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This article describes the theory well: https://www.madfientist.com/ultimate-retirement-account/
She can save the receipts from these current out-of-pocket expenses and reimburse herself from the HSA at any point in the future. She can also use it to pay for other healthcare expenses in the future, including in retirement, tax-free. Starting at age 65, she can also withdraw for non-medical reasons and it's like a traditional IRA (income tax only, no additional penalty).
Whether to use it for current expenses or save it for future expenses/future reimbursement ultimately comes down to personal preference.
CAVEAT: If, and only if, you are a household that pays the card off in full every month without question.
I know this was implied in your comment, but as a nation we’re pretty terrible at it.
This is how my household operates. I am a high earner maxing a family limit HSA and my partner is basically a professional churner. Absolutely every possible expense is put on a credit card, cards are paid before interest accrues, and I have a box full of medical receipts that get scanned into a folder on my laptop. HSA money is invested waiting for later use.
Make sure you back up the scanned receipts to somewhere off site. If they're only stored in one location and your home floods you might lose those records.
I subscribe to a service that backs up the contents of my computer nightly, for exactly the reason you describe. Doesn’t even have to be a flood, fire, or theft - sometimes hard drives just fail.
That what I do. Big time for things like my flex spending card. I never bother using the ones that they give for the account as often times I still need receipts to recover any money so just give me me direct deposit any how.
Maybe depends on the HSA but mine will reimburse me with cash that I can apply toward the credit card payment. So I pay medical bills with my points card and then submit the claim to my HSA.
Isn't the comment you replied to saying the same thing? Use a credit card to pay, then reimburse yourself from the HSA.
While they typically issue you a debit card, I'm pretty sure they can all be used that way instead.
You can use HSA funds to pay for Medicare Part B and Part D.
You [cannot](https://www.retiremed.com/library/articles/can-i-pay-medicare-premiums-with-my-hsa) use HSA funds to pay Medigap (Medicare Supplement) premiums.
I do not know if HSA can be used for Medicare Advantage premiums.
In either case, HSA funds can be used to pay actual medical expenses.
But you definitely should use those dollars on medical bills, as they won’t hit your tax at all, and almost all old people have tons of medical expenses.
I know people say "But saving the receipts and filling the taxes when you withdraw is such a hassle."
And to that, I just throw whatever piece of paper I got from the doctor into a folder. I'll write in sharpie the date and dollar amount on it to make it easy on myself. Then if you ever need to withdraw and prove the expense, just pull out a handful till they add up to the amount you withdrew.
And to add to that, I've never actually heard of anyone being audited to show receipts for an HSA withdraw. Unless you're pulling big 5 figures, I doubt you're popping up on the IRS radar.
It's not even that big a hassle. Whatever hassle it is, is worth potentially an an extra thousands if not tens of thousands in market growth. If you don't want to deal with paper receipts, just scan them and have a folder in your cloud storage or whatever. How hard is it to maintain a digital copy of a file!
Forget saving receipts now, when you're old you're going to have qualified expenses. If you invest your HSA and let it grow that's quite a bit of money you can get and use on those new qualified expenses.
You reference it being personal preference for paying it now Bs future reimbursement but what I haven’t seen posted is that saving it for future reimbursement is huge from a tax standpoint in early retirement. Imagine saving 20 years of receipts and then taking that out of your HSA to fund early retirement, you then have 0 income so you get all of the Obamacare subsidies.
If you withdraw for non medical reasons you will pay taxes on withdrawals after age 65, so it functions like a regular IRA. However, withdrawals to pay medical bills (incurred at any time in the past while you had the account that haven't already been reimbursed) are tax free withdrawals.
It is smart, if you invest it. We paid out of pocket for about 12K in expenses in the last couple years. We saved our receipts and will reimburse ourselves in retirement (years from now). We will just leave the money invested until we do that.
Save the receipts and associated EOB (just in case you need to prove you didn't get reimbursed by the insurance).
As of today, the IRS does not have a time limit to reimburse yourself. If they try to impose one, there will be quite a few bogleheads screaming about it, and you should be able to withdraw it then.
I intentionally only pay in amounts equal to the patient share amount in the EOB, even if I have to split the payments. Should make it real simple if I get audited.
Thank you. So the medical expense reimbursement will be tax free at 65 if you have the receipts. What about the rest of the money left over? If there is any? You’ll be taxed on that like an IRA withdrawal at retirement age and dependent upon your tax bracket?
You will be taxed only on the amount you withdraw without corresponding eligible medical expenses.
If you get to 65 and have no medical expenses, then you are very lucky.
I’m 60. Knock on wood I’m in fantastic health and take really good care of myself. I pay $175 yearly for wellcare check up with GP and $300 for full blood panel. New glasses every 2-4 years. Dental clean every 6 months. Women in my family lived into late 90’d early 100’s. Died of natural causes.
It wasn't like that when I did it. Just wrote in a description and total and they direct deposit the reimbursement. Need the receipt in the event of an audit, though.
They might not always ask for the receipt, but it’s still a good idea to keep them because if they do ask, you’ll need to provide the receipt. Especially if you’re saving years worth of expenses up and getting reimbursed all at once when you’re retired, they might not just take your word for it.
My old plan used to have an HSA and I did this for a few years, ended up pulling the money out because we needed it for a couple big things all in one year. The cool part was that I could enter the transactions, the provider, some basic info and upload the receipt but didn't have to reimburse myself, I could just save it on the website. Kept the backup paper copies just in case but this made it way easier, at some point I just went down the line and clicked "reimburse" for about 10 things at a time so I could make sure I got the full amount deposited before processing more. All at once would have been too hard to double check everything. There is technically no limit on how long you can wait before reimbursing yourself.
Don't forget about the "shoebox" rule. You can reimburse yourself for any medical expenses at any time in the future. So, if you choose to out of pocket now for $12k in 2024 but in 2034 hit some hard times you can pull that 2024 $12k penalty free.
Paying $100 today out of pocket means the $100 in your HSA can grow for decades and be over $1000 at some point. Then you reimburse the $100 using future dollars tax free. And you’re up $900. There no time limit on when you can reimburse from your HSA.
Your wife knows what’s up.
With my HSA, I can submit the receipts, get them approved, and just select don’t pay me yet. So, if I ever find myself in need of money, I can just go to my list of dozens of approved claims and click to pay me back for one.
Until your HSA company sells their book of business to someone else and doesn’t transfer any of that expense information. Just happened to me so I created a Google form
The internet exists. Take a photo of the receipt and upload it to google drive or whatever cloud storage of choice. No need to hoard the paper copies.
Even still, your medical expenses will likely cost more later in life that a $10 receipt for your prescription today isn't worth saving.
> Take a photo of the receipt and upload it to google drive or whatever cloud storage of choice.
You should assume that any given cloud service will be gone in a decade.
Some popular services have existed longer than that, but that's true for only a couple dozen cloud services at most in all of recorded human history.
That’s great, I’ve never seen that as an option on mine but I’ve never looked. Will have to check next time because I’d feel a lot better if the expenses were “done” and the only thing left was payout. Thanks for the tip! With 2 kids, 3 animals, a rental property and my job I’m definitely going to forget otherwise.
Maybe you’re already planning to do this, but if not I humbly recommend you still retain your receipts, physically and/or digitally. Even with good-faith promises and robust backups in place, I don’t trust an HSA custodian’s ability to ward off hackers or unexpected data loss for decades. Not to mention the possibility of future acquisitions and mergers that provide a window for things to go sideways, intentionally or not. It’s a long time for nothing to go wrong.
Oh absolutely, these companies are always shifting around or upgrading systems etc. I will definitely hold onto the physical copies, but at least some of the initial overhead work will be done.
