Use HSA funds versus paying cash and allowing HSA to grow

[PhysicianOnFIRE]

I've got $6000 in ENT and orthodontic bills from recent procedures my children have had.  I've got a HDHP and an HSA with about $10,000 in it.

I have the option of paying the bills directly from the HSA tax free.  On the other hand, I could pay cash and save the receipts, allow the HSA grow tax free for years, then withdraw from the HSA to cover the saved receipts.

So far, I have used the HSA to pay for routine visits, antibiotic prescriptions, and other small stuff.  I'm not sure it's worth the hassle to save dozens or hundreds of receipts over the years.  But, when looking at bills in the thousands of dollars, it could make sense financially to spend cash now and leave the money in the HSA.  Does anyone else employ this strategy (or recommend it)?

[Zaphod]

I plan to never touch the HSA for its intended purpose. Since its my first year with one I havent delved into the receipt part but am aware of it, and what I would plan to do. Saving years old receipts sounds awful, there has to be a better way. I'll look into this soon.

[TheGipper]

I'd let the HSA grow untouched. Id also keep all receipts, but even if you just kept the major receipts, you can always use your HSA on Medicare premiums and heakth care expenses in retirement as well. Using HSA every year on health expenses really provides no benefit over the average MERP.

[The White Coat Investor]

PhysicianOnFIRE wrote:

I’ve got $6000 in ENT and orthodontic bills from recent procedures my children have had.  I’ve got a HDHP and an HSA with about $10,000 in it.

I have the option of paying the bills directly from the HSA tax free.  On the other hand, I could pay cash and save the receipts, allow the HSA grow tax free for years, then withdraw from the HSA to cover the saved receipts.

So far, I have used the HSA to pay for routine visits, antibiotic prescriptions, and other small stuff.  I’m not sure it’s worth the hassle to save dozens or hundreds of receipts over the years.  But, when looking at bills in the thousands of dollars, it could make sense financially to spend cash now and leave the money in the HSA.  Does anyone else employ this strategy (or recommend it)?

Click to expand...

Yes, I'm a receipt saver and leave the money invested in stocks. I think my HSA is pushing $40K, but I don't have anywhere near that much in receipts.

[JK]

Pay cash now and let the HSA grow. As for receipts, scan the receipts and save them in evernote or some other online program and then you don't have to worry about it until you need them years down the road.

[JK]

Along the HSA...one of my own.

 

I've started saving money in a Health Savings Account (HSA) the past couple years through my company and have about $8,000 in it so far. I plan to pay medical bills out of pocket and let it grow until retirement (I'm only 28 so I have some time). The HSA with my job has lots of low cost index funds that I can invest in which is great. I'm just curious if it makes sense to invest entirely in stocks or do I have it more in line with what my overall portfolio asset allocation is...currently 80/20. Currently, all my savings are in tax protected accounts (roth, ira, 401k, HSA) and nothing in taxable.

So...
Allocate the HSA in an 80/20 fashion to keep in line with the rest of my portfolio or...
Make the HSA 100/0 and increase the bond position in another part of my portfolio.

Or am I overthinking this entirely and it isn't that much of a difference?

[jwgreene]

If you have a smartphone and Evernote and Scannable apps, you can take pictures of medical receipts, save them into a folder entitled "Medical Receipts," and it takes all of 30 seconds. I actually have every important document scanned into my Evernote account, and a lot less paper clutter in the office to boot.

[jfoxcpacfp]

JK wrote:

Along the HSA…one of my own.

 

I’ve started saving money in a Health Savings Account (HSA) the past couple years through my company and have about $8,000 in it so far. I plan to pay medical bills out of pocket and let it grow until retirement (I’m only 28 so I have some time). The HSA with my job has lots of low cost index funds that I can invest in which is great. I’m just curious if it makes sense to invest entirely in stocks or do I have it more in line with what my overall portfolio asset allocation is…currently 80/20. Currently, all my savings are in tax protected accounts (roth, ira, 401k, HSA) and nothing in taxable.

So…
Allocate the HSA in an 80/20 fashion to keep in line with the rest of my portfolio or…
Make the HSA 100/0 and increase the bond position in another part of my portfolio.

