Anyone using a HSA for tax purposes?
11-Jan-23 9:33am
#2 John
Yes. HSAs are an interesting tax vehicle that most people ignore. Worst case, you don't use them for medical stuff ever and they are about the same as a 401k. Best case, you one day use them for medical expenses and they are triple-tax-advantaged in that they are pre-tax, grow tax free, and you pay nothing taking the money out! Technically, this would make it the best investment vehicle for taxes -- even better than a 401k or Roth. (And, again, if you don't use them for medical, then they are about as good as a 401k where you just pay taxes when you withdraw at age 65.
The key is that so many people have HSAs that just sit in an account and do nothing. That isn't the way to go. You want your HSA to be invested just like you would your 401k or Roth.
I have mine at LivelyMe.com. I opened it like a year ago. They were with TDAmeritrade for the actual investment side. And no fees basically. But, Schwab bought TDAmeritrade, so now Lively is in the process of converting people to Schwab. Once that occurs (including all NEW accounts right now), there is a $24/year charge if you don't keep at least $3000 just sitting there. And that's annoying. So, I don't recommend them for a new account. Instead, my wife just opened hers -- at Fidelity. No fees there and it is really the best option. The only reason Lively was better than Fidelity when they both were fee free was because Lively has a much better receipt tracking system if you want to upload those receipts to use 20 years from now. :)
#2 John
Yes. HSAs are an interesting tax vehicle that most people ignore. Worst case, you don't use them for medical stuff ever and they are about the same as a 401k. Best case, you one day use them for medical expenses and they are triple-tax-advantaged in that they are pre-tax, grow tax free, and you pay nothing taking the money out! Technically, this would make it the best investment vehicle for taxes -- even better than a 401k or Roth. (And, again, if you don't use them for medical, then they are about as good as a 401k where you just pay taxes when you withdraw at age 65.
The key is that so many people have HSAs that just sit in an account and do nothing. That isn't the way to go. You want your HSA to be invested just like you would your 401k or Roth.
I have mine at LivelyMe.com. I opened it like a year ago. They were with TDAmeritrade for the actual investment side. And no fees basically. But, Schwab bought TDAmeritrade, so now Lively is in the process of converting people to Schwab. Once that occurs (including all NEW accounts right now), there is a $24/year charge if you don't keep at least $3000 just sitting there. And that's annoying. So, I don't recommend them for a new account. Instead, my wife just opened hers -- at Fidelity. No fees there and it is really the best option. The only reason Lively was better than Fidelity when they both were fee free was because Lively has a much better receipt tracking system if you want to upload those receipts to use 20 years from now. :)
11-Jan-23 11:19am
#3 SublimeFan
Yes - my employers push them hard because if they are available to you at no cost, it's another benefit you'd be a sucker to pass up (assuming you can afford it). I've had to hit mine hard over the last two years and I've drained most of it, but I'm essentially looking at a tax savings on ~$12000 just because I've earmarked the money for medical expenses.
#3 SublimeFan
Yes - my employers push them hard because if they are available to you at no cost, it's another benefit you'd be a sucker to pass up (assuming you can afford it). I've had to hit mine hard over the last two years and I've drained most of it, but I'm essentially looking at a tax savings on ~$12000 just because I've earmarked the money for medical expenses.
11-Jan-23 11:57am
#4 John
Just to be clear... In my example, I am referring to NOT using it for ANY medical expenses anytime soon. I'm using it exclusively as a longer-term retirement account that is better than a 401k in many cases.
Of course, if you DID need some extensive medical work, then it makes sense to use it if you don't have other funds.
But, for me, even if I had a $1000 medical expense, I would pay for it out of pocket now and leave my HSA money alone. I'd then keep the receipt to be used to take that $1000 out at ANY time in the future -- completely tax free. Even 10 years from now.
I just want to be clear that I feel that HSAs are great for people who do NOT have any current medical expenses to worry about. (Or, even if they do, but can afford to pay them out of pocket for now.)
#4 John
Just to be clear... In my example, I am referring to NOT using it for ANY medical expenses anytime soon. I'm using it exclusively as a longer-term retirement account that is better than a 401k in many cases.
Of course, if you DID need some extensive medical work, then it makes sense to use it if you don't have other funds.
But, for me, even if I had a $1000 medical expense, I would pay for it out of pocket now and leave my HSA money alone. I'd then keep the receipt to be used to take that $1000 out at ANY time in the future -- completely tax free. Even 10 years from now.