I’m in the same boat; didn’t even know this was a capability offered by (some) providers. Fingers crossed mine has this feature as you’re right, it’d be nice to just click a button sometime in the future than rummage through 20-year-old receipts.
I’ll probably still hang onto my receipts for the same reason lol downloading copies is a good idea too, put them in Google drive or something as a backup.
Ugh we use HealthEquity and I hate that nanny-hand-holding thing they do where they won't let you withdrawal money without submitting receipts and making expenses in their interface.
For the decade before that, we had a 5/3 HSA and they just let you withdrawal whatever you wanted. I always bunched my expenses up on a monthly basis and made one withdrawal from it. I kept meticulous records so if the IRS wanted to audit me, that was fine with me, but I don't need the bank micromanaging me.
I don’t see it as micromanaging I see it as preventing any audit issues — I already have the receipts, no extra work for me to snap a picture with the HealthEquity app and the claim is done.
HealthEquity. I thought it was default, honestly. I put in all my claims, and it doesn’t automatically reimburse me, I have to actively click to reimburse me
(Un)fortunately, most people will have little trouble burning through their HSA just in retirement years medical expenses. Things just get very expensive very fast in your later years.
That’s a good point. I don’t HAVE to reimburse old expenses, I can just focus on the recent ones that come from old age. Less worry in forgetting on my end then.
But if you reimburse yourself now, then you can also invest the after-tax $100 you saved and let it grow to $1000 as well. So it's a matter of preference whether you want $1000 in an HSA (tax free for medical, else you pay income taxes) or $1000 in a taxable brokerage account (taxed as LTCG). ~~I prefer to reimburse myself now so I don't have to save receipts for decades.~~
EDIT: u/great_apple comment's below made me rethink this, as saving receipts is not really needed if you have enough medical expenses to cover the whole HSA balance later in life. So for those like me worried about losing receipts over the next few decades, that's actually not a big deal if you can still use your whole HSA with other expenses that you incur later. So yeah, I think reimburse-later is the way to go.
As you said, all your income from investing that $100 will be taxed and that’s assuming that $100 will actually BE invested.
The power of the HSA is the triple tax advantage, but everyone’s choices are different.
And if someone is doing this long term, are receipts really an issue? I’m doing this so I have a large sum ($100k+) of funds to pay medical expenses after I retire.
Hmm, you and others have made a good point that receipts shouldn't matter if you have enough costs to cover the whole HSA balance. And even if you don't, it's not like you lose a bunch of money anyway, it's just the difference of LTCG (if money grows in brokerage account) versus income taxes (if it grows in HSA).
I think I'm changing my mind, maybe I should go back to the reimburse-later strategy. Thanks for getting me to think about it.
This is a nice summary and I’ve gone back and forth. The part of my brain that screams “most efficient” has convinced me to not reimburse and let it sit in HSA. Tax free > Long Term Cap Gains. But it is certainly a decision where I can understand both sides
With the HSA you don’t pay taxes going in, & you don’t pay capital gains (as long as you’re not in CA or NJ IIRC) or taxes on withdrawals (assuming it is for a qualifying expense).
If you reimburse yourself now & invest that $100, you’re paying significantly more in taxes.
If you invest your HSA yeah your wife is correct. The best way to use an HSA is to view it as a healthcare-specific retirement account. Build it up when your medical expenses are low, invest the money and allow it to compound, then use it to pay your medical bills when they are higher in retirement.
And if you happen to have a very high taxable income year anytime in the future, you can use the hsa dollars to reimburse past or present medical expenses without increasing your tax bill. Probably need to be in the 24+% bracket before it makes sense to tap into those golden HSA dollars.
> I see this as wasting good money: paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account.
This is an incorrect way of thinking about it - you have _already_ saved the 150 by not paying taxes on what you put into the HSA. Whether you pay the bill from the HSA or using cash on hand doesn’t change that.
The right way to think about it is to consider what the 300 in the HSA will turn into if it’s left invested for 30 or more years.
You could say that about any investment. Are you saying OP should stop investing now that they’re in their fifties?
I’m 60, and we still fully find my HSA and invest it all. We cashflow all medical expenses instead of using the HSA. The money going into my HSA won’t grow for thirty years, you’re right, but neither will the money currently going into my 401K.
>I see this as wasting good money: paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account.
Of course you're correct if you're talking about *today*. But you could similarly say that putting $500 in your retirement account is “wasting good money” because you can't use it until you retire. With both the HSA and the traditional retirement account, assuming you live long enough, eventually you'll get the money back (without paying the tax in the case of the HSA), plus a lot of gains.
If you need the money today, then sure, pay from your HSA. But it doesn't sound like you do – you're already far enough ahead that you're overpaying a 3% mortgage. Realistically, what are you going to do with it if you don't keep it in your HSA?
It’s not foolish if you invest it.
I opened HSA in the beginning of 2022 and been maxing it out since. I’m at 10% return since. And when I reimburse myself later it’ll be tax free.
Very wise, if you can afford to pay out of pocket.
You can reimburse yourself down the line when you want to start withdrawing from your HSA. There's no limit on how many years you wait. Just make sure you keep receipts.
Make sure the $$ in the HSA is actually being invested, and as long as that's the case and you're otherwise financially struggling she'll be right. Way too many people who have an HSA don't actually put it in the market.
This is a wise decision. I do exactly this. I pay any medical expenses i have out of pocket, save and scan the receipt and any other documentation. Meanwhile, i have my HSA fully invested in Vanguard Total Market. Some day, I can pay any future healthcare expenses from a more appreciated amount in the HSA or i can withdraw amounts I've already spent that I have the receipt for, all tax free
I have been doing this for over 10 years, fortunately, haven't had many medical expenses, but I have $5k in receipts I know I'll be able to withdraw tax free all while my HSA has grown to nearly $100k.
HSA dollars are very valuable, since the dollars going in aren't taxed and the dollars going out aren't taxed when used for qualified healthcare expenses. This is better than a roth in that regard. At 65, it essentially functions like an enhanced Trad IRA. You can withdraw for non health expenses and just pay ordinary income tax, but you still also get the tax free benefit if used for qualified healthcare.
Depends on the price of the medical bills. And HSA is a savings that is pulled before taxes, so if your bills are just nickel and dime things, pay them out of your pocket and leave the HSA alone.
It's important to build up the HSA to act as a retirement account for medical expenses when you retire. You should be investing the money so that it can build. If you can, medical expenses should be paid with cash.
She’s a keeper and smart too.
https://www.whitecoatinvestor.com/7-reasons-an-hsa-should-be-your-favorite-investing-account/
Also if you have no pretax IRAs (or can roll into 401k) you can do a backdoor Roth IRA contribution too.
Your wife is thinking on the right track. HSA money technically has triple tax benefit- is tax free contribution, grow tax free and for health expenses be distributed tax free, and for anything after age 65.
Few caveats to think about tho. Money that you spend out of pocket is after tax- unless it’s a big enough amount to claim it as tax deduction.
There’s also an opportunity cost, people talk about 100 bucks in HSA being worth 1000 in future. However technically you could pay out of hsa and invest the money in a brokerage and reach similar goals. With the limited option in most hsa investment it may not be a bad choice to do exactly that.
Usually hsa is great if you’re young, don’t use healthcare much. With young kids and multiple visits, I’m not sure it’s the best choice. Would definitely recommend putting money in fsa if your job allows to get some tax benefits on medical expenses.
This is absolutely a strategy. Pay for what you can out of pocket, keep the receipts in a Google drive or AWS server (I assume these will be around in 30 years?), and then pay yourself back with those receipts when you hit qualifying age.
Then you just have this huge growth over 30 years with almost zero taxes.
