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  • HSA withdrawal

    I have been paying all medical expenses out of pocket for the last 2 years, saving receipts etc.  Do you guys think its a good idea to withdraw the money from the HSA and transfer it into my Roth IRA?  I may be a bit confused but cant see how its possible to hold on to receipts for the next 30 years.  After 65 withdrawals aren't penalized but you have to pay tax?  Similar to a tIRA?

     

    Thx

  • #2
    -Not sure what you mean by withdrawing the money and transferring to Roth.

    -Most folks here recommend you let the HSA money grow and then either use it for medical expenses that you will incur in future or reimburse yourself for med expenses incurred in the past (ie, now).

    -Keep all the physical medical receipts in a folder- or scan them into a folder

    -Irrespective of age, withdrawals from HSA are not penalized or taxed if used for qualifying medical expenses

    Comment


    • #3
      Ok let me try to clarify.  I understand how the HSA works, im just wondering if its smarter to just leave the money in there to grow, vs withdraw whatever I have paid in medical expenses, and take the cash and place it into an IRA.  Thereby eliminating the need to save my receipts.

       

       

      Comment


      • #4




        I have been paying all medical expenses out of pocket for the last 2 years, saving receipts etc.  Do you guys think its a good idea to withdraw the money from the HSA and transfer it into my Roth IRA?  I may be a bit confused but cant see how its possible to hold on to receipts for the next 30 years.  After 65 withdrawals aren’t penalized but you have to pay tax?  Similar to a tIRA?

        Thx
        Click to expand...


        Docbeans is correct - after 65, the only tax you will pay is on withdrawals to pay for non-medical expenses. It should be fairly easy to avoid taxes on HSA withdrawals, assuming you even need the $$.

        Since Roth contributions are limited to $5,500/year per person, you should be able to max out for 2 ppl on a physician's salary w/o the need to shuffle accounts. The HSA affords you another "IRA" account and gives you a tax deduction.

        I just throw all of my receipts for a year into a manila envelope, no organization needed. Put the envelope for into a big box with all receipts annually. If you need to take them out before age 65, simply pull out enough to add up to the expenditure. How difficult is it to store 30 or so envelopes in a big box?
        Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          There are concerns that the receipts are going to fade and become illegible after 30 years, if not become lost or misplaced.  I have a plan to scan them all into my PC, but that's a huge hassle I haven't gotten around to yet.
          I sometimes have trouble reading private messages on the forum. I can also be contacted at [email protected]

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          • #6




            There are concerns that the receipts are going to fade and become illegible after 30 years, if not become lost or misplaced.  I have a plan to scan them all into my PC, but that’s a huge hassle I haven’t gotten around to yet.
            Click to expand...


            Some will, most won't. Personally, I just will not waste my time on such a highly improbable occurrence. Given how much you'll spend on various medical-related bills over 30 years, enough will survive as proof of your expenditures.
            Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7







              There are concerns that the receipts are going to fade and become illegible after 30 years, if not become lost or misplaced.  I have a plan to scan them all into my PC, but that’s a huge hassle I haven’t gotten around to yet.
              Click to expand…


              Some will, most won’t. Personally, I just will not waste my time on such a highly improbable occurrence. Given how much you’ll spend on various medical-related bills over 30 years, enough will survive as proof of your expenditures.
              Click to expand...


              Johanna, I've read many of your posts and think you give great advice, but this is the first time I've disagreed enough to say something.  It's easy to store papers in a box, it's hard to ensure they don't get lost, stolen, wet, destroyed, stay eligible, etc.  Without knowing his health/family situation, his premiums, hs expenses, or how much he will eventually store up or whose expenses he will pay, it's hard to know that he will rack up enough expenses later to use the account when he needs it.  He may have a year where he has $4k in expenses but needs to take out $10k to pay for something else.  What if he needs to use that money sometime before retirement for other expenses and doesn't have a way to withdraw the money?  I also consider an HSA an emergency fund, not just a retirement fund.

              We don't know if he's used any money now or will need it, we don't even know that he'll be on a HDHP in the future (employment status and available policies change), so his out of pocket expenses could go down dramatically and he could be paying more in premiums.

