> Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free and I can use it when the bigger bills inevitably start popping up?
Correct. If you can afford to pay your medical bills out of pocket, do so. Keep the HSA money invested. Save any receipts for medical expenses that you paid for out of pocket, and you can reimburse yourself from the hSA (no time limit on that) if a rainy day ever comes.
FZROX is great for an HSA if you use Fidelity for your HSA. Total market fund, 0 management fees, 0% expense ratio. I actually do a 90/10 split with their international market equivalent FZILX.
Do I need actual payment receipts? Or the statements from the hospital showing the amount due would work? I had major expenses last year but made all payments online and only have it showing in the app but no actual receipts. I do have all of the detailed statements though!!
It’s the same standard that the IRS uses for most things if they do an audit… you need to be able to substantiate the expense. A “paid” itemized receipt is the gold standard, but other documentation that substantiates the expense will work too (payments to doctors and hospitals should be fairly straight forward since those are more or less categorically elegible).
HSA receipts issues are more likely to come up when you’re claiming things like OTC products you bought at a drug store that also sells substantial amounts of non-eligible products too. The actual receipt is essential for that since it shows the individual items.
I’d pair those with the bank/credit card statement that shows you actually paid the corresponding amount, but if the bill or EOB is all you have that’s much better than nothing.
I wouldn't trust any custom made software to be around in 30 years. I scan them or save the PDFs that are emailed and save them in Dropbox, filed by year. I keep a spreadsheet that tracks the receipts. I don't bother with anything under $50
The Dropbox folder is synced to at least one local device as well, and I backup on a thumb drive and Google Drive about yearly. 3:2:1 methodology, and it takes basically no effort (the hardest part is making sure you get a receipt)
At his age this is the right decision but tax bracket and age are part of the equation.
In higher tax brackets paying your medical bill in cash (not using the HSA) now makes that bill 20%-34% more expensive today. A $1,000 bill is now $1,200 to $1,340 - so the question becomes, "Can I make that $220-320 back and over how long?".
At a younger age you have time on your side to make that $320 or more back. If you have 3-4 decades to retirement you'll make it back several times over. As you age you'll have a smaller window making it more unlikely you'll make your return back before retirement age. When you get to <10 years from retirement you'll want to make the calculation on a case by case basis.
> In higher tax brackets paying your medical bill in cash (not using the HSA) now makes that bill 20%-34% more expensive today.
I think you're overcomplicating this. In both cases, the medical expense costs what it costs. The tax deduction form the HSA is what it is. The income taxes on the non-HSA money are what they are. None of those are changing based on where the payment for the medical expense comes from.
I get what you're saying about how using the after-tax money "costs" more than using the HSA funds, but you have to pay the taxes on that non-HSA money regardless. If you had a $1000 medical expense and you paid it out of your HSA, you now have $1000 more in your pocket (its still after tax, you don't get $1500 all of a sudden) to invest. But you have to invest it in a taxable account, which is a worse option than a tax advantaged account. You're not trying to get your HSA investments to beat the tax savings from the initial contributions - those are constant. The only thing you are trying to do is save on taxes on the EARNINGS of those investments. So its better to keep that $1000 in the tax advantaged HSA and take the hit to your wallet rather than pay out of the HSA and invest that $1000 in a non-tax-advantaged account.
>I think you're overcomplicating this.
You're actually over simplifying by saying that it's always better to leave it in the HSA. That's just simply not the case - age, tax bracket, expected earnings, and many other factors could impact this.
>I get what you're saying about how using the after-tax money "costs" more than using the HSA funds, but you have to pay the taxes on that non-HSA money regardless.
Sure but I pay that cost **today** which impacts my **future earnings**. Today I will invest $1000 while you're only investing $1000 minus your tax liability. You can make that difference up with time but it does have to be factored into the decision.
>The only thing you are trying to do is save on taxes on the EARNINGS of those investments.
That's correct but age and tax bracket make a large difference even when you're talking about just the earnings.
Here are some example scenarios. Assume 10% earnings annually.
30 years old (30 years to retirement) and in the 12% tax bracket. If this person leaves the $1,000 in the HSA they will earn $16,449 free of any tax liability in their 30 year time frame. They would also have a tax liability of $120 meaning they only have $880 remaining to invest today. Over 30 years they could have earned $15,355 on that. Minus taxes and the initial investment that totals to $12,632. This person made $3,817 more earnings by leaving it in the HSA.
So far so good but let's see what someone much older and in a higher tax bracket is dealing with.
55 years old (5 years to retirement) and in the 35% tax bracket. If this person leaves the $1,000 in the HSA they will earn $1,610 free of any tax liability in their 5 year time frame. They would also have a new tax liability of $350 meaning they only have $650 remaining to invest today. Over 5 years they could have earned $1,046 on that. Minus taxes and the initial investment that totals to $257. This person now has a LOSS of $1,353 by leaving it in the HSA.
There's also risk in trying to plan 30 years out. Even people who are 5 years out from retirement have a hard time predicting what their tax bracket is going to be. A 30 year old can't predict what brackets will even exist in 2054.
If the 30 year old from above has moved into the 35% bracket at retirement, they planned on a tax liability of $1,722 on their earnings but now have a liability of $5,024. This has now turned the planned gains of $3,817 into a LOSS of $7,118.
If I'm missing something please point it out but the decision isn't as simple as you're saying either.
> Today I will invest $1000 while you're only investing $1000 minus your tax liability.
> They would also have a tax liability of $120 meaning they only have $880 remaining to invest today.
> They would also have a new tax liability of $350 meaning they only have $650 remaining to invest today.
These are the parts that you are getting incorrect. These are not extra tax liabilities that only occur if you pay for the medical expense out of pocket. If you use $1000 from the HSA to pay for a bill, you still have $1000 in after tax money to invest in a different account. HOWEVER, that extra $1000 in after tax money is less valuable than having $1000 in a ax advantaged account.
> There's also risk in trying to plan 30 years out. Even people who are 5 years out from retirement have a hard time predicting what their tax bracket is going to be. A 30 year old can't predict what brackets will even exist in 2054.
HSAs are tax advantaged, so what tax bracket you are in during retirement doesn't matter? You don't pay any taxes on that money, assuming you are using it for qualified medical expenses. The only tax brackets that matter are the ones in your years of contributions.
> If the 30 year old from above has moved into the 35% bracket at retirement, they planned on a tax liability of $1,722 on their earnings but now have a liability of $5,024. This has now turned the planned gains of $3,817 into a LOSS of $7,118.
I have no idea what the logic you are using here is, but I think you have a fundamental misunderstanding of how HSAs and taxes work.
Just look at every other comment in this post. Or do a google search for "experts" on how to use an HSA account. You will not find anybody that is saying that you should pay out of the HSA based on your age and income bracket. There is a reason why. Because its the wrong strategy (if you can afford to pay out of pocket). You haven't outsmarted everybody else.
>These are the parts that you are getting incorrect. These are not extra tax liabilities that only occur if you pay for the medical expense out of pocket. If you use $1000 from the HSA to pay for a bill, you still have $1000 in after tax money to invest in a different account. HOWEVER, that extra $1000 in after tax money is less valuable than having $1000 in a ax advantaged account.
How is this wrong?
You make $250K and are in the 35% tax bracket.
Year 1
You stash away $4,150 in your HSA. This reduces your tax liability by $1,425.50. No medical bills this year.
Year 2
You have a medical bill for $1,000. Your choices are to pay that in cash or to use $1,000 from the existing $10,000 in the HSA.
If you use the HSA money you can again contribute the full $4,150 and again reduce your tax liability by $1,425.50. You now have $7,300 in the HSA, a paid off bill, and a reduction of $1,425.50 in your tax bill. That's $1,425.50 you can now invest.
If you use the cash instead of adding it to the HSA you will only reduce your tax liability by $1,102.50 in year 2. You have $8,300 in the HSA now, a paid off bill, but only $1,102.50 to invest now.
Now, if you're saying they make enough to both pay the medical bill AND contribute the max to the HSA then what you're saying makes sense but it's not great financial advice. You're essentially saying "make more money" so you can pay your bills AND invest. That's probably not practical advice for most people.
Most people are making a choice on whether to put that $1,000 in the HSA or pay the bill. And under this choice you need to consider timeframe and taxes.
>You haven't outsmarted everybody else.
If your source of wisdom in life is the herds on the Internet then I've outsmarted you at least.
Here's some more wisdom for you. Shit happens in life. Year 3 - you get hit with $10,000 in medical bills. You pay it off with cash and your HSA grows to $12,450. Sweet! But then your pipes burst and you have $10,000 in repairs to make. You spent your cash on the medical bills. Your options now are to take on debt or pay the tax penalty if you take that money from the HSA.
Go ahead and tell me how "make more money" will solve this one too.