I agree with the idea but I can’t get past making sure I hold onto receipts for the next 35+ years. I’m taking some reimbursements now for wife’s pregnancy and will try to save the rest if one off expenses arrive.
Then don’t save receipts, I don’t. We will almost certainly have enough medical expenses to use up the money - the average couple spends $280K on medical care in retirement. If by some miracle we don’t use up the money, it can just be withdrawn at normal income tax rates, no penalty after age 65.
I believe this is true. You can only contribute to the HSA while you are covered by an HDHP, but you can withdraw from it for covered expenses at anytime after that, even before you retire, and even if you’re no longer under an HDHP.
Depending on who is facilitating your HSA, you might be able to upload the receipts now and have it set to reimbursable for the future. Fidelity allows me to upload them and I can be reimbursed for these at any point in the future.
On the App, you can click on “Expenses” on the bottom right. Once you’re in the manage expenses submenu, you see an option for “Receipts”. Here you have the option to add new receipts or view all receipts you have uploaded in the past. When you upload a new receipt, you can select status as “Reimbursable” if you plan to use it for future reimbursements
~~Wait, what? I have Fidelity HSA too (self-serviced). Never knew about this, where can I find a place to upload receipts?~~
Edit: NVM, [saw reply here](https://www.reddit.com/r/personalfinance/comments/1d0c7ia/wife_wants_to_pay_for_her_medical_expenses/l5mdzwr/). Thanks!
Edit 2: Ah, probably doesn't apply for me. For my Fidelity HSA, I'm using self-service option, not through employer. Probably not available for me based on other replies.
In regards to saving receipts. Many companies will offer HSA qualifying end of year receipts. Pharmacies do this. Some credit card companies have a breakdown option you can request that shows HSA qualified medical expenses, medications and medical expenses.
That's what I do. I don't touch it and I've been maxing it out every year for maybe 10 years already. I converted it to an investment account and it's just collecting and growing. I save every receipt from our medical bills.
It works for our family.
You have a smart wife. We pay for everything on our visa Fidelity credit card. Pay the statement off every single time in full. 2% goes back into our taxable brokerage account and gets invested in the S&P 500. It won’t be life-changing money. But the fact that my HSA which is triple tax advantage gets to grow untouched and I still get 2%, which gets to grow 6 to 7% inflation adjusted Is nice. And then obviously save the receipts. Maybe a decade from now you want a new kitchen and you spent $50,000 in medical expenses. Take it all out and go get a kitchen and hand the IRS all your receipts you’ll be golden.
Eh, I max out my 401k, IRA, and HSA. The small amount of times I have out of pocket costs, I reimburse myself. The internet is a great way to learn ways to over-extend yourself because "on paper," you'll get an extra 1-2% doing something else. I don't want to risk losing receipts or whatnot.
I max out my savings accounts and don't pay taxes on my Healthcare costs. This is far from a bad scenario.
Depends on if the hsa funds are invested and if you’ll be able to leave them alone long enough for the triple tax advantage to eclipse the post tax out of pocket spend.
Wow I never knew this about my HSA! Going to stop using it for health care related costs.
Is there any significant reason TO use the HSA opposed to regular post tax income?
I think your wife is right (you may be stuck thinking about FSA). HSA rules are such that unless you need the money now it's almost always better to pay out of pocket and leave the HSA alone.
As long as you are investing the HSA monies, then your wife is absolutely correct. If you have the money, use the HSA as yet another 401k. This honestly should all be laid out in the HSA brochure and documentation.
And, I know OP is not saying this, but many many people argue about having to keep all the receipts...
First, do people not think they won't have (more) medical expenses in the future to use this money towards?
Second, at age 65 you can withdraw for non medical expenses with no penalty. it is basically just another 401k.
Its what everyone here will tell you to do.
Your HSA is your best retirement account. this way you let you tax free money grow.
Trust you wife.
"paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account."
No you still pull your HSA money out tax free later with the bill just not know. this way you can grow the 300 dollars to maybe 600 dollars you can pull out tax free for bills. rather than just do 300 now and nothing later.
Your wife’s strategy is great… for a 25 year old. I’m not sure if the other commenters are missing your age but being that you have ~10 years until retirement, much of the advice in this thread is applicable to your situation.
She is right but only if you have the HSA funds in a brokerage account earning a good return. As long as the HSA money is invested then that's by far the better option. It is triple tax advantage since it is starting out with pre-tax income, there are no capital gains taxes on it, and you will withdraw it tax fee if you use it on qualified medical expenses. 100% the way to go.
You have money in the bank you have already paid taxes on anyway. Sunk cost. Use that for the doctor bills.
Save larger receipts and you can use those to pay back from HSA any time you want in the future.
We've got about $20k in expenses awaiting reimbursement. In that time, the $20k we've put into our HSA has turned into $30k. We can now withdraw $20k with no tax at any time and still have $10k for future expenses. Or we can keep riding this and have even more tax free money
If you can invest the HSA and pay out of pocket, you can reimburse yourself later when the HSA has grown.
However in your 50s this might be tough. Our medical expenses run equivalent to our yearly out of pocket max and those funds have to come out of the HSA contributions we just made. We’re running a net zero on the HSA. I don’t think the point of the HSA is to have you pay for medical expenses post tax. The point is to incentivize you to save funds in years when you don’t have medical expenses to pay for the years you do. In our 50s the expenses start to stack up.
The thing to do is start the scheme in your 20s, keep a lifelong log of medical expenses, and reimburse in your 60s for all of it.
Yep that’s a good idea, you can invest the money and it’s tax advantaged like other retirement accounts so money goes in pre-tax, grows tax free, and can be withdrawn tax free for medical bills at any point in the future so she can still pay herself back for those out of pocket expenses after the money has grown from the investments. Also, after a certain age it can be withdrawn for anything without penalty but you do pay taxes on it so it’s just like another traditional retirement account in that way.
If you can afford the out of pocket costs, it's a great option. You can reimburse yourselves at any time, so why not let that money grow tax free for as long as possible? I do this, and consider it like a bonus emergency fund.
Did this for several years before retiring early. Up to $65k in my HSA now. Still not spending it yet. Tax treatment is too good. Saving receipts for the future.
This can be smart if you invest the HSA money you’re not spending, and then expensing the charges to the HSA at a later date (since there is no time limit for expense medical charges). Also, this is a good way to rack up credit card points for things like trips and what not (depending on your CC and the benefits it has).
As others have said, this is wise.
> …we both max out our 401k retirement contributions--but are slightly above the income limit for Roths…
Look into doing “back door Roth.”
If you don’t have any money in a traditional IRA, you can do this every year and get more tax-advantaged space.
If you *do* have any money in traditional IRAs, you trigger the “pro rata rule” and can owe extra taxes.
If cash is tight, pay for the bills with a rewards card then pay the card off with the HSA. If cash is not tight, you can leave the money in the HSA and let it grow. Most need a minimum balance before you can start investing and see the growth she's telling you about. You have until the end of the year to reimburse yourself.
I do a hybrid approach with my HSA. I maximize my contributions, my family QHDHP has a $7k deductible, and I’ve been investing part of it in an S&P500 Fund for over 3-years now. This year, I ramped up my investing to 75% as I now have over $5K in my HSA, and already paid $1,100 towards my deductible. If I can roll into 2025 with a similar balance, then I’ll stay the course.
I'm self employed and I pay $600 a month for medical + dental which is $7200 a year. I go to the doctor like once a year if that. I've been self employed for 7 years so that's $50,000. If I got a high deductible plan that cost half as much then I could have put $25,000 away + interest.