              Since joining my HDHP in 2013 (and slowly adding my family to it) I've had one year where I used none, one year where I used a little, last year I hit the out of pocket max, and this year may again hit the out of pocket max.  But my out of pocket max is $5500/year (which is really low compared to most plans), so even if I reimburse myself for that entire amount I still would have money left in my HSA each year, so saving those receipts is important.

              I've been scanning receipts and storing them in a cloud service as they are paid then stick the receipt in a folder.  Also ConnectYourCare (who maintains my HSA) lets me upload the receipts to their system and use that as the basis for withdrawing from them when needed.  So I technically have mine backed up 3 ways (paper, personal cloud service, and CYC), and I can tell you that even last year when I maxed out my account and had a ton of receipts, the effort this required was minimal.
              An alt-brown look at medicine, money, faith, & family
              www.RogueDadMD.com

              Comment


              • #8
                That's my point exactly.

                Why wouldn't you take out money spent on qualified med expenses and reinvest that money in your backdoor ira? Therefore you don't have to save receipts?

                Comment


                • #9




                  That’s my point exactly.

                  Why wouldn’t you take out money spent on qualified med expenses and reinvest that money in your backdoor ira? Therefore you don’t have to save receipts?
                  Click to expand...


                  Johanna's point was that as a physician you should have the cash flow to do BOTH -- max a backdoor Roth IRA and an HSA without withdrawing HSA money to fund the backdoor Roth.

                  I've done exactly what you are proposing, however I've stopped doing it.  It lowers your overall savings rate those years and costing you future flexibility from the HSA.  When you use the HSA money to fund the Roth IRA, you're only saving the amount that was in the HSA, all you've done is shift the money to a different account, not increase your savings.
                  An alt-brown look at medicine, money, faith, & family
                  www.RogueDadMD.com

                  Comment


                  • #10


                    Johanna, I’ve read many of your posts and think you give great advice, but this is the first time I’ve disagreed enough to say something.  It’s easy to store papers in a box, it’s hard to ensure they don’t get lost, stolen, wet, destroyed, stay eligible, etc.  Without knowing his health/family situation, his premiums, hs expenses, or how much he will eventually store up or whose expenses he will pay, it’s hard to know that he will rack up enough expenses later to use the account when he needs it.  He may have a year where he has $4k in expenses but needs to take out $10k to pay for something else.  What if he needs to use that money sometime before retirement for other expenses and doesn’t have a way to withdraw the money?  I also consider an HSA an emergency fund, not just a retirement fund.
                    Click to expand...


                    First of all - thank you for the high compliment. I don't take that lightly! For me, it's not worth the time and trouble to scan and save so many odd receipts. Maybe my husband and I happen to have more than average. I do understand your concerns with flood, fire, etc. Of course, a safety deposit box would suffice or a fireproof safe and the cost of such versus value of time saved would be comparable or better. otoh, I (personally) believe it is highly improbable that your receipts will ever be questioned for medical expense reimbursements for HSA withdrawals. Possible, of course, but I'm relying on anecdotal evidence from 35 years of what the IRS questions. Minuscule compared to the fears. Yes, some will fade but even presenting a box of faded receipts that have been organized over a 30-year period would satisfy an examiner that you have made an organized and fair attempt to document records.

                    As to his expenditures, my comment was based on average health expenditures projected for retirees around a quarter of a million per person (I had just read an article about it) and the timing probably influenced my response.
                    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      I have a very HDHP. my out of pocket max is around 12K/year.  Thankfully my wife and kids are healthy, and we barely use it.   For example, over the last 2 years, i have racked up 1K in medical expenses.  I have no trouble funding my 401K and other investment vehicles.  I just dont see a reason to keep the receipts around.  No matter how careful you are, they will fade etc......  No matter how redundent your backup system is, technology will change.  Imaginge if you kept all of your stuff on floppy Disks?

                      Aside from "lowering your savings rate", why wouldnt everybody do this?