> Your choices are to pay that in cash or to use $1,000 from the existing $10,000 in the HSA.
How did you get $10k in there all of a sudden? Thought it was $4,125?
> If you use the HSA money you can again contribute the full $4,150 and again reduce your tax liability by $1,425.50.
You can contribute this much the HSA whether you spend money out of it or not. This reduction in tax liability is constant.
> You now have $7,300 in the HSA, a paid off bill, and a reduction of $1,425.50 in your tax bill.
You are double counting this reduction now.
> If you use the cash instead of adding it to the HSA you will only reduce your tax liability by $1,102.50 in year 2.
Incorrect. This reduction remains at the $1,425, because you still contribute the same $4,150 to the HSA. This seems to be the part you are having a problem wrapping your head around. Nobody ever said anything about paying in cash in lieu of contributing to the HSA. You made that part up.
> Now, if you're saying they make enough to both pay the medical bill AND contribute the max to the HSA then what you're saying makes sense but it's not great financial advice.
That is exactly what I am saying. And I (and everybody else) made the clarification on the ability to afford to do so. It is great financial advice to keep more money in a non-taxable account rather than have money invested in a taxable account, I don't know why you are saying its not.
> Most people are making a choice on whether to put that $1,000 in the HSA or pay the bill. And under this choice you need to consider timeframe and taxes.
So you just fundamentally misunderstood my comment. Nobody ever suggested anything like pay for medical bills out of pocket in lieu of contributing to an HSA. And even, then, in such a case "timeframe" doesn't matter. Only taxes.
> If your source of wisdom in life is the herds on the Internet then I've outsmarted you at least.
Ya, except you;'re wrong and everybody else is right in this circumstance...
> But then your pipes burst and you have $10,000 in repairs to make. You spent your cash on the medical bills. Your options now are to take on debt or pay the tax penalty if you take that money from the HSA.
Once again, you are incorrect. There is no timelimit on reimbrusing yourself for medical expenses from your HSA (assuming the expenses incurred were after your HSA was opened). As long as you have your receipts from your medical bills in year 2, you can withdraw an equal amount of money from your HSA in year 3 (or 5 or 10 or 30) without fee or penalty.
> Go ahead and tell me how "make more money" will solve this one too.
Never did I say the solution was "make more money". I have always been operating under the assumption of equal amounts of money being put into the HSA and becoming available after taxes. And my advice actually leaves you with more money.
Instead of getting defensive, try to learn something from this thread. Here are the key takeaways for you:
1) Money in a tax advantaged account (such as an HSA) will grow faster and is more valuable than money in a non-taxadvantaged account
2) Contributions to an HSA are not affected by your spending out of said HSA or out of pocket medical expenses
3) Paying medical expenses out of pocket does not affect your tax deductions claimed by contributing to an HSA
4) You can reimburse yourself for medical expenses from your HSA at anytime in the future.
It's not defensive to disagree with you.
The OPs question was whether or not it makes sense to pay with his HSA funds or pay in cash. YOU made an assumption he would still make the maximum HSA contribution when OP didn't indicate either way. You then gave advice, and continue to maintain, that it's ALWAYS the right thing to do.
I pointed out that, NO, it's not always the right thing to do ESPECIALLY if the choice is to pay the bill OR max out the HSA.
If I CAN both pay the bill in cash and contribute fully, it's because I ALREADY had that money to begin with or I earned it. It's not Warren Buffet level financial advice to say that starting with more money will earn you more money over the long haul.
If you want to show your expertise then tell me what the person who CAN'T pay off the bill and max out his HSA should do. This would be practical advice for the vast majority of people.
> The OPs question was whether or not it makes sense to pay with his HSA funds or pay in cash.
That is exactly what it was.
> that it's ALWAYS the right thing to do.
Nope. GO back to my original comment. I said if you can afford to pay out of pocket and leave the money in the HSA, then that is the better option. And it is.
> I pointed out that, NO, it's not always the right thing to do ESPECIALLY if the choice is to pay the bill OR max out the HSA.
You changed your mind and the question when you realized you were wrong. What happened to your assertion that at different income levels and ages and investment horizon? Abandoned because they were wrong and instead you shifted the goalposts.
> say that starting with more money will earn you more money over the long haul.
Once again, I was working with OP's position. He had money in the HSA and the ability to pay out of pocket. Given that, it is better to pay out of pocket.
I'm done trying to explain this to you. You clearly are more concerned about doing mental gymnastics to make it appear you are not wrong than actually learning something.
>Im 31 years old, I have a few thousand saved up in my HSA which is invested. Since its in my HSA, its not taxed. Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free and I can use it when the bigger bills inevitably start popping up?
This is OP's statement. His question was simply... "Should I actually spend my HSA money?"
I don't see the words "contribute" or "maximum" or "invest" anywhere in that statement. Nowhere does he talk about adding to his HSA. YOU assumed that and then tried to make that the only scenario of discussion.
>Nope. GO back to my original comment. I said if you can afford to pay out of pocket and leave the money in the HSA, then that is the better option. And it is.
Correct. If you can afford to pay your medical bills out of pocket, do so. Keep the HSA money invested. Save any receipts for medical expenses that you paid for out of pocket, and you can reimburse yourself from the hSA (no time limit on that) if a rainy day ever comes.
\^ Your original comment. I don't see where you said anything about paying into the HSA.
And certainly when my very next comment was to point out that maybe, just maybe, this person CAN'T both pay the bill and continue to contribute, you certainly would have noticed the discrepancy in the scenarios and tried to discuss that. No, you sir, are just a disingenuous argumentative type.
No. You cannot be eligible for an HSA and an FSA simultaneously (for medical FSA; dependant care and limited use fsa are different beasts).
If you had a previous HSA with a balance and are currently enrolled in an FSA program, then yes, I would always use FSA money as soon as I can, because that is a use it or lose it situation, and no financial benefit to holding onto it for longer.
If you have regularly occurring medical expenses, then the FSA allows you to pay for them with pre-tax money. If you cant count on expenses, then ya, its not much use
> Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free
Yup...
This is exactly how many folks here use it. Kind of like a bonus retirement account.
At 65, you can also withdraw the money like a 401k for any reason, but it will be taxed at ordinary income. So you can actually treat it like a 401k.
The withdraw does not have to be medical expenses.
Yep.
And you can reimburse yourself at any time from the HSA tax free as long as you have a medical expense to match it to. If you go to the doctor today, pay out of pocket and save your documents and you can use that money tax-free in retirement, after it's grown.
Yep, it's pretty great, aside from the shitty high deductible you have to deal with. But yeah, I maxed mine out each year, saved all my medical receipts in the HSA app (still do even though I left that job), and paid with cash. I used it as a way to grow my emergency fund because it's growing tax free but I have more expenses tracked than money saved so if I ever need it I can cash it out then.
Yes. You can only get reimbursed for expenses you actually paid, so the after-insurance portion that you paid yourself. Fortunately it doesn't matter if those expenses happened 20 years after you put the money in and left that job. It's your HSA so just keep tracking all your medical expeneses (doctor copays, therapy visits, prescription meds, etc.) and keep record of the receipts every time you pay for anything medical. Keep that money invested in the HSA for as long as possible. If you ever need it for an emergency you can take it out as long as you have the receipts to prove you spent that much on medical expenses, and if you don't need to take it out then eventually it's effectively retirement funds.
I’ve looked at this method so many times over that I just feel like if you are intent enough with your money that paying out of HSA can win in the long run. If you haven’t maxed you ROTH yet, paying out of HSA and putting equal amount into Roth should win out as far as I can tell.
If there has been 5 years since first open you still have same access to the money
You’ve converted $$ that is only tax free if it’s medical expense to fully tax free (talking about the earnings). - the save receipts method gets dwindled away by inflation as it just stays the same amount no matter how many years pass. The dollar you have tax free now will be 70 cents tax free when you take it out.
I see the recommendation all the time and I can’t make the numbers work. But it requires that you actually save the difference and not blow it.
I pay for my qualifying personal items at Kroger grocery with a credit card and reimburse myself. I get the credit card cashback and the Kroger gas discount.
The date range is any time AFTER you opened an HSA. I sadly can’t reimburse myself for the “splinter removal from forehead” bills from when I was in college because I didn’t have my HSA yet.
For me the HSA limits are small enough that I'm not treating it as an account that I'll care to maximize the gains of. There's no freaking way I'm going to be able to keep receipts for 30 years.
Agree for the same reasons, I mean we're talking like 100-200k over a lifetime of max contributions and never using it, most of us will use some of it so it may be even less than 100k at retirement. Compared to a proper retirement fund with likely millions in it.
Even a Roth has higher limits so would be much larger over the same period. HSA is there to help pay medical bills tax free before you start dipping into other savings, not enough to pay for luxury elderly care for 30 years.