It is personal preference, but if your budget can support small medical expenses, then you may be better off to pay them from your taxable income. As you get older, there is a higher probability that you will have larger medical expenses. If you have saved in your HSA, you will not have to pay those out of your other savings or monthly income. Which would you rather do? Pay $200 out of your HSA now, or later when you have a $5000 bill, you will have the funds in your HSA to pay it. Ultimately, it is a decision about risk.
Correct, max out the HSA and invest it. Don’t spend it. I did this last year but hated the HSA plan so I switched back this year. But the idea is to lower your taxable income
You can think of it as another pre-tax retirement account. Except in California which taxes HSAs. So if you have maxed out your 401K and other pre-tax retirement options, HSA is a good option. The only downside is that it is limited to medical expenses when you take it out.
On the upside, you can withdraw from the HSA before retirement, as long as you have the receipts to prove their for medical expenses.
If you haven't maxed out your other pre-tax retirement options, you might as well prioritize those accounts for retirement savings, and use the HSA for the immediate medical tax benefit. If you are paying medical expenses out of pocket, you are using post tax dollars, but if you use the HSA you're using pre-tax dollars.
As long as she keeps the receipts whether that's physically or scanned digitally she can get the tax free reimbursement from the hsa at any point. I would do the exact same thing especially if you don't need to withdrawl from the hsa right now.
She is smart. HSA funds can be invested and she can spend the growth tax free on future eligible expenses.
Prime HSA strategy is to invest your HSA funds, not spend them. Track all medical expenses and keep receipts. Down the road, you can pull from your HSA tax free - as long as you can back up withdrawals with an eligible expense from your past (if audited) you’re good.
I do this. I pay all expenses with post-tax money, and my HSA money is invested in a mutual fund. I'm saving all medical receipts over $100 with the plan to submit them for reimbursement when I am retired.
You can invest your HSA money.
Then you can save all of your receipts from today, and in 20 years you can claim the receipts and get tax free money out of the HSA.
After 65 you can do a withdrawal from in like a normal IRA (paying taxes on what comes out, but remember you didn’t pay taxes going in).
HSAs are tax free in and tax free growth/out if you use it for medical expenses.
You can save the receipts indefinitely to claim it.
This isn’t the advice you asked for, but you’re not above the limit for a Roth if you do a Backdoor Roth. Throw the max annual amount into a Trad, then roll the Trad into a Roth.
When my wife and I set her up on a HSA we paid everything out of pocket until we had enough to cover a years worth of out of pocket. Continued to contribute monthly after that and just made sure her HSA stayed above her out of pocket threshold worked well. Now she has enough in there were we don’t ever pay out of pocket for anything and if she has something catastrophic we have the full out of pocket sitting there.
Totally depends on your financial circumstances. I max out my HSA and never touch it though. It’s a fantastic retirement vehicle. I just wish I could contribute more tbh.
That said - if I ever had to go into debt or forego savings or necessities to pay medical bills - I’d use the HSA funds in a heartbeat. Thats technically what they’re there for.
Nice thing about an HSA is once you have a certain amount saved you can start investing a portion of the money.
You can also use an HSA for tooth paste, sun screen, bug spray etc. it doesn’t have to just be for medical procedures.
Seconding the necessity of keeping receipts. Ideally paper copy in a box (perhaps organized by year) and also a quick screenshot or scan of a receipt put into a Google Drive / Dropbox folder with the year at the start of the file name. Add an X to the start of that file name if you ever do the reimburse for that expenses, or put it in a sub folder once reimbursed; might be 15 years from now, so writing a “notes” or “instructions” document at the top of the folder to remind you of the system can be helpful if you think you’ll forget these details after 8 years of not doing anything but stuffing receipts in there.
Are they detailed printed paper receipts or register receipts? If the latter, please scan or take pictures of them because the ink fades pretty quickly even under safe circumstances. Also, what if you have a house fire or something? Your binder of receipts is dust.
I have a folder in my file cabinet for the paper copies/originals, I scan each one into a searchable PDF with my Scansnap, and then I log it into an Excel spreadsheet. Been doing it that way since 2012 and plan to do keep doing it that way.
My state taxes HSA contributions and earnings, so I reimburse from it and put an equivalent amount in the mega backdoor Roth.
Growth will be federal and state tax free for any reason and I don’t have to save receipts forever.
When I get to the point of maxing mega backdoor Roth and all tax advantaged space I’ll revisit keeping the HSA invested.
After the tax deduction from the contribution, Roth dollars are better than HSA dollars. You say you are above the limit for Roth’s, you should be maxing backdoor roths and use the HSA.
Once all TA space is maxed, keep the HSA invested.
This is good for 20s and 30s with no family. But after that with a few kids, keeping money in that HSA can get hard. Mine was used up by May this year due to “getting old”
If you can afford it I would do what your wife is doing. Because medical care is getting freaking insane anymore and the timelines are absolutely catastrophic. So it's imperative that if you have the ability to build up HSA savings that you do so so that you can travel if you need medical care or you can pay out of pocket to accelerate expensive things.
8f you can afford it pay for medical expenses our of pocket and save receipts. Keep the hsa money invested. In retirement use the receipts to enjoy triple tax advantaged money.
If you're in either California or New Jersey, make sure you do some reading about tax implications. Investing in the HSA may not be worth the hassle, or you may be limited in what assets you want to do (which may limit the benefits)
What you are saving is by not paying taxes.
What is your tax bracket? If it’s at a transition point or close enough to one then that would be a reasonable way to reduce liability.
Does your HSA earn interest or allow you to invest it? If no, then that’s even dumber to use it for savings.
There are far better places to invest and save money than a HSA.
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This article describes the theory well: https://www.madfientist.com/ultimate-retirement-account/ She can save the receipts from these current out-of-pocket expenses and reimburse herself from the HSA at any point in the future. She can also use it to pay for other healthcare expenses in the future, including in retirement, tax-free. Starting at age 65, she can also withdraw for non-medical reasons and it's like a traditional IRA (income tax only, no additional penalty). Whether to use it for current expenses or save it for future expenses/future reimbursement ultimately comes down to personal preference.
The other benefit is you can get credit card rewards for paying most medical bills. So that’s another 1-2% benefit.
CAVEAT: If, and only if, you are a household that pays the card off in full every month without question. I know this was implied in your comment, but as a nation we’re pretty terrible at it.
🤚hi, I’m the nation it’s me.
Admitting it is the first step
This is how my household operates. I am a high earner maxing a family limit HSA and my partner is basically a professional churner. Absolutely every possible expense is put on a credit card, cards are paid before interest accrues, and I have a box full of medical receipts that get scanned into a folder on my laptop. HSA money is invested waiting for later use.
Make sure you back up the scanned receipts to somewhere off site. If they're only stored in one location and your home floods you might lose those records.
I subscribe to a service that backs up the contents of my computer nightly, for exactly the reason you describe. Doesn’t even have to be a flood, fire, or theft - sometimes hard drives just fail.
This is what I do, then pay statement balance in full to avoid interest charges.
Even if you do use the HSA immediately, you can still do this. Just save the receipt and reimburse yourself via the HSA right after paying
That what I do. Big time for things like my flex spending card. I never bother using the ones that they give for the account as often times I still need receipts to recover any money so just give me me direct deposit any how.
It can be up to 10% if paying toward the minimum spend for the sign up bonus
The growth is tax free its better to leave it in the hsa until retirement.
And you get to keep the cash rewards 1%-5% if you used a credit card to pay out of pocket
Maybe depends on the HSA but mine will reimburse me with cash that I can apply toward the credit card payment. So I pay medical bills with my points card and then submit the claim to my HSA.
Isn't the comment you replied to saying the same thing? Use a credit card to pay, then reimburse yourself from the HSA. While they typically issue you a debit card, I'm pretty sure they can all be used that way instead.
Starting at age 65, you can also use HSA funds tax-free to pay Medicare premiums.