                       

                      Comment


                      • #12





                        Johanna, I’ve read many of your posts and think you give great advice, but this is the first time I’ve disagreed enough to say something.  It’s easy to store papers in a box, it’s hard to ensure they don’t get lost, stolen, wet, destroyed, stay eligible, etc.  Without knowing his health/family situation, his premiums, hs expenses, or how much he will eventually store up or whose expenses he will pay, it’s hard to know that he will rack up enough expenses later to use the account when he needs it.  He may have a year where he has $4k in expenses but needs to take out $10k to pay for something else.  What if he needs to use that money sometime before retirement for other expenses and doesn’t have a way to withdraw the money?  I also consider an HSA an emergency fund, not just a retirement fund. 
                        Click to expand…


                        First of all – thank you for the high compliment. I don’t take that lightly! For me, it’s not worth the time and trouble to scan and save so many odd receipts. Maybe my husband and I happen to have more than average. I do understand your concerns with flood, fire, etc. Of course, a safety deposit box would suffice or a fireproof safe and the cost of such versus value of time saved would be comparable or better. otoh, I (personally) believe it is highly improbable that your receipts will ever be questioned for medical expense reimbursements for HSA withdrawals. Possible, of course, but I’m relying on anecdotal evidence from 35 years of what the IRS questions. Minuscule compared to the fears. Yes, some will fade but even presenting a box of faded receipts that have been organized over a 30-year period would satisfy an examiner that you have made an organized and fair attempt to document records.

                        As to his expenditures, my comment was based on average health expenditures projected for retirees around a quarter of a million per person (I had just read an article about it) and the timing probably influenced my response.
                        Click to expand...


                        Fair enough.  However given how easy CYC makes it to store receipts online I would rather do it that way.  I'm big into cloud storage in general for other things so it also just fits my general practice to do it this way.
                        An alt-brown look at medicine, money, faith, & family
                        www.RogueDadMD.com

                        Comment


                        • #13




                          Aside from “lowering your savings rate”, why wouldnt everybody do this?

                           
                          Click to expand...


                          Forum crashed on me and didn't appear to save my response to this so I'll paraphrase/re-type.

                          The "aside" is actually the main point.  The HSA and the Roth are two of the most powerful investment vehicles you have available.  If you have no difficulty funding "other" investments then you should have the funding to separately fund the HSA and Roth.  If you don't then you should stop funding the "other" stuff and put money preferentially into the HSA and Roth on their own.  However raiding the HSA to fund the Roth isn't just hurting your savings rate, it's hurting the quality of savings you are generating.  Not every dollar saved is equal in value.
                          An alt-brown look at medicine, money, faith, & family
                          www.RogueDadMD.com

                          Comment


                          • #14
                            I am not looking to"raid" my HSA to fund a backdoor roth.  Im looking to not save receipts and or digital copies of receipts for 30 years.

                            If the money goes in tax free, withdrawn tax free from the HSA for expenses, and then re-invested in a roth, why not do it?   I plan on always having my max out of pocket in the account as cash, and the rest, invested.  Obviously replenishing the cash if a withdrawal is made prior to investing future contributions.

                            how and why is there a difference in quality of investment?

                             

                            Comment


                            • #15




                              I am not looking to”raid” my HSA to fund a backdoor roth.  Im looking to not save receipts and or digital copies of receipts for 30 years.

                              If the money goes in tax free, withdrawn tax free from the HSA for expenses, and then re-invested in a roth, why not do it?   I plan on always having my max out of pocket in the account as cash, and the rest, invested.  Obviously replenishing the cash if a withdrawal is made prior to investing future contributions.

                              how and why is there a difference in quality of investment?

                               
                              Click to expand...


                              I'm not sure I am really understanding your question or doing a great job of explaining this, which is why I don't have a blog making me money.

                              They both provide tax free growth that you can't get elsewhere.  So if you are funding them separately and not withdrawing the HSA money to fund the Roth, then I think we're in agreement.  Johanna is just saying you don't need to worry about saving receipts -- plenty of expenses will pop up later to justify HSA withdrawals.

                              But what you state in that 2nd paragraph is you are wanting to use HSA withdrawals to fund the Roth.  That's just missing an opportunity to double your tax free investment opportunities.  Instead of using HSA money to fund it, use regular after-tax income to fund the Roth and let the HSA money grow separately.  If you're already taking after tax income and putting them into "other" investments, why would you not just fund the Roth that way too?

                              You don't get an extra tax advantage by funding the Roth via the HSA -- the HSA money is already growing tax free, you just don't want to worry about having medical expense receipts to withdraw the money.  However I'm not sure why saving receipts is such a big deal.
                              An alt-brown look at medicine, money, faith, & family
                              www.RogueDadMD.com

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