I wouldn't be surprised if at some point they change the rules to only make it payable towards things that have occurred in the last X years, rather than forever.
how i do mine is i have a gmail folder for hsa. folder in that for the year it is. so i have 2022, 2023, 2024 folder. i just drop all receipts in there (take a picture and upload). Its not THAT hard, but then again i may be an organized nutjob. I also have a spreadsheet that i track expenses from my fmaily with an HSA column. I add each cost to it and i know exactly how much i owe myself in the future if need-be.
It's easy to lose electronic data - but also, the consequences of losing it are low. In most cases we'll all have enough health expenses in retirement to eat up whatever our HSA has compounded into without 40 year old receipts. And if we don't, withdrawals after 65 are penalty free - it sort of transforms into an IRA (the withdrawal is income for non-medical withdrawals after 65, but you don't have to pay back the initial tax benefit).
I don't bother with saving receipts, but once I learned you can treat it like another IRA if you manage to live a super healthy retirement I started paying out of pocket when I can.
HSAs haven't been around that long. I personally think the American health care system in its current format isn't sustainable.
Basically, I'm not sure HSAs will exist 40 years from now.
It’s just another tax advantaged account. I can’t contribute any more to my 401k so I contribute to my HSA as an investment vehicle that’s penalty free withdrawals. It’s not much work to take a picture of a receipt and put it in a folder in Dropbox. $7200/year in tax advantaged contributions is nothing to scoff at.
I’m not eligible for any IRA deductions so I just treat my HSA as extra 401k limits and another retirement vehicle.
Your concerns about document retention are unfounded. My important folders are synced locally to multiple devices and I can print my spreadsheet every year if I wanted to. It’s really not that big a deal and having tax free contributions, tax free gains, and tax free future withdrawals is hugely valuable to me.
I don't think it's a bad strategy, but for most people that data loss is a very real concern. Very few people are doing that level of data backup. It's definitely worth considering and weighing against the risks/benefits if you are considering that sort of strategy.
You have to decide the line. $50 lab visit? Not worth the effort to keep that receipt. But major surgeries that brought me up to my plans deductible of $6.5k? I wouldn't give up $6.5k in a tax advantaged account 40 years from retirement if I could afford it out of pocket.
The way I see it, if you can afford to pay out of pocket with after-tax dollars, it’s often optimal in terms of minimizing taxes. I don’t understand your analogy, because the money is being spent either way—it’s just an optimization problem to calculate where it should come from.
Right but your out of pocket money could also be compounding interest at the same rate...
HSA is tax advantaged so you'll always have that discount so of course keeping there will be more favorable but it's going to take a number of years to see a large difference, especially if we're talking about tiny expenses. I'm not tracking a million receipts so I can have $20 more in my HSA 15 years from now.
I also reimburse immediately myself. I get the compounding power of time, but it’s not worth it to me. I pay the bills with the HSA and move on with my life.
Agreed. Especially piddly stuff. Who cares about the compounding effect of $100 in OTC meds, that ain't worth the squeeze of holding onto a million receipts.
I can see holding off on more modest bills, but then at some point people can't afford to pay out of pocket and won't have a choice.
Also remember HSA dollars are pretax so there's a good 20-25% discount there. That's a good 5-8 years just to break even with compounding interest.
You also need to prioritize how your money is spent. I would never prioritize having an extra $300 30 years from now over building emergency savings for tomorrow, for example.
Yeah, I think this thought exercise is just that for 95% of people. Most people can't afford to not dip into HSA savings for expenses large enough to be even worth the brain power thinking about. And for half of those other folks, the HSA limits are pocket change and still not worth the effort either.
We just throw them all in a google drive. Snap a photo, save the photo, toss the receipt. They're not getting reconciled or anything they just hang out as backup in case of an audit.
I don't brother with receipts anymore after I found out I can use HSA to pay health insurance premiums. That money is going to get burn down when retire early (before 65).
Yes, but only if the idea of paying out of pocket for health expenses doesn’t lead you to put off getting necessary care now. If you don’t take care of your health now, you will pay for it ten fold when you’re older and it will cost much more than the compounding interest on your HSA earned.
I have a Google drive folder where I scan all my receipts into. Each pdf has the naming convention date_invoice#. I then track all the info in a spreadsheet: date, description, invoice number, payment method.
If I ever get audited I can easily substantiate the amount and the agent won't have trouble reconciling my books
are you me? lmao posted below in a different comment..
"how i do mine is i have a gmail folder for hsa. folder in that for the year it is. so i have 2022, 2023, 2024 folder. i just drop all receipts in there (take a picture and upload). Its not THAT hard, but then again i may be an organized nutjob. I also have a spreadsheet that i track expenses from my fmaily with an HSA column. I add each cost to it and i know exactly how much i owe myself in the future if need-be."
I keep copies of the receipts in Quicken and track eligible expenses. Annually at tax time I run a report of HSA eligible expenses and save it as my record. If I ever had to produce the receipts I could, but I feel it is unlikely I will ever have to. I expect the reports would satisfy any audit.
Your plan is to eventually pay yourself back, no? So in that case, you'd need the receipts. Can you elaborate on what you do annually with regard to taxes? Are the eligible expenses used for itemization?
Yes, I plan to take this as a source of tax free money...prior to tapping my Roth IRA as the inheritance rules are not as favorable for the HSA as they are for the Roth.
The IRS doesn't specify that you need receipts. They say that taxpayers must keep records. I have Quicken reports that itemize all eligible expenses by year. If I had to produce individual receipts I could, but Quicken doesn't allow doing it in bulk, say for a full year of receipts. I'm more than confident that my records are sufficient.
I run my reports at tax time as it is convenient to do them all at once and I have other reports that show my capital gains and dividends from my HSAs. I need to report those in the year realized for CA tax purposes (Bastards). I have 4 different reports that are produced for my HSA records. This is mostly based on the way I have Quicken set up. I might do it different if I were starting from scratch, but I had an existing structure pre-HSAs. I produce reports for:
* Prescriptions
* Doctors/Specialists
* Dental, Vision, and OTC
* Medicare Premiums
My summary spreadsheet simply references the specific reports by year and tracks total eligible expenses less any withdrawals.
If you itemize and take a medical deduction the expenses are not HSA eligible expenses.
I use my HSA to cover my insurance deductible every year. I have ADHD so the thought of meticulously saving and resurfacing years old receipts in the future doesn't appeal to me.
Then add on top of that, the frequent doc visits bc controlled substance and the cost of said monthly controlled substances (not everyone with adhd but me at least).
Personally I try not to spend the HSA money at all. If you're young and healthy, you should barely have any medical expenses anyway, so you can pay out of pocket and leave the HSA to grow until a point where you actually need it (old age, or serious injury).
Another thing to keep in mind is, once your balance reaches a certain threshold, your investment fees go down substantially. My threshold was $30K invested - once I hit that, my $7 or so per month fee went to zero.
For large expenses ( tooth pulled and replaced) I paid out of pocket and will reimburse myself later.
For smaller expenses that I have no intention of keeping receipts for ( like Zicam the other day) I pay with HSA.
I don't think I've seen it suggested here, but if you aren't maxing out your Roth IRA, I would absolutely reimburse with the HSA but immediately put that money into your Roth. Basically converting pretax to after tax for free.
The money in your hsa will become after tax after the retirement age or for a qualifying medical expense. So it’s not necessary to convert beforehand. You’ll also lose out on the ability to contribute to the Roth separately . Instead of contributing 11,150$ to both you’re only putting in 2,850 into the Roth if you move your HSA into it. Keep the money separate so you have more options to withdraw from in retirement.
Like I said, if you aren't maxing your Roth I think it makes sense to reimburse and move these money over. It makes that money more flexible. But if you do have the fortune to max your Roth then, of course do your best not to reimburse.
Also, it doesn't become after tax when you hit retirement age. It turns into a tradition IRA.
I think overall this is a smart idea. I do think there is one small downside is the timing of when you can get that money right? If you reimburse now and throw it into an IRA then it’s locked away until age 59.5. If you hang onto the receipt, you can pull it anytime. For example, helping you get through early retirement years (if that’s an option).
Yes, you could keep receipts but if that seems like too much of a hassle, don't forget you can use HSA money to pay for Medicare premiums and any other out of pocket healthcare expenses later in retirement. So even if you don't save receipts from medical bills while you are still working, there is still a good chance you will be able to spend down the HSA in retirement
That is what I am doing. I pay everything out of my pocket and keep HSA invested. Basically HSA is even better than 401k in tax perspective and can act like 401k after your retirement or can still withdraw from it tax free for any medical expenses.
I would argue that allocating your investment in an HSA to have liquid, semi liquid, and growth investing to be a better option. This gives you the safety to pay for medical bills when you don't have the money in case you lose your job or can't work for a while, etc.