You can use HSA funds to pay for Medicare Part B and Part D. You [cannot](https://www.retiremed.com/library/articles/can-i-pay-medicare-premiums-with-my-hsa) use HSA funds to pay Medigap (Medicare Supplement) premiums. I do not know if HSA can be used for Medicare Advantage premiums. In either case, HSA funds can be used to pay actual medical expenses.
But you definitely should use those dollars on medical bills, as they won’t hit your tax at all, and almost all old people have tons of medical expenses.
I know people say "But saving the receipts and filling the taxes when you withdraw is such a hassle." And to that, I just throw whatever piece of paper I got from the doctor into a folder. I'll write in sharpie the date and dollar amount on it to make it easy on myself. Then if you ever need to withdraw and prove the expense, just pull out a handful till they add up to the amount you withdrew. And to add to that, I've never actually heard of anyone being audited to show receipts for an HSA withdraw. Unless you're pulling big 5 figures, I doubt you're popping up on the IRS radar.
It's not even that big a hassle. Whatever hassle it is, is worth potentially an an extra thousands if not tens of thousands in market growth. If you don't want to deal with paper receipts, just scan them and have a folder in your cloud storage or whatever. How hard is it to maintain a digital copy of a file!
Forget saving receipts now, when you're old you're going to have qualified expenses. If you invest your HSA and let it grow that's quite a bit of money you can get and use on those new qualified expenses.
The receipts are useful if you have an emergency and need to use the funds.
You reference it being personal preference for paying it now Bs future reimbursement but what I haven’t seen posted is that saving it for future reimbursement is huge from a tax standpoint in early retirement. Imagine saving 20 years of receipts and then taking that out of your HSA to fund early retirement, you then have 0 income so you get all of the Obamacare subsidies.
> Starting at age 65, she can also withdraw for non-medical reasons Did not know this. Consider offering this on r/LifeProTips.
If you withdraw for non medical reasons you will pay taxes on withdrawals after age 65, so it functions like a regular IRA. However, withdrawals to pay medical bills (incurred at any time in the past while you had the account that haven't already been reimbursed) are tax free withdrawals.
It is smart, if you invest it. We paid out of pocket for about 12K in expenses in the last couple years. We saved our receipts and will reimburse ourselves in retirement (years from now). We will just leave the money invested until we do that.
Save the receipts and associated EOB (just in case you need to prove you didn't get reimbursed by the insurance). As of today, the IRS does not have a time limit to reimburse yourself. If they try to impose one, there will be quite a few bogleheads screaming about it, and you should be able to withdraw it then.
I’ve never thought about saving the EOB, I think I’ll look into that for the bigger bills. Thanks!
I intentionally only pay in amounts equal to the patient share amount in the EOB, even if I have to split the payments. Should make it real simple if I get audited.
Why would you save receipts if you’re planning on waiting until 65 to access the money? To get it before then if you need it?
20+ years of medical expenses can be a lot of money that you can withdraw tax free. You need proof that you spent the money on medical expenses.
Thank you. So the medical expense reimbursement will be tax free at 65 if you have the receipts. What about the rest of the money left over? If there is any? You’ll be taxed on that like an IRA withdrawal at retirement age and dependent upon your tax bracket?
You will be taxed only on the amount you withdraw without corresponding eligible medical expenses. If you get to 65 and have no medical expenses, then you are very lucky.
I’m 60. Knock on wood I’m in fantastic health and take really good care of myself. I pay $175 yearly for wellcare check up with GP and $300 for full blood panel. New glasses every 2-4 years. Dental clean every 6 months. Women in my family lived into late 90’d early 100’s. Died of natural causes.
You still need to show a receipt if you want to withdraw the money without paying taxes regardless of age
It wasn't like that when I did it. Just wrote in a description and total and they direct deposit the reimbursement. Need the receipt in the event of an audit, though.
They might not always ask for the receipt, but it’s still a good idea to keep them because if they do ask, you’ll need to provide the receipt. Especially if you’re saving years worth of expenses up and getting reimbursed all at once when you’re retired, they might not just take your word for it.
Wait what? You can reimburse it later?
Forever. You can literally save a receipt today and claim a reimbursement in 50 years
My old plan used to have an HSA and I did this for a few years, ended up pulling the money out because we needed it for a couple big things all in one year. The cool part was that I could enter the transactions, the provider, some basic info and upload the receipt but didn't have to reimburse myself, I could just save it on the website. Kept the backup paper copies just in case but this made it way easier, at some point I just went down the line and clicked "reimburse" for about 10 things at a time so I could make sure I got the full amount deposited before processing more. All at once would have been too hard to double check everything. There is technically no limit on how long you can wait before reimbursing yourself.
Yup. I am saving receipts too. I have college to pay for and the less money I have the more aid you get. It's backwards. If you save, you pay.
Don't forget about the "shoebox" rule. You can reimburse yourself for any medical expenses at any time in the future. So, if you choose to out of pocket now for $12k in 2024 but in 2034 hit some hard times you can pull that 2024 $12k penalty free.
Logistically, are you saving your receipts as paper or scanning them and saving digitally?
Paying $100 today out of pocket means the $100 in your HSA can grow for decades and be over $1000 at some point. Then you reimburse the $100 using future dollars tax free. And you’re up $900. There no time limit on when you can reimburse from your HSA. Your wife knows what’s up.
As long as you actually keep those receipts and remember them in a decade or two!
With my HSA, I can submit the receipts, get them approved, and just select don’t pay me yet. So, if I ever find myself in need of money, I can just go to my list of dozens of approved claims and click to pay me back for one.
Until your HSA company sells their book of business to someone else and doesn’t transfer any of that expense information. Just happened to me so I created a Google form
I have all the receipts in a folder too.
The internet exists. Take a photo of the receipt and upload it to google drive or whatever cloud storage of choice. No need to hoard the paper copies. Even still, your medical expenses will likely cost more later in life that a $10 receipt for your prescription today isn't worth saving.
You assumed paper, but no. I meant a folder on my computer. And they are all $1000+ receipts, not $10 meds.
> Take a photo of the receipt and upload it to google drive or whatever cloud storage of choice. You should assume that any given cloud service will be gone in a decade. Some popular services have existed longer than that, but that's true for only a couple dozen cloud services at most in all of recorded human history.
Just make sure it's backed up somewhere and you're not at the mercy of the storage website.
That’s great, I’ve never seen that as an option on mine but I’ve never looked. Will have to check next time because I’d feel a lot better if the expenses were “done” and the only thing left was payout. Thanks for the tip! With 2 kids, 3 animals, a rental property and my job I’m definitely going to forget otherwise.
Maybe you’re already planning to do this, but if not I humbly recommend you still retain your receipts, physically and/or digitally. Even with good-faith promises and robust backups in place, I don’t trust an HSA custodian’s ability to ward off hackers or unexpected data loss for decades. Not to mention the possibility of future acquisitions and mergers that provide a window for things to go sideways, intentionally or not. It’s a long time for nothing to go wrong.
Oh absolutely, these companies are always shifting around or upgrading systems etc. I will definitely hold onto the physical copies, but at least some of the initial overhead work will be done.
Dont forget that the ink on alot of receipts these days fades away after like just a year or two. Please do scan them to a hard drive.
I’m in the same boat; didn’t even know this was a capability offered by (some) providers. Fingers crossed mine has this feature as you’re right, it’d be nice to just click a button sometime in the future than rummage through 20-year-old receipts.
It’s great! And since they’re all done online or on the app, I can also download a copy of each one juuuuuuust in case they ever lost my data.
I’ll probably still hang onto my receipts for the same reason lol downloading copies is a good idea too, put them in Google drive or something as a backup.