I just want to be clear that I feel that HSAs are great for people who do NOT have any current medical expenses to worry about. (Or, even if they do, but can afford to pay them out of pocket for now.)
11-Jan-23 12:22pm
#5 sa330206
I think a HSA is a great idea regardless, but if you are younger without major medical expenses it's a great time to open one. You can "bank" quite a bit now and in the future if you have a medical issue or go on a long-term prescription you have a money saved up to pay for it. Even if you are sick now and can't "save up", you can still take advantage of the tax savings.
#5 sa330206
I think a HSA is a great idea regardless, but if you are younger without major medical expenses it's a great time to open one. You can "bank" quite a bit now and in the future if you have a medical issue or go on a long-term prescription you have a money saved up to pay for it. Even if you are sick now and can't "save up", you can still take advantage of the tax savings.
11-Jan-23 12:44pm
#6 SwiftJAB
For the unaware, for tax deductible contributions to an HSA, you need to have a HDHP (high deductible health plan), which is recommended for most people unless you have some medical condition where it makes sense to have a lower deductible plan.
#6 SwiftJAB
For the unaware, for tax deductible contributions to an HSA, you need to have a HDHP (high deductible health plan), which is recommended for most people unless you have some medical condition where it makes sense to have a lower deductible plan.
12-Jan-23 10:28am
#7 Staraang
I’ve had an HSA for years and use it as a tax-advantaged retirement vehicle. John mentioned that it’s triple-tax-advantaged and this makes it the best retirement account available since the contributed pre-tax income and the growth on that income can be used for medical expenses tax-free. You must have a high-deductible health plan as SwiftJAB mentioned. This only makes sense if you and your dependents are relatively healthy people with low anticipated medical expenses.
You get the most benefit from this account if you can afford to contribute funds to the account but not use them until way into the future, i.e. retirement age. That’s because it allows your funds time to grow. You would ideally use your after-tax income in the meantime to pay your medical bills. This isn’t possible financially for everyone so judge your own situation.
One very important detail is that you must save your medical receipts. I recommend scanning them and keeping digital copies. This is because you must be able to prove your medical expenses over the years when you redeem the funds in your account against them.
#7 Staraang
I’ve had an HSA for years and use it as a tax-advantaged retirement vehicle. John mentioned that it’s triple-tax-advantaged and this makes it the best retirement account available since the contributed pre-tax income and the growth on that income can be used for medical expenses tax-free. You must have a high-deductible health plan as SwiftJAB mentioned. This only makes sense if you and your dependents are relatively healthy people with low anticipated medical expenses.
You get the most benefit from this account if you can afford to contribute funds to the account but not use them until way into the future, i.e. retirement age. That’s because it allows your funds time to grow. You would ideally use your after-tax income in the meantime to pay your medical bills. This isn’t possible financially for everyone so judge your own situation.
One very important detail is that you must save your medical receipts. I recommend scanning them and keeping digital copies. This is because you must be able to prove your medical expenses over the years when you redeem the funds in your account against them.
12-Jan-23 10:35am
#8 sa330206
I'm a little confused about the receipt thing. I just use my HSA debit card to pay for eligible items like perscriptions. In my experience, the card gets declined if you try to buy something that's not eligible. When have you needed to produce receipts?
#8 sa330206
I'm a little confused about the receipt thing. I just use my HSA debit card to pay for eligible items like perscriptions. In my experience, the card gets declined if you try to buy something that's not eligible. When have you needed to produce receipts?
12-Jan-23 10:44am
#9 Porksta
My old company offered an HSA - it is great. I left the company almost four years ago and am still using those funds for all medical expenses.
#9 Porksta
My old company offered an HSA - it is great. I left the company almost four years ago and am still using those funds for all medical expenses.
12-Jan-23 10:59am
#10 Staraang
sa330206 wrote:
I'm a little confused about the receipt thing. I just use my HSA debit card to pay for eligible items like perscriptions. In my experience, the card gets declined if you try to buy something that's not eligible. When have you needed to produce receipts?
You don't need to keep the receipts if you're using the HSA debit card. That implies you're using the contributed HSA funds. I don't even have an HSA debit card because I know I'm not planning to use those funds. You would pay for your medical expenses like prescriptions, co-pays, etc. with your normal method of payment like you would for anything else such as groceries or whatever. You leave your HSA funds untouched and allow them to compound by investing them. You keep the medical receipts filed away and then break them out down the line when it comes time to withdraw your HSA funds. You pay no taxes on whatever funds you withdraw when redeeming against those medical expenses as per your saved receipts.