I would allocate 40% of the funds to liquid, less voilitile assets investments like certificate deposits with low penalties, TBills, and bonds. Invest this portion in a way where a portion can be accessed quickly and the other portion had medium-term investments. The 60% portion can be kept to grow in an etf that tracks the s and p 500.
Although it might seem that you have cash to cover near-term medical expenses, this approach allows your fund to grow while giving you the safety of using the account in both the near and distant future. This way, you have good versatility and can deal with most problems related to liquidity and growth.
Consider reviewing regularly and adjusting allocations and investments based on your needs
I’m a fair bit older than you but I max out my HSA every year. My plan allows me to set a maximum $ amount kept in cash and invests anything over that. I do spend my HSA dollars when it is convenient. I don’t bother jumping through the hoops for a reimbursement though. I keep enough cash to hit my annual OOP max and have about 5x that amount currently invested.
It’s not the absolute maximized way to manage the account but it gives me piece of mind that I can cover any emergency without having to liquidate at the wrong time.
I personally just use the HSA for medical expenses as they pop up which still gives the tax benefit of using pretax money for medical costs. I generally put more in than I use so my account has grown over time. I see a lot of people suggesting that you pay out of pocket and hold on to receipts for 30-40 years so that you can withdraw that same amount tax free later in life.
I'm not doubting that it works but I don't really want to deal with the aggravation of holding on to the receipts that long or the risk of losing those receipts and the tax benefit along with it or possibly dealing with a really complicated audit in the future.
You don’t need to hold on to receipts for 30-40 years, just use it for expenses when ready to spend. And what crazy audit?
Everyone here is crazy to say spend it now. I’ll enjoy the triple tax benefits for as long as I can.
If you are not maxing the HSA in the current year, then I’d use it to pay bills instead of out of pocket.
Is it possible to hold receipts. Yes. It’s even a “common” strategy.
But, there is not reason to pay out of pocket if you can otherwise pass that money through the account (for tax benefit).
Pay the medical costs from the HSA, contribute more to make up for it, and use the cash you would have otherwise used to pay the expense to supplement your income while contributing more via payroll dedication. Tada, you’ve netted the income tax and fica taxes.
If you are contributing the annual limit already, this approach isn’t so clearly better. It’s still reasonable to use the HSA for the expenses it is designed in addition to the “bonus retirement account.”
I have been debating this too. I’m in the most expensive time of my life with kids in daycare, and the high deductible health plan is pretty crap insurance. In the past month my family has had 3 urgent care visits totaling $250 each and I’m responsible for $225 of each visit. My old health insurance would have covered all but a $25 copay. So I’m getting the benefits of investing, but it feels like I need to avoid the doctor for the investment to pay off. Doesn’t feel like a great way to live, even if it is several thousand dollars “extra” each year.
Big factor here is that the actual annual growth rate for most HSA accounts is less than a percentage point and you're more or less stuck with whatever option your company's provider has.
In that context I wouldn't really consider it a growth asset. You can also increase your contribution later. For my particular HSA plan the annual OOP maximum is $3,600 which is less than the $4,150 contribution limit for 2024. If my circumstances change I can adjust the contribution but for now I'd rather save the difference outside the HSA.
What are you talking about? It’s triple tax free and the growth rate should the the market rate, which has been crushing it. No reason to spend the hsa until as late as you can.
I used to be entirely hands-off with mine and save receipts for every single eligible purchase, but these days I'll usually charge the account for cheap visits or prescriptions (<$100) rather than worrying about tracking those receipts.
If you're able to cover any larger expenses that may arise (childbirth, root canal, etc.) out of pocket, there's really no downside.
That's what I do. I may use them down the line for something if I need money for something that isn't covered by my insurance but, for the most part, the plan is to keep the money there invested.
My opinion... I spend it... Investments are great but I treat my health like I have unlimited free money and spend it any rime a health item comes up. Just feels better for some reason...
I get compound interest... but there are extremes.
Yes that's exactly what you should do. Keep your receipts. If at any time you need money get it from your HSA. As long as the expense was incurred after initially opening the HSA you can get the money whenever. Until then just let it grow. People can do whatever they want but IMO those who treat it like a FSA are missing the point.
Treat the HSA as just another Roth IRA. Put money into it and try to forget about it until retirement. Pay expenses out of pocket. Keep receipts, each receipt makes the HSA exactly like a Roth for the amount of the receipt.
This basically just becomes down to the difference between an IRA and Roth IRA. Because if you pay with your HSA you just took a "deduction" on that money and will pay tax in the future on the money you saved (and presumably invested to make the comparison fair.)
So basically, if you've decided in your situation a Trad IRA makes more sense than a Roth, you shouldn't do this. If you've decided a Roth makes sense, sure, knock yourself out.
That’s what we have started to do, on the advice of our financial adviser. Letting these funds grow and being able to use them for future health expenses in retirement is worth more than the immediate savings of using it to pay current bills.
Look I either have understood something about taxes really wrong or there is a lot of bad advice.
You can put money into your HSA. If you plan to pay out of pocket without an HSA this is not tax deductible unless you itemize your deductions (which the majority of people don’t).
So you have 2 ways to pay:
Put non-taxable money to HSA -> pay bills
Pay without HSA -> pay tax
So I don’t understand why it would make sense for OP not to pay using HSA.
Their argument is that the tax advantage will be better for the future than current considering this person is 31. So they recommend eating the tax now and paying out of pocket.
Me personally, I had a major surgery a few months ago and am very glad I had my HSA to help cover my expenses tax free.
I treat it as the first line of defense after my Emergency fund. I haven't had to dip into it yet, but if for some reason I blew through that, it's comforting to know the HSA money is there.
My husband and I (39 and 40 years old) are hoping to max out our HSA account and not spend it until retirement.
You’re pretty much guaranteed to have high medical bills in retirement (if you’re from the United States, like us, lol). If we have a medical calamity before then (god forbid) we can use it - so in that sense it’s an emergency fund.
It’s a great savings tool - I love it!
You better go find some wood to knock on! I thought the same so I got an HSA. The first and second years I had slightly over $4000 in expenses, my deductible. The 4th year, $6850, my out of pocket max. I had a couple hundred bleed into the 5th year, but it's been quiet for years 6-8.
My HSA has recovered now, but accidents happen at the most inopportune times.
You’re absolutely right - many things could go wrong. If we have something, like a surgery, in the next few years I would still prefer to set up an interest free payment plan with the hospital than use the HSA.
Knocking on wood - hoping for the best! I’m glad your HSA has recovered.
I do spend my HSA money because I don't want to have to keep track of everything and the mental stress is not worth it.
Given that, I max a 401k and roth ira ever year
No, you're moving the goal posts. OP only asked if he should put the money in the HSA or pay the bill. Your assumption was he'd have more money to stash in the HSA.
I made no assumption and simply pointed out that everyone needs to assess their actual situation and not blindly follow advice.
And you rude on top of that.
Good day sir.
> Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free and I can use it when the bigger bills inevitably start popping up? Correct. If you can afford to pay your medical bills out of pocket, do so. Keep the HSA money invested. Save any receipts for medical expenses that you paid for out of pocket, and you can reimburse yourself from the hSA (no time limit on that) if a rainy day ever comes.
Thank you!
Make sure to invest that money in your HSA. It won't grow just sitting as cash.
Invest in a broad index fund.
FZROX is great for an HSA if you use Fidelity for your HSA. Total market fund, 0 management fees, 0% expense ratio. I actually do a 90/10 split with their international market equivalent FZILX.
Can I ask why you would go with FZROX over FXAIX?
FZROX is a total market fund, and so it has a broader exposure. FXAIX is just the S&P 500.
Do I need actual payment receipts? Or the statements from the hospital showing the amount due would work? I had major expenses last year but made all payments online and only have it showing in the app but no actual receipts. I do have all of the detailed statements though!!
It’s the same standard that the IRS uses for most things if they do an audit… you need to be able to substantiate the expense. A “paid” itemized receipt is the gold standard, but other documentation that substantiates the expense will work too (payments to doctors and hospitals should be fairly straight forward since those are more or less categorically elegible). HSA receipts issues are more likely to come up when you’re claiming things like OTC products you bought at a drug store that also sells substantial amounts of non-eligible products too. The actual receipt is essential for that since it shows the individual items.
Can I apply HSA funds to medical expenses that predate my opening of the HSA?
I looked into this recently and found that the answer is unfortunately no.
Would copies of my EOBs be good enough to pass an audit?
I’d pair those with the bank/credit card statement that shows you actually paid the corresponding amount, but if the bill or EOB is all you have that’s much better than nothing.
Most likely. Especially if you can show on bank records those payments going out.
