics professor's math. Please let me know if using the HSA in the above way is permissible. I honestly do not understand the Stealth IRA thing. I will read about it at another time. I am still trying to figure out "elementary school" white coat investing.

     

    Thanks

    Leave a comment:


  • jfoxcpacfp
    replied
     




    Interesting thread.

    Curious if things have changed with the new tax law? Now that many of have lower effective tax rates, does anything change with the spend vs save hsa debate?
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    An HSA is still treated like a deductible IRA going in (except with no income limitations) and a Roth coming out. I'll continue to recommend they be invested for the Roth-like treatment you'll get on the back end when health care expenses will be at a lifetime high as a % of spending.

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  • Rotish
    replied
    Interesting thread.

    Curious if things have changed with the new tax law? Now that many of have lower effective tax rates, does anything change with the spend vs save hsa debate?

    Leave a comment:


  • jfoxcpacfp
    replied




    Does all HSA accounts allow investing funds in that account in to index funds etc or are there restrictions on where it can be invested?
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    It depends where the HSA is held. Different providers have different fund selections.

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  • HumbleInvestor
    replied
    Does all HSA accounts allow investing funds in that account in to index funds etc or are there restrictions on where it can be invested?

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  • spiritrider
    replied
    The taxation of an HSA is entirely between you and the IRS. The custodian's duty is to accept contributions, manage investments, distribute withdrawal requests and perform the necessary accounting and reporting requirements. Like most other issues in our tax system, you self-report your contributions, distributions and how much is qualified. The IRS uses W-2 Box 12 Code W, Forms 5498-SA and 1099-SA, 1040 Forms 8889 and 5329 (if necessary) to reconcile the numbers, but only your reporting of distribution qualification is used unless you are audited.

    I do not know exactly what CYC does with the information you provide them. My best guess is, rather than a control mechanism, they are really providing this as a benefit to their customers to organize and record the contributions and distributions. This certainly sounds like it would help with tax filing and any issues that might crop up with the IRS.

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  • RogueDadMD
    replied


    Your assumptions are not correct, ConnectYourCare is not doing anything with your receipts other than allowing you to associate them with specific distributions for the benefit of your records. Under IRS guidance they are not required, nor can they restrict distributions to reimbursements for qualified medical expenses. You have the right withdraw any amount of funds for any reason at any time. You just may be subject to ordinary taxation and a 20% penalty. The only thing the custodian supplies to the IRS is a Form 1099-SA reporting what your total distributions were for the previous year. CYC has no responsibility for individual distributions except to you, to distribute your money when asked.
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    That's good information. However if I don't tell them something and just ask for money, then do THEY assess the penalty or am I expected to report myself?

    The website allows me to add expenses and their associated costs and upload a receipt (uploading I believe is optional though I always do it).  When I have catalogued expenses, it keeps a running tally of what is essentially medical costs that are waiting to be reimbursed.

    So while anyone could make up an expense and CYC would not know, if you don't tell them anything at all when you withdraw the money, do they not do anything with that information?

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  • spiritrider
    replied




    I think the general point of pointing out the math may not work as well as everyone thinks is a great one.  However the assumptions need to be understood and it may be hard to generalize.

    Re: the IRS and receipts, idk how this works in the background.  When I upload receipts to CYC and want to withdraw money, I can access the money instantaneously.  I assume CYC must be verifying I am uploading real receipts somehow, however what is the IRS told?

    The IRS certainly is not manually verifying anything.  Sure, in an audit the IRS may ask for the receipts, but outside of that I assume it’s CYC’s job to ensure I am providing receipts that are of qualified medical expenses.  The IRS may get notice via whatever form of how much was withdrawn, but as you said, I guess idk if someone withdrawing a large amount (not sure what that would be) would trigger an audit.
    Click to expand...


    Your assumptions are not correct, ConnectYourCare is not doing anything with your receipts other than allowing you to associate them with specific distributions for the benefit of your records. Under IRS guidance they are not required, nor can they restrict distributions to reimbursements for qualified medical expenses. You have the right withdraw any amount of funds for any reason at any time. You just may be subject to ordinary taxation and a 20% penalty.

    The only thing the custodian supplies to the IRS is a Form 1099-SA reporting what your total distributions were for the previous year. CYC has no responsibility for individual distributions except to you, to distribute your money when asked.

     

    From IRS Notice 2004-2 Q&A, custodians are not required to determine whether distributions are used for qualified medical expenses.