Or am I overthinking this entirely and it isn’t that much of a difference?

Click to expand...

Sounding like a broken record here, but why would any 28 year old want bonds in a portfolio for money you don't plan to use for 20, 30, 40+ years?

Average annual returns, dividends reinvested, since 1926:

SC stocks                              12%

LC stocks                               10%

High-quality corp bonds            6%

Inflation                                  3%

Net returns after inflation:

SC stocks                                 9%

LC stocks                                  7%

High-quality corp bonds              3%

Small cap returns are triple that of bonds, large caps are more than double. Use bonds for the short term, when you really need safety and liquidity, not volatility. For the long term, be an owner and not a loaner.

[Joseph]

Yes, this is definitely a strategy discussed by WCI.

[boogiba]

Any thoughts on this article: http://thefinancebuff.com/hsa-money-cover-expenses-now-or-let-it-grow.html? My wife's currently employer sponsored HSA is through Wells Fargo and I have been debating switching to a new administrator. If we would primarily draw down on the account as expenses are incurred I would more likely consider something like Lake Michigan Credit Union with a higher baseline interest rate, however, if we plan to use it as a retirement savings vehicle HSA Bank seems like a good option for long term investing. Is there a real concern about being able to prove these expenses 30+ years down the road? Is saving medical invoices/receipts and year end tax filings adequate proof? That ends up being a lot of paperwork after 30 years.

[jfoxcpacfp]

I am in the let-it-grow camp. Use an app for storing receipts and ditch the paper. That is adequate proof. However, who knows what technology will be like in 5 years, much less 30 (or the tax code).

Harry Sit is underestimating the compound growth of a well-diversified mutual fund portfolio over 30 years when he says he loses "a few hundred dollars".

[VagabondMD]

I was three years into a HDHP when we switched to my wife's company plan and chose a traditional, lower deductible product. I have about $18k in the HSA and have started to use it for copays and deductibles and such. While most of the DIY personal finance sites tout the virtues of leaving it grow within the HSA, I like the idea of recharacterizing it to post-tax dollars and investing the proceeds in lower expense vehicles and with greater flexibility.

[PhysicianOnFIRE]

boogiba wrote:

Any thoughts on this article: http://thefinancebuff.com/hsa-money-cover-expenses-now-or-let-it-grow.html? My wife’s currently employer sponsored HSA is through Wells Fargo and I have been debating switching to a new administrator. If we would primarily draw down on the account as expenses are incurred I would more likely consider something like Lake Michigan Credit Union with a higher baseline interest rate, however, if we plan to use it as a retirement savings vehicle HSA Bank seems like a good option for long term investing. Is there a real concern about being able to prove these expenses 30+ years down the road? Is saving medical invoices/receipts and year end tax filings adequate proof? That ends up being a lot of paperwork after 30 years.

Click to expand...

Thanks for sharing the article.  Interestiing argument towards the pay-as-you-so idea, but not particularly convincing.  I think I'm going to switch to doing what some of the other posters have done and save / scan receipts.  There is the risk that you lose them, but that risk can be mitigated by scanning and backing up in "the cloud".

[zdr81]

I'm in the same boat and decided to let HSA grow and pay bills by cash.  +1 on scanning receipts but I save my paper receipts.

[minerva]

Late to the conversation, but I thought I'd still chime in. I also save receipts and pay out of pocket.  I use a very simple method:

1. Use app on my phone to take pic of my receipt (I use TurboScan)


2. Within the app, I then send receipt as pdf to Dropbox folder called 'HSA' with subfolder called 'unreimbursed' (I also have a folder called 'reimbursed' in case I take withdrawals)


3. I name the receipt with this pattern
   
   
   
   • YYYY-MM Name of the Entity $Amt.pdf
   
   
   • Example:  "2016-12 Moran Eye Center $257.pdf"
   
   
   
   

This has several advantages.  (1) It's quick and easy, (2) it's automatically saved to my hard drive and to the cloud, (3) the folder is automatically sorted by date and shows the amounts without having to open the file (so you can get a feel for the total amount).