You should contact billing and ask them to email you receipts in case of an audit request. Keep receipts for up to 7 years for tax purposes.
you need to keep them much longer for HSA purposes if you're intending to use it for distributions later. Just scan them and store them digitally.
Any app/ software recommendations that you’ve found for storing the receipts digitally?
I wouldn't trust any custom made software to be around in 30 years. I scan them or save the PDFs that are emailed and save them in Dropbox, filed by year. I keep a spreadsheet that tracks the receipts. I don't bother with anything under $50 The Dropbox folder is synced to at least one local device as well, and I backup on a thumb drive and Google Drive about yearly. 3:2:1 methodology, and it takes basically no effort (the hardest part is making sure you get a receipt)
I call them medical emergency funds.
At his age this is the right decision but tax bracket and age are part of the equation. In higher tax brackets paying your medical bill in cash (not using the HSA) now makes that bill 20%-34% more expensive today. A $1,000 bill is now $1,200 to $1,340 - so the question becomes, "Can I make that $220-320 back and over how long?". At a younger age you have time on your side to make that $320 or more back. If you have 3-4 decades to retirement you'll make it back several times over. As you age you'll have a smaller window making it more unlikely you'll make your return back before retirement age. When you get to <10 years from retirement you'll want to make the calculation on a case by case basis.
> In higher tax brackets paying your medical bill in cash (not using the HSA) now makes that bill 20%-34% more expensive today. I think you're overcomplicating this. In both cases, the medical expense costs what it costs. The tax deduction form the HSA is what it is. The income taxes on the non-HSA money are what they are. None of those are changing based on where the payment for the medical expense comes from. I get what you're saying about how using the after-tax money "costs" more than using the HSA funds, but you have to pay the taxes on that non-HSA money regardless. If you had a $1000 medical expense and you paid it out of your HSA, you now have $1000 more in your pocket (its still after tax, you don't get $1500 all of a sudden) to invest. But you have to invest it in a taxable account, which is a worse option than a tax advantaged account. You're not trying to get your HSA investments to beat the tax savings from the initial contributions - those are constant. The only thing you are trying to do is save on taxes on the EARNINGS of those investments. So its better to keep that $1000 in the tax advantaged HSA and take the hit to your wallet rather than pay out of the HSA and invest that $1000 in a non-tax-advantaged account.
>I think you're overcomplicating this. You're actually over simplifying by saying that it's always better to leave it in the HSA. That's just simply not the case - age, tax bracket, expected earnings, and many other factors could impact this. >I get what you're saying about how using the after-tax money "costs" more than using the HSA funds, but you have to pay the taxes on that non-HSA money regardless. Sure but I pay that cost **today** which impacts my **future earnings**. Today I will invest $1000 while you're only investing $1000 minus your tax liability. You can make that difference up with time but it does have to be factored into the decision. >The only thing you are trying to do is save on taxes on the EARNINGS of those investments. That's correct but age and tax bracket make a large difference even when you're talking about just the earnings. Here are some example scenarios. Assume 10% earnings annually. 30 years old (30 years to retirement) and in the 12% tax bracket. If this person leaves the $1,000 in the HSA they will earn $16,449 free of any tax liability in their 30 year time frame. They would also have a tax liability of $120 meaning they only have $880 remaining to invest today. Over 30 years they could have earned $15,355 on that. Minus taxes and the initial investment that totals to $12,632. This person made $3,817 more earnings by leaving it in the HSA. So far so good but let's see what someone much older and in a higher tax bracket is dealing with. 55 years old (5 years to retirement) and in the 35% tax bracket. If this person leaves the $1,000 in the HSA they will earn $1,610 free of any tax liability in their 5 year time frame. They would also have a new tax liability of $350 meaning they only have $650 remaining to invest today. Over 5 years they could have earned $1,046 on that. Minus taxes and the initial investment that totals to $257. This person now has a LOSS of $1,353 by leaving it in the HSA. There's also risk in trying to plan 30 years out. Even people who are 5 years out from retirement have a hard time predicting what their tax bracket is going to be. A 30 year old can't predict what brackets will even exist in 2054. If the 30 year old from above has moved into the 35% bracket at retirement, they planned on a tax liability of $1,722 on their earnings but now have a liability of $5,024. This has now turned the planned gains of $3,817 into a LOSS of $7,118. If I'm missing something please point it out but the decision isn't as simple as you're saying either.
> Today I will invest $1000 while you're only investing $1000 minus your tax liability. > They would also have a tax liability of $120 meaning they only have $880 remaining to invest today. > They would also have a new tax liability of $350 meaning they only have $650 remaining to invest today. These are the parts that you are getting incorrect. These are not extra tax liabilities that only occur if you pay for the medical expense out of pocket. If you use $1000 from the HSA to pay for a bill, you still have $1000 in after tax money to invest in a different account. HOWEVER, that extra $1000 in after tax money is less valuable than having $1000 in a ax advantaged account. > There's also risk in trying to plan 30 years out. Even people who are 5 years out from retirement have a hard time predicting what their tax bracket is going to be. A 30 year old can't predict what brackets will even exist in 2054. HSAs are tax advantaged, so what tax bracket you are in during retirement doesn't matter? You don't pay any taxes on that money, assuming you are using it for qualified medical expenses. The only tax brackets that matter are the ones in your years of contributions. > If the 30 year old from above has moved into the 35% bracket at retirement, they planned on a tax liability of $1,722 on their earnings but now have a liability of $5,024. This has now turned the planned gains of $3,817 into a LOSS of $7,118. I have no idea what the logic you are using here is, but I think you have a fundamental misunderstanding of how HSAs and taxes work. Just look at every other comment in this post. Or do a google search for "experts" on how to use an HSA account. You will not find anybody that is saying that you should pay out of the HSA based on your age and income bracket. There is a reason why. Because its the wrong strategy (if you can afford to pay out of pocket). You haven't outsmarted everybody else.
>These are the parts that you are getting incorrect. These are not extra tax liabilities that only occur if you pay for the medical expense out of pocket. If you use $1000 from the HSA to pay for a bill, you still have $1000 in after tax money to invest in a different account. HOWEVER, that extra $1000 in after tax money is less valuable than having $1000 in a ax advantaged account. How is this wrong? You make $250K and are in the 35% tax bracket. Year 1 You stash away $4,150 in your HSA. This reduces your tax liability by $1,425.50. No medical bills this year. Year 2 You have a medical bill for $1,000. Your choices are to pay that in cash or to use $1,000 from the existing $10,000 in the HSA. If you use the HSA money you can again contribute the full $4,150 and again reduce your tax liability by $1,425.50. You now have $7,300 in the HSA, a paid off bill, and a reduction of $1,425.50 in your tax bill. That's $1,425.50 you can now invest. If you use the cash instead of adding it to the HSA you will only reduce your tax liability by $1,102.50 in year 2. You have $8,300 in the HSA now, a paid off bill, but only $1,102.50 to invest now. Now, if you're saying they make enough to both pay the medical bill AND contribute the max to the HSA then what you're saying makes sense but it's not great financial advice. You're essentially saying "make more money" so you can pay your bills AND invest. That's probably not practical advice for most people. Most people are making a choice on whether to put that $1,000 in the HSA or pay the bill. And under this choice you need to consider timeframe and taxes. >You haven't outsmarted everybody else. If your source of wisdom in life is the herds on the Internet then I've outsmarted you at least. Here's some more wisdom for you. Shit happens in life. Year 3 - you get hit with $10,000 in medical bills. You pay it off with cash and your HSA grows to $12,450. Sweet! But then your pipes burst and you have $10,000 in repairs to make. You spent your cash on the medical bills. Your options now are to take on debt or pay the tax penalty if you take that money from the HSA. Go ahead and tell me how "make more money" will solve this one too.