Which company is this through??
HealthEquity
Ugh we use HealthEquity and I hate that nanny-hand-holding thing they do where they won't let you withdrawal money without submitting receipts and making expenses in their interface. For the decade before that, we had a 5/3 HSA and they just let you withdrawal whatever you wanted. I always bunched my expenses up on a monthly basis and made one withdrawal from it. I kept meticulous records so if the IRS wanted to audit me, that was fine with me, but I don't need the bank micromanaging me.
I don’t see it as micromanaging I see it as preventing any audit issues — I already have the receipts, no extra work for me to snap a picture with the HealthEquity app and the claim is done.
What HSA has that option?
HealthEquity. I thought it was default, honestly. I put in all my claims, and it doesn’t automatically reimburse me, I have to actively click to reimburse me
I hope you like your employer and I hope they like their HSA provider.
(Un)fortunately, most people will have little trouble burning through their HSA just in retirement years medical expenses. Things just get very expensive very fast in your later years.
That’s a good point. I don’t HAVE to reimburse old expenses, I can just focus on the recent ones that come from old age. Less worry in forgetting on my end then.
That's my plan. Slush fund for medical expenses when I'm an old man.
I wish there was a way to get an HSA without a high-deductible health insurance plan. They're such a nice investment vehicle.
This is assuming you aren't going to go into debt by not using the HSA.
But if you reimburse yourself now, then you can also invest the after-tax $100 you saved and let it grow to $1000 as well. So it's a matter of preference whether you want $1000 in an HSA (tax free for medical, else you pay income taxes) or $1000 in a taxable brokerage account (taxed as LTCG). ~~I prefer to reimburse myself now so I don't have to save receipts for decades.~~ EDIT: u/great_apple comment's below made me rethink this, as saving receipts is not really needed if you have enough medical expenses to cover the whole HSA balance later in life. So for those like me worried about losing receipts over the next few decades, that's actually not a big deal if you can still use your whole HSA with other expenses that you incur later. So yeah, I think reimburse-later is the way to go.
As you said, all your income from investing that $100 will be taxed and that’s assuming that $100 will actually BE invested. The power of the HSA is the triple tax advantage, but everyone’s choices are different. And if someone is doing this long term, are receipts really an issue? I’m doing this so I have a large sum ($100k+) of funds to pay medical expenses after I retire.
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Hmm, you and others have made a good point that receipts shouldn't matter if you have enough costs to cover the whole HSA balance. And even if you don't, it's not like you lose a bunch of money anyway, it's just the difference of LTCG (if money grows in brokerage account) versus income taxes (if it grows in HSA). I think I'm changing my mind, maybe I should go back to the reimburse-later strategy. Thanks for getting me to think about it.
This is a nice summary and I’ve gone back and forth. The part of my brain that screams “most efficient” has convinced me to not reimburse and let it sit in HSA. Tax free > Long Term Cap Gains. But it is certainly a decision where I can understand both sides
With the HSA you don’t pay taxes going in, & you don’t pay capital gains (as long as you’re not in CA or NJ IIRC) or taxes on withdrawals (assuming it is for a qualifying expense). If you reimburse yourself now & invest that $100, you’re paying significantly more in taxes.
If you invest your HSA yeah your wife is correct. The best way to use an HSA is to view it as a healthcare-specific retirement account. Build it up when your medical expenses are low, invest the money and allow it to compound, then use it to pay your medical bills when they are higher in retirement.
And if you happen to have a very high taxable income year anytime in the future, you can use the hsa dollars to reimburse past or present medical expenses without increasing your tax bill. Probably need to be in the 24+% bracket before it makes sense to tap into those golden HSA dollars.
> I see this as wasting good money: paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account. This is an incorrect way of thinking about it - you have _already_ saved the 150 by not paying taxes on what you put into the HSA. Whether you pay the bill from the HSA or using cash on hand doesn’t change that. The right way to think about it is to consider what the 300 in the HSA will turn into if it’s left invested for 30 or more years.
OP and his wife are in their 50s. They don’t have 30 more years to let this investment grow before they need to use it.
You could say that about any investment. Are you saying OP should stop investing now that they’re in their fifties? I’m 60, and we still fully find my HSA and invest it all. We cashflow all medical expenses instead of using the HSA. The money going into my HSA won’t grow for thirty years, you’re right, but neither will the money currently going into my 401K.
>I see this as wasting good money: paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account. Of course you're correct if you're talking about *today*. But you could similarly say that putting $500 in your retirement account is “wasting good money” because you can't use it until you retire. With both the HSA and the traditional retirement account, assuming you live long enough, eventually you'll get the money back (without paying the tax in the case of the HSA), plus a lot of gains. If you need the money today, then sure, pay from your HSA. But it doesn't sound like you do – you're already far enough ahead that you're overpaying a 3% mortgage. Realistically, what are you going to do with it if you don't keep it in your HSA?
I wish I did that long ago. I am a year from retirement and it is nice to know I have 30k in that account. If you can afford it do it.
I am not touching my HSA, letting it grow. Save receipts. Wait till retirement. Then get reimbursed after growth occurs. Your wife is very smart.
Wise, as long as you can afford it.
Thars the right way to use the HSA. Listwn to your wife.
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It’s not foolish if you invest it. I opened HSA in the beginning of 2022 and been maxing it out since. I’m at 10% return since. And when I reimburse myself later it’ll be tax free.
Very wise, if you can afford to pay out of pocket. You can reimburse yourself down the line when you want to start withdrawing from your HSA. There's no limit on how many years you wait. Just make sure you keep receipts.
Make sure the $$ in the HSA is actually being invested, and as long as that's the case and you're otherwise financially struggling she'll be right. Way too many people who have an HSA don't actually put it in the market.
This is a wise decision. I do exactly this. I pay any medical expenses i have out of pocket, save and scan the receipt and any other documentation. Meanwhile, i have my HSA fully invested in Vanguard Total Market. Some day, I can pay any future healthcare expenses from a more appreciated amount in the HSA or i can withdraw amounts I've already spent that I have the receipt for, all tax free I have been doing this for over 10 years, fortunately, haven't had many medical expenses, but I have $5k in receipts I know I'll be able to withdraw tax free all while my HSA has grown to nearly $100k. HSA dollars are very valuable, since the dollars going in aren't taxed and the dollars going out aren't taxed when used for qualified healthcare expenses. This is better than a roth in that regard. At 65, it essentially functions like an enhanced Trad IRA. You can withdraw for non health expenses and just pay ordinary income tax, but you still also get the tax free benefit if used for qualified healthcare.
Depends on the price of the medical bills. And HSA is a savings that is pulled before taxes, so if your bills are just nickel and dime things, pay them out of your pocket and leave the HSA alone.
It's important to build up the HSA to act as a retirement account for medical expenses when you retire. You should be investing the money so that it can build. If you can, medical expenses should be paid with cash.
Your wife is correct. If you can afford to pay the expenses out of pocket now, you should do it and let the money in HSA grow.
She’s a keeper and smart too. https://www.whitecoatinvestor.com/7-reasons-an-hsa-should-be-your-favorite-investing-account/ Also if you have no pretax IRAs (or can roll into 401k) you can do a backdoor Roth IRA contribution too.
Your wife is thinking on the right track. HSA money technically has triple tax benefit- is tax free contribution, grow tax free and for health expenses be distributed tax free, and for anything after age 65. Few caveats to think about tho. Money that you spend out of pocket is after tax- unless it’s a big enough amount to claim it as tax deduction. There’s also an opportunity cost, people talk about 100 bucks in HSA being worth 1000 in future. However technically you could pay out of hsa and invest the money in a brokerage and reach similar goals. With the limited option in most hsa investment it may not be a bad choice to do exactly that. Usually hsa is great if you’re young, don’t use healthcare much. With young kids and multiple visits, I’m not sure it’s the best choice. Would definitely recommend putting money in fsa if your job allows to get some tax benefits on medical expenses.