Hope I'm explaining this adequately.
#10 Staraang
sa330206 wrote:
I'm a little confused about the receipt thing. I just use my HSA debit card to pay for eligible items like perscriptions. In my experience, the card gets declined if you try to buy something that's not eligible. When have you needed to produce receipts?
You don't need to keep the receipts if you're using the HSA debit card. That implies you're using the contributed HSA funds. I don't even have an HSA debit card because I know I'm not planning to use those funds. You would pay for your medical expenses like prescriptions, co-pays, etc. with your normal method of payment like you would for anything else such as groceries or whatever. You leave your HSA funds untouched and allow them to compound by investing them. You keep the medical receipts filed away and then break them out down the line when it comes time to withdraw your HSA funds. You pay no taxes on whatever funds you withdraw when redeeming against those medical expenses as per your saved receipts.
Hope I'm explaining this adequately.
12-Jan-23 11:15am
#11 sa330206
Great explanation, thanks for clarifying. That makes a lot of sense and sets you up nice in the future.
#11 sa330206
Great explanation, thanks for clarifying. That makes a lot of sense and sets you up nice in the future.
13-Jan-23 2:42pm
#12 Feeb
Just be careful when you sign on these things especially if you are working with a corporation. Lots push an FSA as equivalent to an HSA and it absolutely is not. Half of my office was unknowingly enrolled in FSA last year. HSA offer much better saving potential and it’s yours- unlike the FSA where you only get a certain amount of roll over etc.
#12 Feeb
Just be careful when you sign on these things especially if you are working with a corporation. Lots push an FSA as equivalent to an HSA and it absolutely is not. Half of my office was unknowingly enrolled in FSA last year. HSA offer much better saving potential and it’s yours- unlike the FSA where you only get a certain amount of roll over etc.
13-Jan-23 6:02pm
#13 Staraang
FSA is attractive to some people because they'll often get an employer contribution but I agree it is inferior overall to an HSA. An HSA always will roll over and be yours forever even after you leave the company whereas the vast majority of time an FSA cannot be rolled over year to year. FSA funds are usually use it or lose it. FSA also does not require a HDHP afaik.
#13 Staraang
FSA is attractive to some people because they'll often get an employer contribution but I agree it is inferior overall to an HSA. An HSA always will roll over and be yours forever even after you leave the company whereas the vast majority of time an FSA cannot be rolled over year to year. FSA funds are usually use it or lose it. FSA also does not require a HDHP afaik.
13-Jan-23 6:48pm
#14 HybridCRoW
Wait, how can you get the HSA money for other expenses?? I've been mainly using it for my medical expenses, especially since I've been out of work.
#14 HybridCRoW
Wait, how can you get the HSA money for other expenses?? I've been mainly using it for my medical expenses, especially since I've been out of work.
13-Jan-23 7:53pm
#15 Alaisiagae
I use an FSA. You can roll over $550, it changes (stays same or increases) every year due to annual IRS rule changes. My company offers the option to do HSA plus high deductible insurance plan. That option is not good for my situation, so I stick with the regular health insurance plan. It sucks having to guess how much to fund my FSA during the enrollment period. How am I supposed to know what the next year will bring, I can't predict the future.
#15 Alaisiagae
I use an FSA. You can roll over $550, it changes (stays same or increases) every year due to annual IRS rule changes. My company offers the option to do HSA plus high deductible insurance plan. That option is not good for my situation, so I stick with the regular health insurance plan. It sucks having to guess how much to fund my FSA during the enrollment period. How am I supposed to know what the next year will bring, I can't predict the future.
13-Jan-23 8:23pm
#16 Orlandu
My old boss tossed $100/month into our HSAs when we had a group HDHP. We only had to pay a small portion of our insurance cost, so I was essentially paid to have health insurance. Didn't have quite enough spare change to fund an HSA after maxing my IRA and the 3% 401(k) deferral, though.
#16 Orlandu
My old boss tossed $100/month into our HSAs when we had a group HDHP. We only had to pay a small portion of our insurance cost, so I was essentially paid to have health insurance. Didn't have quite enough spare change to fund an HSA after maxing my IRA and the 3% 401(k) deferral, though.
13-Jan-23 9:07pm
#17 Staraang
HybridCRoW wrote:
Wait, how can you get the HSA money for other expenses?? I've been mainly using it for my medical expenses, especially since I've been out of work.