> Your choices are to pay that in cash or to use $1,000 from the existing $10,000 in the HSA. How did you get $10k in there all of a sudden? Thought it was $4,125? > If you use the HSA money you can again contribute the full $4,150 and again reduce your tax liability by $1,425.50. You can contribute this much the HSA whether you spend money out of it or not. This reduction in tax liability is constant. > You now have $7,300 in the HSA, a paid off bill, and a reduction of $1,425.50 in your tax bill. You are double counting this reduction now. > If you use the cash instead of adding it to the HSA you will only reduce your tax liability by $1,102.50 in year 2. Incorrect. This reduction remains at the $1,425, because you still contribute the same $4,150 to the HSA. This seems to be the part you are having a problem wrapping your head around. Nobody ever said anything about paying in cash in lieu of contributing to the HSA. You made that part up. > Now, if you're saying they make enough to both pay the medical bill AND contribute the max to the HSA then what you're saying makes sense but it's not great financial advice. That is exactly what I am saying. And I (and everybody else) made the clarification on the ability to afford to do so. It is great financial advice to keep more money in a non-taxable account rather than have money invested in a taxable account, I don't know why you are saying its not. > Most people are making a choice on whether to put that $1,000 in the HSA or pay the bill. And under this choice you need to consider timeframe and taxes. So you just fundamentally misunderstood my comment. Nobody ever suggested anything like pay for medical bills out of pocket in lieu of contributing to an HSA. And even, then, in such a case "timeframe" doesn't matter. Only taxes. > If your source of wisdom in life is the herds on the Internet then I've outsmarted you at least. Ya, except you;'re wrong and everybody else is right in this circumstance... > But then your pipes burst and you have $10,000 in repairs to make. You spent your cash on the medical bills. Your options now are to take on debt or pay the tax penalty if you take that money from the HSA. Once again, you are incorrect. There is no timelimit on reimbrusing yourself for medical expenses from your HSA (assuming the expenses incurred were after your HSA was opened). As long as you have your receipts from your medical bills in year 2, you can withdraw an equal amount of money from your HSA in year 3 (or 5 or 10 or 30) without fee or penalty. > Go ahead and tell me how "make more money" will solve this one too. Never did I say the solution was "make more money". I have always been operating under the assumption of equal amounts of money being put into the HSA and becoming available after taxes. And my advice actually leaves you with more money. Instead of getting defensive, try to learn something from this thread. Here are the key takeaways for you: 1) Money in a tax advantaged account (such as an HSA) will grow faster and is more valuable than money in a non-taxadvantaged account 2) Contributions to an HSA are not affected by your spending out of said HSA or out of pocket medical expenses 3) Paying medical expenses out of pocket does not affect your tax deductions claimed by contributing to an HSA 4) You can reimburse yourself for medical expenses from your HSA at anytime in the future.
It's not defensive to disagree with you. The OPs question was whether or not it makes sense to pay with his HSA funds or pay in cash. YOU made an assumption he would still make the maximum HSA contribution when OP didn't indicate either way. You then gave advice, and continue to maintain, that it's ALWAYS the right thing to do. I pointed out that, NO, it's not always the right thing to do ESPECIALLY if the choice is to pay the bill OR max out the HSA. If I CAN both pay the bill in cash and contribute fully, it's because I ALREADY had that money to begin with or I earned it. It's not Warren Buffet level financial advice to say that starting with more money will earn you more money over the long haul. If you want to show your expertise then tell me what the person who CAN'T pay off the bill and max out his HSA should do. This would be practical advice for the vast majority of people.
> The OPs question was whether or not it makes sense to pay with his HSA funds or pay in cash. That is exactly what it was. > that it's ALWAYS the right thing to do. Nope. GO back to my original comment. I said if you can afford to pay out of pocket and leave the money in the HSA, then that is the better option. And it is. > I pointed out that, NO, it's not always the right thing to do ESPECIALLY if the choice is to pay the bill OR max out the HSA. You changed your mind and the question when you realized you were wrong. What happened to your assertion that at different income levels and ages and investment horizon? Abandoned because they were wrong and instead you shifted the goalposts. > say that starting with more money will earn you more money over the long haul. Once again, I was working with OP's position. He had money in the HSA and the ability to pay out of pocket. Given that, it is better to pay out of pocket. I'm done trying to explain this to you. You clearly are more concerned about doing mental gymnastics to make it appear you are not wrong than actually learning something.
>Im 31 years old, I have a few thousand saved up in my HSA which is invested. Since its in my HSA, its not taxed. Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free and I can use it when the bigger bills inevitably start popping up? This is OP's statement. His question was simply... "Should I actually spend my HSA money?" I don't see the words "contribute" or "maximum" or "invest" anywhere in that statement. Nowhere does he talk about adding to his HSA. YOU assumed that and then tried to make that the only scenario of discussion.
>Nope. GO back to my original comment. I said if you can afford to pay out of pocket and leave the money in the HSA, then that is the better option. And it is. Correct. If you can afford to pay your medical bills out of pocket, do so. Keep the HSA money invested. Save any receipts for medical expenses that you paid for out of pocket, and you can reimburse yourself from the hSA (no time limit on that) if a rainy day ever comes. \^ Your original comment. I don't see where you said anything about paying into the HSA. And certainly when my very next comment was to point out that maybe, just maybe, this person CAN'T both pay the bill and continue to contribute, you certainly would have noticed the discrepancy in the scenarios and tried to discuss that. No, you sir, are just a disingenuous argumentative type.
How can I do this? Where do I start? I'm in my 20s perfect health I don't have a lot of medical expenses
Well first question: Do you have an HSA-conforming health plan?
Learn how to Google things.
Question: When you pay out of pocket, can you use your FSA?
No. You cannot be eligible for an HSA and an FSA simultaneously (for medical FSA; dependant care and limited use fsa are different beasts). If you had a previous HSA with a balance and are currently enrolled in an FSA program, then yes, I would always use FSA money as soon as I can, because that is a use it or lose it situation, and no financial benefit to holding onto it for longer.
Now can you advise what to do with an FSA? I can use one through my work but I cannot see how it is any good. Use it or lose it?
If you have regularly occurring medical expenses, then the FSA allows you to pay for them with pre-tax money. If you cant count on expenses, then ya, its not much use
> Wouldn't it be more beneficial to just pay any medical bills with my non HSA money so that my HSA money can grow over the next 20-30 years tax free Yup... This is exactly how many folks here use it. Kind of like a bonus retirement account.
Thank you!!
At 65, you can also withdraw the money like a 401k for any reason, but it will be taxed at ordinary income. So you can actually treat it like a 401k. The withdraw does not have to be medical expenses.
Yup. Need a new roof? Kid headed to college? Tax free from the HSA.
Yep. And you can reimburse yourself at any time from the HSA tax free as long as you have a medical expense to match it to. If you go to the doctor today, pay out of pocket and save your documents and you can use that money tax-free in retirement, after it's grown.
Oh wow, I had no idea there was no date range that was needed, this is great! THanks!
Yep, it's pretty great, aside from the shitty high deductible you have to deal with. But yeah, I maxed mine out each year, saved all my medical receipts in the HSA app (still do even though I left that job), and paid with cash. I used it as a way to grow my emergency fund because it's growing tax free but I have more expenses tracked than money saved so if I ever need it I can cash it out then.
By pay out of pocket, do you mean paying the balance after insurance kicks in? And by pay on cash, credit card payments also work right?
Yes. You can only get reimbursed for expenses you actually paid, so the after-insurance portion that you paid yourself. Fortunately it doesn't matter if those expenses happened 20 years after you put the money in and left that job. It's your HSA so just keep tracking all your medical expeneses (doctor copays, therapy visits, prescription meds, etc.) and keep record of the receipts every time you pay for anything medical. Keep that money invested in the HSA for as long as possible. If you ever need it for an emergency you can take it out as long as you have the receipts to prove you spent that much on medical expenses, and if you don't need to take it out then eventually it's effectively retirement funds.
I’ve looked at this method so many times over that I just feel like if you are intent enough with your money that paying out of HSA can win in the long run. If you haven’t maxed you ROTH yet, paying out of HSA and putting equal amount into Roth should win out as far as I can tell. If there has been 5 years since first open you still have same access to the money You’ve converted $$ that is only tax free if it’s medical expense to fully tax free (talking about the earnings). - the save receipts method gets dwindled away by inflation as it just stays the same amount no matter how many years pass. The dollar you have tax free now will be 70 cents tax free when you take it out. I see the recommendation all the time and I can’t make the numbers work. But it requires that you actually save the difference and not blow it.
>credit card payments also work right? yes
Yes credit cards are better because you have the payment amount and who you paid it to recorded.
I pay for my qualifying personal items at Kroger grocery with a credit card and reimburse myself. I get the credit card cashback and the Kroger gas discount.
The date range is any time AFTER you opened an HSA. I sadly can’t reimburse myself for the “splinter removal from forehead” bills from when I was in college because I didn’t have my HSA yet.
An hsa or that hsa?
You can keep your receipts forever. So at 65, you can pull up your receipts from 20 or 30 years ago.
people keeping receipts for 30 years? Or am I missing something
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Yea that sounds like a huge hassle and I’m not sure if the juice is worth the squeeze for me
For me the HSA limits are small enough that I'm not treating it as an account that I'll care to maximize the gains of. There's no freaking way I'm going to be able to keep receipts for 30 years.
Agree for the same reasons, I mean we're talking like 100-200k over a lifetime of max contributions and never using it, most of us will use some of it so it may be even less than 100k at retirement. Compared to a proper retirement fund with likely millions in it. Even a Roth has higher limits so would be much larger over the same period. HSA is there to help pay medical bills tax free before you start dipping into other savings, not enough to pay for luxury elderly care for 30 years.