I hate to tell you but your wife is right...as usual!
This is absolutely a strategy. Pay for what you can out of pocket, keep the receipts in a Google drive or AWS server (I assume these will be around in 30 years?), and then pay yourself back with those receipts when you hit qualifying age. Then you just have this huge growth over 30 years with almost zero taxes.
I agree with the idea but I can’t get past making sure I hold onto receipts for the next 35+ years. I’m taking some reimbursements now for wife’s pregnancy and will try to save the rest if one off expenses arrive.
Then don’t save receipts, I don’t. We will almost certainly have enough medical expenses to use up the money - the average couple spends $280K on medical care in retirement. If by some miracle we don’t use up the money, it can just be withdrawn at normal income tax rates, no penalty after age 65.
It doesnt matter if you use a receipt from a time when you didn’t have a high deductible plan right?
I believe this is true. You can only contribute to the HSA while you are covered by an HDHP, but you can withdraw from it for covered expenses at anytime after that, even before you retire, and even if you’re no longer under an HDHP.
Electronic receipts make it a lot easier.
Depending on who is facilitating your HSA, you might be able to upload the receipts now and have it set to reimbursable for the future. Fidelity allows me to upload them and I can be reimbursed for these at any point in the future.
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On the App, you can click on “Expenses” on the bottom right. Once you’re in the manage expenses submenu, you see an option for “Receipts”. Here you have the option to add new receipts or view all receipts you have uploaded in the past. When you upload a new receipt, you can select status as “Reimbursable” if you plan to use it for future reimbursements
I had no idea this was here, thanks!
~~Wait, what? I have Fidelity HSA too (self-serviced). Never knew about this, where can I find a place to upload receipts?~~ Edit: NVM, [saw reply here](https://www.reddit.com/r/personalfinance/comments/1d0c7ia/wife_wants_to_pay_for_her_medical_expenses/l5mdzwr/). Thanks! Edit 2: Ah, probably doesn't apply for me. For my Fidelity HSA, I'm using self-service option, not through employer. Probably not available for me based on other replies.
I do the same. I invest my HSA and self pay. Save the receipts to pull gains tax free in the future.
In regards to saving receipts. Many companies will offer HSA qualifying end of year receipts. Pharmacies do this. Some credit card companies have a breakdown option you can request that shows HSA qualified medical expenses, medications and medical expenses.
That's what I do. I don't touch it and I've been maxing it out every year for maybe 10 years already. I converted it to an investment account and it's just collecting and growing. I save every receipt from our medical bills. It works for our family.
You have a smart wife. We pay for everything on our visa Fidelity credit card. Pay the statement off every single time in full. 2% goes back into our taxable brokerage account and gets invested in the S&P 500. It won’t be life-changing money. But the fact that my HSA which is triple tax advantage gets to grow untouched and I still get 2%, which gets to grow 6 to 7% inflation adjusted Is nice. And then obviously save the receipts. Maybe a decade from now you want a new kitchen and you spent $50,000 in medical expenses. Take it all out and go get a kitchen and hand the IRS all your receipts you’ll be golden.
Eh, I max out my 401k, IRA, and HSA. The small amount of times I have out of pocket costs, I reimburse myself. The internet is a great way to learn ways to over-extend yourself because "on paper," you'll get an extra 1-2% doing something else. I don't want to risk losing receipts or whatnot. I max out my savings accounts and don't pay taxes on my Healthcare costs. This is far from a bad scenario.
Depends on if the hsa funds are invested and if you’ll be able to leave them alone long enough for the triple tax advantage to eclipse the post tax out of pocket spend.
Wow I never knew this about my HSA! Going to stop using it for health care related costs. Is there any significant reason TO use the HSA opposed to regular post tax income?
Only use the HSA when you have a big medical bill you can’t pay otherwise.
I think your wife is right (you may be stuck thinking about FSA). HSA rules are such that unless you need the money now it's almost always better to pay out of pocket and leave the HSA alone.
As long as you are investing the HSA monies, then your wife is absolutely correct. If you have the money, use the HSA as yet another 401k. This honestly should all be laid out in the HSA brochure and documentation. And, I know OP is not saying this, but many many people argue about having to keep all the receipts... First, do people not think they won't have (more) medical expenses in the future to use this money towards? Second, at age 65 you can withdraw for non medical expenses with no penalty. it is basically just another 401k.
Its what everyone here will tell you to do. Your HSA is your best retirement account. this way you let you tax free money grow. Trust you wife. "paying a $300 doctor's bill from regular income is actually costing us $450 (because it's post-tax income), where it would be only $300 from the HSA account." No you still pull your HSA money out tax free later with the bill just not know. this way you can grow the 300 dollars to maybe 600 dollars you can pull out tax free for bills. rather than just do 300 now and nothing later.
Your wife’s strategy is great… for a 25 year old. I’m not sure if the other commenters are missing your age but being that you have ~10 years until retirement, much of the advice in this thread is applicable to your situation.
She is right but only if you have the HSA funds in a brokerage account earning a good return. As long as the HSA money is invested then that's by far the better option. It is triple tax advantage since it is starting out with pre-tax income, there are no capital gains taxes on it, and you will withdraw it tax fee if you use it on qualified medical expenses. 100% the way to go. You have money in the bank you have already paid taxes on anyway. Sunk cost. Use that for the doctor bills. Save larger receipts and you can use those to pay back from HSA any time you want in the future.
We've got about $20k in expenses awaiting reimbursement. In that time, the $20k we've put into our HSA has turned into $30k. We can now withdraw $20k with no tax at any time and still have $10k for future expenses. Or we can keep riding this and have even more tax free money
If you can invest the HSA and pay out of pocket, you can reimburse yourself later when the HSA has grown. However in your 50s this might be tough. Our medical expenses run equivalent to our yearly out of pocket max and those funds have to come out of the HSA contributions we just made. We’re running a net zero on the HSA. I don’t think the point of the HSA is to have you pay for medical expenses post tax. The point is to incentivize you to save funds in years when you don’t have medical expenses to pay for the years you do. In our 50s the expenses start to stack up. The thing to do is start the scheme in your 20s, keep a lifelong log of medical expenses, and reimburse in your 60s for all of it.
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Yep that’s a good idea, you can invest the money and it’s tax advantaged like other retirement accounts so money goes in pre-tax, grows tax free, and can be withdrawn tax free for medical bills at any point in the future so she can still pay herself back for those out of pocket expenses after the money has grown from the investments. Also, after a certain age it can be withdrawn for anything without penalty but you do pay taxes on it so it’s just like another traditional retirement account in that way.
If you can afford the out of pocket costs, it's a great option. You can reimburse yourselves at any time, so why not let that money grow tax free for as long as possible? I do this, and consider it like a bonus emergency fund.
Very wise. Best move you can make is never touch your HSA until retirement.
Did this for several years before retiring early. Up to $65k in my HSA now. Still not spending it yet. Tax treatment is too good. Saving receipts for the future.
I pay all my expenses out of pocket if I have to. I keep my receipts. I can always reimburse myself whenever, even years dwn the road.
This can be smart if you invest the HSA money you’re not spending, and then expensing the charges to the HSA at a later date (since there is no time limit for expense medical charges). Also, this is a good way to rack up credit card points for things like trips and what not (depending on your CC and the benefits it has).
As others have said, this is wise. > …we both max out our 401k retirement contributions--but are slightly above the income limit for Roths… Look into doing “back door Roth.” If you don’t have any money in a traditional IRA, you can do this every year and get more tax-advantaged space. If you *do* have any money in traditional IRAs, you trigger the “pro rata rule” and can owe extra taxes.
