Do you use HSA for expenses or not?

[Raddoc123]

Curious if others in high brackets save receipts and use HSA as another retirement account or use it for expenses taking the tax break right away?   I worry that by not using the account for expenses, the rules may change somehow in the future.  Plus, by using it for expenses, I can save close to 40% compared with paying with post tax dollars.

[MPMD]

I absolutely do this and just have an evernote folder/spreadsheet for receipts.

Not sure what "rule change" would affect this. HSA isn't a very controversial part of tax code. If they said you could no longer do this they would almost certainly grandfather you in with saved receipts.

I plan to use this for a big outlay of money on a long time horizon e.g. wedding expenses for child or flying vehicle purchase in 20 years.

[G]

Saving my receipts.

More likely I'll use it for healthcare when I'm older/unhealthier.

[jhwkr542]

Use it for retirement. Even if they change the code, people would be grandfathered likely. Additionally, even if it were taxed, it'd turn into something taxed like a trad 401k.

[Side Hustle Scrubs]

I follow WCI’s advice and use it as a “stealth IRA”. It’s too good a tax savings to pass up.

[cgossage]

If you can afford it, don’t use it for your expenses now. If you use it for current expenses, you are essentially taking money from a tax-free account and keeping money in a taxable brokerage account. By letting it grow tax-free, you end up earning another 1.5% on your investment over time.

Like others have mentioned, every other Health Savings account has been grandfathered into the tax code, so I wouldn’t worry about Congress just completely doing away with it.

[jfoxcpacfp]

To me, it's just another retirement account and I invest accordingly. You never know what will change in the tax code (Roth IRAs, for example) - you must make decisions based upon what you know today and adjust accordingly for changes in the future.

[GasFIRE]

I’ve never spent a dime out of my HSA account. I figure if I have to pay for a health care item I might as well pay it out of current income and continue to let the HSA grow tax-free. I’m planning on using the funds when I’m on the plus side of Medicare age, definitely older probably higher health expenses. Thanks to the WCI forum I’ve started to save my receipts to give flexibility on future spending from the account. I wasn’t previously aware of that feature so that’s just an added HSA bonus.

[Raddoc123]

So basically the decision is to spend 1k from from taxable and let the HSA grow or 1k from HSA and leave taxable alone.  The 1k in taxable has a tax drag (which is low with index funds) but can be used for anything at anytime, tax loss harvested, donated to charity, step up basis at death.  For HSA, have to save receipts for decades, restrictions on spend to 65 y/o, restricted investment options in some accounts, taxable upon death if not spouse.  And for many MDs, as a % of total accounts, will probably not make much of a difference either way.  But taking the 40% tax break right now on expenses is guaranteed.  I’m not sure this is a no brainer like some make it out to be.

[jfoxcpacfp]

Raddoc123 wrote:

So basically the decision is to spend 1k from from taxable and let the HSA grow or 1k from HSA and leave taxable alone.  The 1k in taxable has a tax drag (which is low with index funds) but can be used for anything at anytime, tax loss harvested, donated to charity, step up basis at death.  For HSA, have to save receipts for decades, restrictions on spend to 65 y/o, restricted investment options in some accounts, taxable upon death if not spouse.  And for many MDs, as a % of total accounts, will probably not make much of a difference either way.  But taking the 40% tax break right now on expenses is guaranteed.  I’m not sure this is a no brainer like some make it out to be.

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Who said anything about a taxable account? To my way of thinking, you are budgeting for healthcare expenses, same as you would for utilities, food, and mortgage payments, not cashing in an investment. If you would balk at, say, taking a $1,000 distribution from your Roth IRA to pay for healthcare expenses, why wouldn't you do the same for your HSA? The contribution gets you a 40% tax break to boot, but you'll have to clarify how you get another 40% tax break by spending it. Not sure what you're talking about but I'm slower on Sundays  :? .

[Raddoc123]

What I mean is that if I have a 1k medical expense, I can either withdraw 1k from HSA or leave HSA alone and spend 1k from monthly cash flow, which would mean 1k less in my taxable account.

[Side Hustle Scrubs]

If you’re in private practice you can set up a medical reimbursement plan on top of your HSA. The reimbursement plan reimburses you tax free for current expenses. The HSA collects compound interest for 30 years for future expenses. Best of both worlds.

[docnews]

Holding receipts for now as long as I can still afford to fill up my >$70k tax advantaged accounts as well.

[VagabondMD]

I was only able to participate in an HSA for three years and currently not enrolled in a compatible health plan. As such, I have been spending it down for health expenses over time.

[FIREshrink]

Raddoc has it right, the benefit comes down to tax drag savings vs reduced flexibility and in some cases, higher costs. The savings for a low cost passive investor are not huge.

We're still saving receipts but the stack is two feet high. Someday I might cry uncle and just withdraw everything up to that date and start over.