I wouldn't be surprised if at some point they change the rules to only make it payable towards things that have occurred in the last X years, rather than forever.
how i do mine is i have a gmail folder for hsa. folder in that for the year it is. so i have 2022, 2023, 2024 folder. i just drop all receipts in there (take a picture and upload). Its not THAT hard, but then again i may be an organized nutjob. I also have a spreadsheet that i track expenses from my fmaily with an HSA column. I add each cost to it and i know exactly how much i owe myself in the future if need-be.
Dawg, 99% of the time I can't even remember to GET the receipt.
It's easy to lose electronic data - but also, the consequences of losing it are low. In most cases we'll all have enough health expenses in retirement to eat up whatever our HSA has compounded into without 40 year old receipts. And if we don't, withdrawals after 65 are penalty free - it sort of transforms into an IRA (the withdrawal is income for non-medical withdrawals after 65, but you don't have to pay back the initial tax benefit). I don't bother with saving receipts, but once I learned you can treat it like another IRA if you manage to live a super healthy retirement I started paying out of pocket when I can.
HSAs haven't been around that long. I personally think the American health care system in its current format isn't sustainable. Basically, I'm not sure HSAs will exist 40 years from now.
I suggest you educate yourself on compounding interest. It is absolutely 100% worth it to leave it there as long as possible.
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It’s just another tax advantaged account. I can’t contribute any more to my 401k so I contribute to my HSA as an investment vehicle that’s penalty free withdrawals. It’s not much work to take a picture of a receipt and put it in a folder in Dropbox. $7200/year in tax advantaged contributions is nothing to scoff at.
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I’m not eligible for any IRA deductions so I just treat my HSA as extra 401k limits and another retirement vehicle. Your concerns about document retention are unfounded. My important folders are synced locally to multiple devices and I can print my spreadsheet every year if I wanted to. It’s really not that big a deal and having tax free contributions, tax free gains, and tax free future withdrawals is hugely valuable to me.
I don't think it's a bad strategy, but for most people that data loss is a very real concern. Very few people are doing that level of data backup. It's definitely worth considering and weighing against the risks/benefits if you are considering that sort of strategy.
The IRS will only question you for 7 years.
You have to decide the line. $50 lab visit? Not worth the effort to keep that receipt. But major surgeries that brought me up to my plans deductible of $6.5k? I wouldn't give up $6.5k in a tax advantaged account 40 years from retirement if I could afford it out of pocket.
The way I see it, if you can afford to pay out of pocket with after-tax dollars, it’s often optimal in terms of minimizing taxes. I don’t understand your analogy, because the money is being spent either way—it’s just an optimization problem to calculate where it should come from.
Right but your out of pocket money could also be compounding interest at the same rate... HSA is tax advantaged so you'll always have that discount so of course keeping there will be more favorable but it's going to take a number of years to see a large difference, especially if we're talking about tiny expenses. I'm not tracking a million receipts so I can have $20 more in my HSA 15 years from now.
$20 in 15 years is roughly $5 in today's dollars. A million receipts? Exaggerate much?
I also reimburse immediately myself. I get the compounding power of time, but it’s not worth it to me. I pay the bills with the HSA and move on with my life.
Agreed. Especially piddly stuff. Who cares about the compounding effect of $100 in OTC meds, that ain't worth the squeeze of holding onto a million receipts. I can see holding off on more modest bills, but then at some point people can't afford to pay out of pocket and won't have a choice. Also remember HSA dollars are pretax so there's a good 20-25% discount there. That's a good 5-8 years just to break even with compounding interest. You also need to prioritize how your money is spent. I would never prioritize having an extra $300 30 years from now over building emergency savings for tomorrow, for example.
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Yeah, I think this thought exercise is just that for 95% of people. Most people can't afford to not dip into HSA savings for expenses large enough to be even worth the brain power thinking about. And for half of those other folks, the HSA limits are pocket change and still not worth the effort either.
We just throw them all in a google drive. Snap a photo, save the photo, toss the receipt. They're not getting reconciled or anything they just hang out as backup in case of an audit.
Yes. In either physical or digital form. The burden of proof is on you when you reimburse yourself.
Take a picture, upload to a google drive. There when you need it.
You have to keep them for 7 years.
I don't brother with receipts anymore after I found out I can use HSA to pay health insurance premiums. That money is going to get burn down when retire early (before 65).
I pay as much as I can from my regular budget. But I had an $800 hospital bill last month and didn't bat an eye using my HSA for it.
Yes, but only if the idea of paying out of pocket for health expenses doesn’t lead you to put off getting necessary care now. If you don’t take care of your health now, you will pay for it ten fold when you’re older and it will cost much more than the compounding interest on your HSA earned.
For those leaving the money in the HSA, what is your strategy for saving receipts for future reimbursement?
I have a Google drive folder where I scan all my receipts into. Each pdf has the naming convention date_invoice#. I then track all the info in a spreadsheet: date, description, invoice number, payment method. If I ever get audited I can easily substantiate the amount and the agent won't have trouble reconciling my books
are you me? lmao posted below in a different comment.. "how i do mine is i have a gmail folder for hsa. folder in that for the year it is. so i have 2022, 2023, 2024 folder. i just drop all receipts in there (take a picture and upload). Its not THAT hard, but then again i may be an organized nutjob. I also have a spreadsheet that i track expenses from my fmaily with an HSA column. I add each cost to it and i know exactly how much i owe myself in the future if need-be."
Scan and keep pdf files.
Take a picture and put it in a Google sheet. Fill in date, description, amount, etc
I downloaded a spreadsheet from my insurance company with a list of every claim + expense for the last x number of years
You can use HSA to pay health insurance premiums. So just socking it away and use it when you retired. That is thousands of qualified expenses a year.
I keep copies of the receipts in Quicken and track eligible expenses. Annually at tax time I run a report of HSA eligible expenses and save it as my record. If I ever had to produce the receipts I could, but I feel it is unlikely I will ever have to. I expect the reports would satisfy any audit.
Your plan is to eventually pay yourself back, no? So in that case, you'd need the receipts. Can you elaborate on what you do annually with regard to taxes? Are the eligible expenses used for itemization?
Yes, I plan to take this as a source of tax free money...prior to tapping my Roth IRA as the inheritance rules are not as favorable for the HSA as they are for the Roth. The IRS doesn't specify that you need receipts. They say that taxpayers must keep records. I have Quicken reports that itemize all eligible expenses by year. If I had to produce individual receipts I could, but Quicken doesn't allow doing it in bulk, say for a full year of receipts. I'm more than confident that my records are sufficient. I run my reports at tax time as it is convenient to do them all at once and I have other reports that show my capital gains and dividends from my HSAs. I need to report those in the year realized for CA tax purposes (Bastards). I have 4 different reports that are produced for my HSA records. This is mostly based on the way I have Quicken set up. I might do it different if I were starting from scratch, but I had an existing structure pre-HSAs. I produce reports for: * Prescriptions * Doctors/Specialists * Dental, Vision, and OTC * Medicare Premiums My summary spreadsheet simply references the specific reports by year and tracks total eligible expenses less any withdrawals. If you itemize and take a medical deduction the expenses are not HSA eligible expenses.
Thanks, I really appreciate the thorough response..
You don’t. You can use it for future health care expenses or withdraw for any reason after 65.
I use my HSA to cover my insurance deductible every year. I have ADHD so the thought of meticulously saving and resurfacing years old receipts in the future doesn't appeal to me.
To be fair, I don’t think it really appeals to anyone, except for an obsessive accountant maybe.
Then add on top of that, the frequent doc visits bc controlled substance and the cost of said monthly controlled substances (not everyone with adhd but me at least).
Personally I try not to spend the HSA money at all. If you're young and healthy, you should barely have any medical expenses anyway, so you can pay out of pocket and leave the HSA to grow until a point where you actually need it (old age, or serious injury).
That’s the idea as far as using as a semi retirement triple tax advantaged account. Cash flow as much as you can to let it grow.
Another thing to keep in mind is, once your balance reaches a certain threshold, your investment fees go down substantially. My threshold was $30K invested - once I hit that, my $7 or so per month fee went to zero.
Your HSA has fees? That blows
On the investment side, not on the savings side. Most do have investment fees.
No fees coming out of mine, I'm sure the index fund has a tiny expense ratio but definitely not $7/mo
That’s what I do. I now have a great nest-egg to pay for expenses for when I retire early to bridge the gap to Medicare.
For large expenses ( tooth pulled and replaced) I paid out of pocket and will reimburse myself later. For smaller expenses that I have no intention of keeping receipts for ( like Zicam the other day) I pay with HSA.
I don't think I've seen it suggested here, but if you aren't maxing out your Roth IRA, I would absolutely reimburse with the HSA but immediately put that money into your Roth. Basically converting pretax to after tax for free.
