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Use HSA funds versus paying cash and allowing HSA to grow

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  • #16
    I don't know if this is an option for you but my HSA is through Optum and the website for their HSA allows you to upload and store receipts on the website.

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    • #17
      I'm been thinking about this a lot since writing a post about it 18 months ago:

       

      https://www.whitecoatinvestor.com/the-best-ways-to-use-an-hsa/

      I think the best bet for me now in my high earnings years is probably to pay for health care now out of the HSA. We haven't done that yet (but we've been saving receipts) but will start next year.

      Certainly, you don't want to spend it on something besides health care if you could have spent it on health care. Whether it is worth getting the deduction now at 45% versus getting it later at perhaps 30% is difficult to quantify without knowing future health care needs.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #18
        I've been doing a hybrid approach from the beginning.  I've saved receipts in Dropbox (easy to do), withdrawn some money to cover a random large bill before we hit our deductible, and in the past actually also paid bills then withdrawn HSA money and used it to partially fund my backdoor Roth IRA.

        I've hit a sweetspot where I can let the HSA money be invested and grow separately and can fund the Roth IRA separately.  I pay relatively small healthcare bills out of pocket but keep enough cash in the HSA to cover me if a large one rolled in (before meeting deductible), and money accumulating beyond that goes into the HSA investment.

        So basically I'm not fully adopting any single strategy, I'm just making it work for me different ways depending on the need.  I'm not in the super high earner category and some months will not be able to cash flow a single large hospital bill under the deductible (though my deductible is quite reasonable despite being an HSA).  So I keep a little bit of cash in the HSA as a healthcare emergency fund, separate from my actual emergency fund, and invest the rest.  Once we hit the deductible I pay remaining health care costs for the year out of pocket (which has already happened a couple times).

        I'm not sure if that makes the most financial sense but it's what I've been doing..
        An alt-brown look at medicine, money, faith, & family
        www.RogueDadMD.com

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        • #19
          I'm also in the camp of saving the HSA, investing it aggressively (100% stock), and saving the receipts. Should hopefully provide for a nice stealth IRA in 30-35 years when I anticipate retiring (for now) and need it.

          I too use cloud services (Google Photos, Dropbox, iCloud) and once a month, just move all my receipts into a central folder (receipts for business mileage, receipts for healthcare, etc)

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          • #20
            Saving receipts is not that bad. I'll share my method. I scan them, then inside my Health Insurance Folder, I have an "Unused HSA Receipts" folder. I title each scanned file according to the date and the name. So if I picked up a script from Walgreens today I would scan the receipt and title it 20161208 Walgreens. Then, when I use the receipt in the future, I can move it to a "Used HSA Receipts" folder, labeled for the year in which I used them. That folder can get moved to where I keep my tax documents for that year, ready for audit if it happens.

            That method also keeps track of what I have and haven't used, so I don't duplicate.

             

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            • #21
              ConnectYourCare (which administers my HSA which is via HSA bank) lets you upload the receipts so I've got them there as well.  It's actually nice in that it keeps a running tally of unreimbursed expenses, and then when you want to withdraw money you don't have to do it based on specific receipts adding up to a certain amount, you just withdraw the amount you want (up to the total $ of unreimbursed expenses).

              I have mine invested 100% in VTI.
              An alt-brown look at medicine, money, faith, & family
              www.RogueDadMD.com

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              • #22
                I'm dreading the process of scanning the years of paper receipts I have in my file cabinet, but eventually I suppose I'll have to get around to it.

                I'm in the school of thought that the HSA is the best place in your portfolio to locate bonds.  This maximizes the possibility that you will eventually spend the $$ on health care expenses, which is the triple-tax-free way of using it.
                I sometimes have trouble reading private messages on the forum. I can also be contacted at [email protected]

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                • #23


                  Certainly, you don’t want to spend it on something besides health care if you could have spent it on health care. Whether it is worth getting the deduction now at 45% versus getting it later at perhaps 30% is difficult to quantify without knowing future health care needs.
                  Click to expand...


                  Funding the HSA now gives you the marginal tax rate (45%) break now, whether or not you use it on healthcare today, or save receipts for years and withdraw the funds later. Unused funds withdrawn for non-healthcare use will be taxed - I assume that's where the ~30% comes from, a 15% tax on it later?

                  I guess the "ideal" scenario from an optimization standpoint is to eventually have healthcare costs that add up to meet or exceed the HSA balance. From a healthy living standpoint, the ideal scenario might be to have a large balance after paying all healthcare costs from the HSA, and paying some tax on withdrawals after age 65.