You want to try to avoid withdrawing HSA funds before age 65. Withdrawing HSA funds for non-medical expenses after age 65 will require you to pay tax on the withdrawn funds at your marginal income tax rate. Withdrawing the funds before age 65 will incur the same taxes plus a 20% penalty.
#17 Staraang
HybridCRoW wrote:
Wait, how can you get the HSA money for other expenses?? I've been mainly using it for my medical expenses, especially since I've been out of work.
You want to try to avoid withdrawing HSA funds before age 65. Withdrawing HSA funds for non-medical expenses after age 65 will require you to pay tax on the withdrawn funds at your marginal income tax rate. Withdrawing the funds before age 65 will incur the same taxes plus a 20% penalty.
13-Jan-23 11:11pm
#18 HybridCRoW
Staraang wrote:
HybridCRoW wrote:> Wait, how can you get the HSA money for other expenses?? I've been mainly using> it for my medical expenses, especially since I've been out of work. You want to try to avoid withdrawing HSA funds before age 65. Withdrawing HSA funds for non-medical expenses after age 65 will require you to pay tax on the withdrawn funds at your marginal income tax rate. Withdrawing the funds before age 65 will incur the same taxes plus a 20% penalty.
Ooh... yeah I mostly didn't use my HSA over a couple of years and it had a nice chunk of change in it til lately using for medical expenses. I think I had an option to invest some of it after it reach a certain dollar amount but chose not to do that.
It'll be curious to find out what my next employer's benefits will be. I do admit I prefer the HSA over the FSA...
#18 HybridCRoW
Staraang wrote:
HybridCRoW wrote:> Wait, how can you get the HSA money for other expenses?? I've been mainly using> it for my medical expenses, especially since I've been out of work. You want to try to avoid withdrawing HSA funds before age 65. Withdrawing HSA funds for non-medical expenses after age 65 will require you to pay tax on the withdrawn funds at your marginal income tax rate. Withdrawing the funds before age 65 will incur the same taxes plus a 20% penalty.
Ooh... yeah I mostly didn't use my HSA over a couple of years and it had a nice chunk of change in it til lately using for medical expenses. I think I had an option to invest some of it after it reach a certain dollar amount but chose not to do that.
It'll be curious to find out what my next employer's benefits will be. I do admit I prefer the HSA over the FSA...
14-Jan-23 1:11am
#19 SwiftJAB
FSAs can be great if you have regular expenses that qualify. In the past, I used an FSA to cover bus passes and parking expenses for work. Other people in my office were using it for daycare. It's good to note that you can have an FSA and an HSA. If your employer offers an FSA, I recommend looking into it to see if you might be able to benefit from it.
#19 SwiftJAB
FSAs can be great if you have regular expenses that qualify. In the past, I used an FSA to cover bus passes and parking expenses for work. Other people in my office were using it for daycare. It's good to note that you can have an FSA and an HSA. If your employer offers an FSA, I recommend looking into it to see if you might be able to benefit from it.
14-Jan-23 3:27am
#20 Mattman2
I have one set up for my daughters kidney condition and it’s incredibly handy as it’s money set aside for all her medical bills and on top of everything it isn’t taxed. Win win.
#20 Mattman2
I have one set up for my daughters kidney condition and it’s incredibly handy as it’s money set aside for all her medical bills and on top of everything it isn’t taxed. Win win.
14-Jan-23 9:30am
#21 Staraang
SwiftJAB wrote:
FSAs can be great if you have regular expenses that qualify. In the past, I used an FSA to cover bus passes and parking expenses for work. Other people in my office were using it for daycare. It's good to note that you can have an FSA and an HSA. If your employer offers an FSA, I recommend looking into it to see if you might be able to benefit from it.
Just to clarify, I don’t think you can enroll in both in the same year. Like at my company there are two different health plans with one offering FSA and one HSA. You could carry over an HSA from the previous year and enroll in FSA for the current year but I haven’t heard of being able to contribute to both in the same year.
#21 Staraang
SwiftJAB wrote:
FSAs can be great if you have regular expenses that qualify. In the past, I used an FSA to cover bus passes and parking expenses for work. Other people in my office were using it for daycare. It's good to note that you can have an FSA and an HSA. If your employer offers an FSA, I recommend looking into it to see if you might be able to benefit from it.
Just to clarify, I don’t think you can enroll in both in the same year. Like at my company there are two different health plans with one offering FSA and one HSA. You could carry over an HSA from the previous year and enroll in FSA for the current year but I haven’t heard of being able to contribute to both in the same year.
Anyone using a HSA for tax purposes?