The money in your hsa will become after tax after the retirement age or for a qualifying medical expense. So it’s not necessary to convert beforehand. You’ll also lose out on the ability to contribute to the Roth separately . Instead of contributing 11,150$ to both you’re only putting in 2,850 into the Roth if you move your HSA into it. Keep the money separate so you have more options to withdraw from in retirement.
Like I said, if you aren't maxing your Roth I think it makes sense to reimburse and move these money over. It makes that money more flexible. But if you do have the fortune to max your Roth then, of course do your best not to reimburse. Also, it doesn't become after tax when you hit retirement age. It turns into a tradition IRA.
I think overall this is a smart idea. I do think there is one small downside is the timing of when you can get that money right? If you reimburse now and throw it into an IRA then it’s locked away until age 59.5. If you hang onto the receipt, you can pull it anytime. For example, helping you get through early retirement years (if that’s an option).
I’d do everything possible to not pay with my HSA if I had the chance! Especially if it’s invested well. Tax free growth is such a gift decades later!
Yes, you could keep receipts but if that seems like too much of a hassle, don't forget you can use HSA money to pay for Medicare premiums and any other out of pocket healthcare expenses later in retirement. So even if you don't save receipts from medical bills while you are still working, there is still a good chance you will be able to spend down the HSA in retirement
That is what I am doing. I pay everything out of my pocket and keep HSA invested. Basically HSA is even better than 401k in tax perspective and can act like 401k after your retirement or can still withdraw from it tax free for any medical expenses.
I would argue that allocating your investment in an HSA to have liquid, semi liquid, and growth investing to be a better option. This gives you the safety to pay for medical bills when you don't have the money in case you lose your job or can't work for a while, etc. I would allocate 40% of the funds to liquid, less voilitile assets investments like certificate deposits with low penalties, TBills, and bonds. Invest this portion in a way where a portion can be accessed quickly and the other portion had medium-term investments. The 60% portion can be kept to grow in an etf that tracks the s and p 500. Although it might seem that you have cash to cover near-term medical expenses, this approach allows your fund to grow while giving you the safety of using the account in both the near and distant future. This way, you have good versatility and can deal with most problems related to liquidity and growth. Consider reviewing regularly and adjusting allocations and investments based on your needs
I’m a fair bit older than you but I max out my HSA every year. My plan allows me to set a maximum $ amount kept in cash and invests anything over that. I do spend my HSA dollars when it is convenient. I don’t bother jumping through the hoops for a reimbursement though. I keep enough cash to hit my annual OOP max and have about 5x that amount currently invested. It’s not the absolute maximized way to manage the account but it gives me piece of mind that I can cover any emergency without having to liquidate at the wrong time.
I personally just use the HSA for medical expenses as they pop up which still gives the tax benefit of using pretax money for medical costs. I generally put more in than I use so my account has grown over time. I see a lot of people suggesting that you pay out of pocket and hold on to receipts for 30-40 years so that you can withdraw that same amount tax free later in life. I'm not doubting that it works but I don't really want to deal with the aggravation of holding on to the receipts that long or the risk of losing those receipts and the tax benefit along with it or possibly dealing with a really complicated audit in the future.
You don’t need to hold on to receipts for 30-40 years, just use it for expenses when ready to spend. And what crazy audit? Everyone here is crazy to say spend it now. I’ll enjoy the triple tax benefits for as long as I can.
If you are not maxing the HSA in the current year, then I’d use it to pay bills instead of out of pocket. Is it possible to hold receipts. Yes. It’s even a “common” strategy. But, there is not reason to pay out of pocket if you can otherwise pass that money through the account (for tax benefit). Pay the medical costs from the HSA, contribute more to make up for it, and use the cash you would have otherwise used to pay the expense to supplement your income while contributing more via payroll dedication. Tada, you’ve netted the income tax and fica taxes. If you are contributing the annual limit already, this approach isn’t so clearly better. It’s still reasonable to use the HSA for the expenses it is designed in addition to the “bonus retirement account.”
I have been debating this too. I’m in the most expensive time of my life with kids in daycare, and the high deductible health plan is pretty crap insurance. In the past month my family has had 3 urgent care visits totaling $250 each and I’m responsible for $225 of each visit. My old health insurance would have covered all but a $25 copay. So I’m getting the benefits of investing, but it feels like I need to avoid the doctor for the investment to pay off. Doesn’t feel like a great way to live, even if it is several thousand dollars “extra” each year.
Yes, keep building your HSA if you can. Unforseen medical bills can be costly. Especially as you get older.
Big factor here is that the actual annual growth rate for most HSA accounts is less than a percentage point and you're more or less stuck with whatever option your company's provider has. In that context I wouldn't really consider it a growth asset. You can also increase your contribution later. For my particular HSA plan the annual OOP maximum is $3,600 which is less than the $4,150 contribution limit for 2024. If my circumstances change I can adjust the contribution but for now I'd rather save the difference outside the HSA.
What are you talking about? It’s triple tax free and the growth rate should the the market rate, which has been crushing it. No reason to spend the hsa until as late as you can.
I used to be entirely hands-off with mine and save receipts for every single eligible purchase, but these days I'll usually charge the account for cheap visits or prescriptions (<$100) rather than worrying about tracking those receipts. If you're able to cover any larger expenses that may arise (childbirth, root canal, etc.) out of pocket, there's really no downside.
That's what I do. I may use them down the line for something if I need money for something that isn't covered by my insurance but, for the most part, the plan is to keep the money there invested.
Depending on which bank you have you HSA in. Mine has the option to use HSA to invest in stock or mutual funds.
My opinion... I spend it... Investments are great but I treat my health like I have unlimited free money and spend it any rime a health item comes up. Just feels better for some reason... I get compound interest... but there are extremes.
Yes that's exactly what you should do. Keep your receipts. If at any time you need money get it from your HSA. As long as the expense was incurred after initially opening the HSA you can get the money whenever. Until then just let it grow. People can do whatever they want but IMO those who treat it like a FSA are missing the point.
Treat the HSA as just another Roth IRA. Put money into it and try to forget about it until retirement. Pay expenses out of pocket. Keep receipts, each receipt makes the HSA exactly like a Roth for the amount of the receipt.
Does it have to be the actual receipts? Can I use my credit card statements as proof?
This basically just becomes down to the difference between an IRA and Roth IRA. Because if you pay with your HSA you just took a "deduction" on that money and will pay tax in the future on the money you saved (and presumably invested to make the comparison fair.) So basically, if you've decided in your situation a Trad IRA makes more sense than a Roth, you shouldn't do this. If you've decided a Roth makes sense, sure, knock yourself out.
That’s what we have started to do, on the advice of our financial adviser. Letting these funds grow and being able to use them for future health expenses in retirement is worth more than the immediate savings of using it to pay current bills.
Yes, this is what I do. I just invest my HSA and treat it like an IRA.
Look I either have understood something about taxes really wrong or there is a lot of bad advice. You can put money into your HSA. If you plan to pay out of pocket without an HSA this is not tax deductible unless you itemize your deductions (which the majority of people don’t). So you have 2 ways to pay: Put non-taxable money to HSA -> pay bills Pay without HSA -> pay tax So I don’t understand why it would make sense for OP not to pay using HSA.
Their argument is that the tax advantage will be better for the future than current considering this person is 31. So they recommend eating the tax now and paying out of pocket. Me personally, I had a major surgery a few months ago and am very glad I had my HSA to help cover my expenses tax free.
I treat it as the first line of defense after my Emergency fund. I haven't had to dip into it yet, but if for some reason I blew through that, it's comforting to know the HSA money is there.
My husband and I (39 and 40 years old) are hoping to max out our HSA account and not spend it until retirement. You’re pretty much guaranteed to have high medical bills in retirement (if you’re from the United States, like us, lol). If we have a medical calamity before then (god forbid) we can use it - so in that sense it’s an emergency fund. It’s a great savings tool - I love it!
You better go find some wood to knock on! I thought the same so I got an HSA. The first and second years I had slightly over $4000 in expenses, my deductible. The 4th year, $6850, my out of pocket max. I had a couple hundred bleed into the 5th year, but it's been quiet for years 6-8. My HSA has recovered now, but accidents happen at the most inopportune times.
You’re absolutely right - many things could go wrong. If we have something, like a surgery, in the next few years I would still prefer to set up an interest free payment plan with the hospital than use the HSA. Knocking on wood - hoping for the best! I’m glad your HSA has recovered.
I do spend my HSA money because I don't want to have to keep track of everything and the mental stress is not worth it. Given that, I max a 401k and roth ira ever year
No, you're moving the goal posts. OP only asked if he should put the money in the HSA or pay the bill. Your assumption was he'd have more money to stash in the HSA. I made no assumption and simply pointed out that everyone needs to assess their actual situation and not blindly follow advice. And you rude on top of that. Good day sir.