                  I read today's post about minimizing time spent on finances, and I thought I commented, but reCaptcha probably ate my comment again. While scanning receipts, saving the paper, and tabulating in Excel isn't difficult, it is cumbersome. The advantage of scanning and saving is tax free growth versus growing in my taxable account with tax drag. If we're talking about $10,000 dollars in healthcare expenses, my current tax drag if the money is withdrawn from the HSA and invested in taxable is about 0.6% or $60 a year.

                  If I retire early in a lower tax bracket, the tax drag will be $40 or less per $10,000.

                  I'm thinking I've put far more than $60 or $40 worth of effort into contemplating and enacting a save and scan approach. I'll probably keep it up until I leave full-time employment, then cash out the sum of the receipts before starting our next adventure.

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                  • #24
                    I have to admit that although the advice to defer reimbursements from the HSA is logical, it makes me pause a bit to build up a vast “it owes me,” since doing so requires maintaining thousands of receipts (ideally redundantly) for decades, awaiting an ultimate en-masse claim.  Many healthcare receipts don’t specify much about what was actually paid for, and if scrutiny comes those decades later to prove payment was not for an excluded item or service, it would have long passed the statute of limitations to pull additional records from a provider to substantiate.  Claims for expenses paid by the HSA when you use-as-you-go are “submitted” to the IRS each year, reducing the likelihood of a such a later bulk-denial, albeit theoretical.  Also, would a colossal withdrawal be an IRS red-flag even though it is entirely legit, increasing the chance of such a review?

                    Finally, it is appealing to take “a tax-break-in-the-hand now” when one is in a high tax bracket.   So for what its worth, I’ve been using my HSA as intended, leaving the –substantial excess after paying expenses- as my stealth IRA (or for a future medical expense).

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                    • #25
                      One big advantage of the MERP is unlimited expenses without ever drawing down on the HSA.

                      I have much more cashflow through my company than lives in the HSA accounts.

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                      • #26


                        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...


                        Update:

                        After saving over $7,500 in receipts for 18 months, I decided to cash out that amount from the HSA. Scanning and saving receipts, tracking them in Excel, and hoping I continue to keep track of that info for years to come seemed too cumbersome for the tiny edge I would gain by doing so.

                        Also, I'm trying to get my hands on all the cash I can to pay for a land purchase while taking the least amount of capital gains possible (which will of course be offset by last year's tax loss harvesting efforts). Look for a posts on that next month!

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                        • #27
                          I think that is the right call PoFIRE, spend the HSA and reap the immediate tax benefit, which is a guaranteed return of >40% now on the tax savings-- hard to do better in the market on a short timescale. I've found paying with the HSA-issued debit card and scanning the receipts directly onto the PayFlex website (my HSA) to be extremely easy.

                          So far, I've been using my HSA to pay for dental bills for my wife, though I think I'll get an additional FSA next year for dental and further protect the HSA.

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                          • #28
                            This is another debate that drives me crazy.  Stop being lazy and just do the math.

                            I did this in about 15 mins (maybe there's a mistake!) and assumed HSA returns 6% and taxable returns of 5% after tax.  The difference between (i) accumulating receipts and paying $1,500 each year in after-tax money versus (ii) withdrawing $1,500 from the HSA and investing $1,500 in a taxable is about $10k.

                            So you roughly need a 25% chance of losing your $40k receipts over 30 years to make this is a break-even trade.  Let me know what I messed up!

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                            • #29


                              Let me know what I messed up!
                              Click to expand...


                              I won't say that you messed up exactly, but I will say that your assumption of a 1% tax drag is about double what it should be, and your estimate of $1,500 average out of pocket expenses is extremely optimistic. In my 18-month experiment, we spent $5,000 a year out of pocket (we have 2 kids), and our tax drag is under 0.6% and will likely drop by 10 to 30 basis points when I retire.

                              That is some nice spreadsheet work, though, and it's great to have that skill. And if you don't mind the saving, scanning, and planning to cash in decades down the road, you can come out ahead. For me, I've found it to more trouble than it's worth, but that's just me. Like the WCI post I linked to above, it's about minimizing the time spent on finances, and this is one area I'm glad to recapture some time.

                               

                               

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                              • #30
                                I dont think it will be hard to put that kind of money in the future to use for a healthcare expense, even if you didnt keep receipts, etc...At some point something may happen that takes 30 years of compounding and eats a giant chunk of it up easily. Not really concerned about a too large for healthcare balance.

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