    Q-29. Must HSA trustees or custodians determine whether HSA distributions are used exclusively for qualified medical expenses?

    A-29. No. HSA trustees or custodians are not required to determine whether HSA distributions are used for qualified medical expenses. Individuals who establish HSAs make that determination and should maintain records of their medical expenses sufficient to show that the distributions have been made exclusively for qualified medical expenses and are therefore excludable from gross income.

     

    From IRS Notice 2004-50 Q&A 79, custodians can not restrict distributions to qualified medical expenses

    Q-79. May an HSA trust or custodial agreement restrict HSA distributions to pay or reimburse only the account beneficiary’s qualified medical expenses?

    A-79. No. The HSA trust or custodial agreement may not contain a provision that restricts HSA distributions to pay or reimburse only the account beneficiary’s qualified medical expenses. Thus, the account beneficiary is entitled to distributions for any purpose and distributions may be used to pay or reimburse qualified medical expenses or for other nonmedical expenditures. Only the account beneficiary may determine how the HSA distributions will be used. But see Notice 2004-2, Q&A 25 on the taxation of HSA distributions not used exclusively for qualified medical expenses. See also Q&A 80 on restrictions on the frequency or minimum amount of HSA distributions.

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  • billy
    replied
    My HSA uses benefitwallet, which allows you to upload receipts directly to their website so it theoretically should be easy to prove since they are also who I have to go through to withdraw money from the HSA.

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  • jfoxcpacfp
    replied




    I have only $10k in saved receipts and $20k in the account at the moment. Invested in equities in a bull market helps of course, but I have no idea how much I’ll use later or when.

    Scanning into Dropbox and uploading is slower than an envelope, but provides some backup. However I did just say people manage SS cards and birth certificates that way so it work so. . Difference is I won’t have to upload 1000 pieces of paper when I really need the money — it’ll all be ready to be withdrawn. Seems unlikely I can just hand someone 25 years of paper receipts and walk away with a ton of HSA cash without some difficulty.
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    Of course, you're a lot younger than I  but I still doubt I'd take the time to do it. I'm not making an argument, just providing an alternative for those who balk at HSAs because of the trouble of filing receipts. If I were to be audited, I'd also just hand the whole mess to the agent with a smile and let them sort it out.

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  • RogueDadMD
    replied
    I have only $10k in saved receipts and $20k in the account at the moment. Invested in equities in a bull market helps of course, but I have no idea how much I'll use later or when.

    Scanning into Dropbox and uploading is slower than an envelope, but provides some backup. However I did just say people manage SS cards and birth certificates that way so it work so. . Difference is I won't have to upload 1000 pieces of paper when I really need the money -- it'll all be ready to be withdrawn. Seems unlikely I can just hand someone 25 years of paper receipts and walk away with a ton of HSA cash without some difficulty.

    Leave a comment:


  • jfoxcpacfp
    replied


    The IRS certainly is not manually verifying anything.  Sure, in an audit the IRS may ask for the receipts, but outside of that I assume it’s CYC’s job to ensure I am providing receipts that are of qualified medical expenses.  The IRS may get notice via whatever form of how much was withdrawn, but as you said, I guess idk if someone withdrawing a large amount (not sure what that would be) would trigger an audit.
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    A large w/d w/n trigger an audit but might be questioned in the course of an audit. HSA receipts are one area that I think technology can take more time than not. I stuff receipts into a large manila envelope until it's full then on to the next. Considering that I am 95% certain they will never have any use and I am spending far more than my HSA will ever grow to, I have no desire to take the time to scan and save.

    Leave a comment:


  • RogueDadMD
    replied
    I think the general point of pointing out the math may not work as well as everyone thinks is a great one.  However the assumptions need to be understood and it may be hard to generalize.

    Re: the IRS and receipts, idk how this works in the background.  When I upload receipts to CYC and want to withdraw money, I can access the money instantaneously.  I assume CYC must be verifying I am uploading real receipts somehow, however what is the IRS told?

    The IRS certainly is not manually verifying anything.  Sure, in an audit the IRS may ask for the receipts, but outside of that I assume it's CYC's job to ensure I am providing receipts that are of qualified medical expenses.  The IRS may get notice via whatever form of how much was withdrawn, but as you said, I guess idk if someone withdrawing a large amount (not sure what that would be) would trigger an audit.

    Leave a comment:

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