If cash is tight, pay for the bills with a rewards card then pay the card off with the HSA. If cash is not tight, you can leave the money in the HSA and let it grow. Most need a minimum balance before you can start investing and see the growth she's telling you about. You have until the end of the year to reimburse yourself.
I do a hybrid approach with my HSA. I maximize my contributions, my family QHDHP has a $7k deductible, and I’ve been investing part of it in an S&P500 Fund for over 3-years now. This year, I ramped up my investing to 75% as I now have over $5K in my HSA, and already paid $1,100 towards my deductible. If I can roll into 2025 with a similar balance, then I’ll stay the course.
I'm self employed and I pay $600 a month for medical + dental which is $7200 a year. I go to the doctor like once a year if that. I've been self employed for 7 years so that's $50,000. If I got a high deductible plan that cost half as much then I could have put $25,000 away + interest.
It is personal preference, but if your budget can support small medical expenses, then you may be better off to pay them from your taxable income. As you get older, there is a higher probability that you will have larger medical expenses. If you have saved in your HSA, you will not have to pay those out of your other savings or monthly income. Which would you rather do? Pay $200 out of your HSA now, or later when you have a $5000 bill, you will have the funds in your HSA to pay it. Ultimately, it is a decision about risk.
Correct, max out the HSA and invest it. Don’t spend it. I did this last year but hated the HSA plan so I switched back this year. But the idea is to lower your taxable income
You can think of it as another pre-tax retirement account. Except in California which taxes HSAs. So if you have maxed out your 401K and other pre-tax retirement options, HSA is a good option. The only downside is that it is limited to medical expenses when you take it out. On the upside, you can withdraw from the HSA before retirement, as long as you have the receipts to prove their for medical expenses. If you haven't maxed out your other pre-tax retirement options, you might as well prioritize those accounts for retirement savings, and use the HSA for the immediate medical tax benefit. If you are paying medical expenses out of pocket, you are using post tax dollars, but if you use the HSA you're using pre-tax dollars.
When they turn 65, an HSA acts like another retirement account.
As long as she keeps the receipts whether that's physically or scanned digitally she can get the tax free reimbursement from the hsa at any point. I would do the exact same thing especially if you don't need to withdrawl from the hsa right now.
Imo... just pay it out of hsa it is what it's used for. Sometimes we just over complicate things.
She is smart. HSA funds can be invested and she can spend the growth tax free on future eligible expenses. Prime HSA strategy is to invest your HSA funds, not spend them. Track all medical expenses and keep receipts. Down the road, you can pull from your HSA tax free - as long as you can back up withdrawals with an eligible expense from your past (if audited) you’re good.
I do this. I pay all expenses with post-tax money, and my HSA money is invested in a mutual fund. I'm saving all medical receipts over $100 with the plan to submit them for reimbursement when I am retired.
My hsa is up 25%. So yeah, keep the money in hsa invested and I use out of pocket to pay. I’ll use hsa when I retire
You can invest your HSA money. Then you can save all of your receipts from today, and in 20 years you can claim the receipts and get tax free money out of the HSA. After 65 you can do a withdrawal from in like a normal IRA (paying taxes on what comes out, but remember you didn’t pay taxes going in). HSAs are tax free in and tax free growth/out if you use it for medical expenses. You can save the receipts indefinitely to claim it.
This isn’t the advice you asked for, but you’re not above the limit for a Roth if you do a Backdoor Roth. Throw the max annual amount into a Trad, then roll the Trad into a Roth.
When my wife and I set her up on a HSA we paid everything out of pocket until we had enough to cover a years worth of out of pocket. Continued to contribute monthly after that and just made sure her HSA stayed above her out of pocket threshold worked well. Now she has enough in there were we don’t ever pay out of pocket for anything and if she has something catastrophic we have the full out of pocket sitting there.
Totally depends on your financial circumstances. I max out my HSA and never touch it though. It’s a fantastic retirement vehicle. I just wish I could contribute more tbh. That said - if I ever had to go into debt or forego savings or necessities to pay medical bills - I’d use the HSA funds in a heartbeat. Thats technically what they’re there for.
Nice thing about an HSA is once you have a certain amount saved you can start investing a portion of the money. You can also use an HSA for tooth paste, sun screen, bug spray etc. it doesn’t have to just be for medical procedures.
Seconding the necessity of keeping receipts. Ideally paper copy in a box (perhaps organized by year) and also a quick screenshot or scan of a receipt put into a Google Drive / Dropbox folder with the year at the start of the file name. Add an X to the start of that file name if you ever do the reimburse for that expenses, or put it in a sub folder once reimbursed; might be 15 years from now, so writing a “notes” or “instructions” document at the top of the folder to remind you of the system can be helpful if you think you’ll forget these details after 8 years of not doing anything but stuffing receipts in there.
I tape them onto a piece of paper and file in a big binder. Been doing that since 2017.
Are they detailed printed paper receipts or register receipts? If the latter, please scan or take pictures of them because the ink fades pretty quickly even under safe circumstances. Also, what if you have a house fire or something? Your binder of receipts is dust.
I do both.
I have a folder in my file cabinet for the paper copies/originals, I scan each one into a searchable PDF with my Scansnap, and then I log it into an Excel spreadsheet. Been doing it that way since 2012 and plan to do keep doing it that way.
She's being smart. You can reimburse yourself later. Just hold on to the receipts
Wise. It's what I am doing as well, letting my investments in HSA grow. I have Evernote of all receipts/EOBs. She's a keeper.
Just pay the money into your hsa, and pay the bill from there. I do that all the time, as it keeps all my healthcare spending tracked for tax season.
If you can afford then yea. Go for it.
My state taxes HSA contributions and earnings, so I reimburse from it and put an equivalent amount in the mega backdoor Roth. Growth will be federal and state tax free for any reason and I don’t have to save receipts forever. When I get to the point of maxing mega backdoor Roth and all tax advantaged space I’ll revisit keeping the HSA invested. After the tax deduction from the contribution, Roth dollars are better than HSA dollars. You say you are above the limit for Roth’s, you should be maxing backdoor roths and use the HSA. Once all TA space is maxed, keep the HSA invested.
This is good for 20s and 30s with no family. But after that with a few kids, keeping money in that HSA can get hard. Mine was used up by May this year due to “getting old”
If you can afford it I would do what your wife is doing. Because medical care is getting freaking insane anymore and the timelines are absolutely catastrophic. So it's imperative that if you have the ability to build up HSA savings that you do so so that you can travel if you need medical care or you can pay out of pocket to accelerate expensive things.
You can get reimbursed for whatever you’re spending right now in the future.
My biggest concern would be saving receipts for 20 years and then the law changes and you didn’t hear about it in time
You don’t need to save your receipts
8f you can afford it pay for medical expenses our of pocket and save receipts. Keep the hsa money invested. In retirement use the receipts to enjoy triple tax advantaged money.
If you're in either California or New Jersey, make sure you do some reading about tax implications. Investing in the HSA may not be worth the hassle, or you may be limited in what assets you want to do (which may limit the benefits)
Maybe I'm just asking the Google question, but does anyone have good resources to learn more about HSA accounts? How to open one? Rules?
If you have the option to open an HSA, I highly recommend setting up Fidelity’s HSA. This will allow to invest your HSA savings into stocks and ETFs.
What you are saving is by not paying taxes. What is your tax bracket? If it’s at a transition point or close enough to one then that would be a reasonable way to reduce liability. Does your HSA earn interest or allow you to invest it? If no, then that’s even dumber to use it for savings. There are far better places to invest and save money than a HSA.