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Use HSA funds versus paying cash and allowing HSA to grow

Home Personal Finance and Budgeting Use HSA funds versus paying cash and allowing HSA to grow

  • Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1904
    Joined: 02/01/2016

    I think the concept of an HSA as a “stealth IRA” has distorted the issue a little. I don’t view it that way as it artificially constraints when/how I can use the $.

    The benefit of keeping the receipts to me is so I can use it for things OTHER than healthcare when necessary.  Assuming I’ve invested a portion and let it grow, I now have additional $ I can access anytime I want for other purposes with no tax/penalty, with also a side benefit of having more $ to cover ongoing healthcare costs if I have a really expensive ongoing need.

    If in 10 years I need $5k extra to pay some college tuition or something, the HSA could be for that.  If I have an opportunity for a new investment opportunity and all my regular cash is spoken for, the HSA could be for that.  Using it as a Stealth IRA is a good technique, but it’s certainly not the only way to use it.

    Saving the receipts is not time consuming at all.  If something happens to them then as the naysayers say, I can just use big healthcare expenses in the future to withdraw the money. It’s not so much time to do that I’ll feel it wasted if I can’t use it.

    If I have such a large net worth that I really don’t care about the tax benefit that’s fine, but that’s simply a choice of giving away $ because you can, no different than people do for any # of other things.  If the tax laws change then so be it but that has ALMOST happened to 529s and many other things.

    Click to expand…

    I agree with this with the caveat that if you’re not leaving it alone for a while the benefits you’ll accrue will be minimal.ment

    Click to expand…

    I couldn’t disagree more. I literally despise the term stealth IRA and have expressed that to WCI. The practice of paying qualified medical expenses out of pocket and deferring distributions is to build a retirement Health Savings Account. To pay the vast qualified medical expenses you will have in retirement, not an extra pre-tax retirement account.

    One of my favorite expressions for financial matters is; “just because you can do something does not mean you should do something. You can take non-qualified HSA distributions after age 65 without paying the 20% excise tax penalty, but you will be wasting future likely tax-free distributions for current taxable distributions.

    Most people vastly under estimate medical expenses in retirement. 2018 projections are that a couple retiring at age 65 will have $280K (2018 dollars) in medical expenses during their retirement. This does not include over-the counter products, (dental, vision and hearing) products/services and LTC or insurance. You will need proportionally more if you plan on retiring early.

    It will be the rare individual who runs out of life before they run out of tax-free HSA distributions. An individual should almost never take non-qualified taxable distributions distributions from an HSA before all other sources of income.

    #166964 Reply
    Liked by snowcanyon
    Rogue Dad, M.D. Rogue Dad, M.D. 
    Participant
    Status: Physician
    Posts: 975
    Joined: 03/07/2016

    The purpose of deferring is to let it grow by investing the $, giving you more money to use later.

    What one does with the investment returns is not prescribed. If you are able to use saved receipts and pull it out without taxes or penalties then you realize the tax benefit regardless of whether you actually spend the money on healthcare or a boat.

    Money is fungible in that as long as you get the tax benefits the rest doesn’t matter — it’s just semantics.

    If you defer using the $ for qualified expenses but then don’t invest for the medium term to let it grow then there isn’t a point in storing the cash within the account. But I disagree that it should only be used for retirement if you don’t use it right away.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #166981 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2509
    Joined: 05/01/2017

    I think the concept of an HSA as a “stealth IRA” has distorted the issue a little. I don’t view it that way as it artificially constraints when/how I can use the $.

    The benefit of keeping the receipts to me is so I can use it for things OTHER than healthcare when necessary.  Assuming I’ve invested a portion and let it grow, I now have additional $ I can access anytime I want for other purposes with no tax/penalty, with also a side benefit of having more $ to cover ongoing healthcare costs if I have a really expensive ongoing need.

    If in 10 years I need $5k extra to pay some college tuition or something, the HSA could be for that.  If I have an opportunity for a new investment opportunity and all my regular cash is spoken for, the HSA could be for that.  Using it as a Stealth IRA is a good technique, but it’s certainly not the only way to use it.

    Saving the receipts is not time consuming at all.  If something happens to them then as the naysayers say, I can just use big healthcare expenses in the future to withdraw the money. It’s not so much time to do that I’ll feel it wasted if I can’t use it.

    If I have such a large net worth that I really don’t care about the tax benefit that’s fine, but that’s simply a choice of giving away $ because you can, no different than people do for any # of other things.  If the tax laws change then so be it but that has ALMOST happened to 529s and many other things.

    Click to expand…

    I agree with this with the caveat that if you’re not leaving it alone for a while the benefits you’ll accrue will be minimal.ment

    Click to expand…

    I couldn’t disagree more. I literally despise the term stealth IRA and have expressed that to WCI. The practice of paying qualified medical expenses out of pocket and deferring distributions is to build a retirement Health Savings Account. To pay the vast qualified medical expenses you will have in retirement, not an extra pre-tax retirement account.

    One of my favorite expressions for financial matters is; “just because you can do something does not mean you should do something. You can take non-qualified HSA distributions after age 65 without paying the 20% excise tax penalty, but you will be wasting future likely tax-free distributions for current taxable distributions.

    Most people vastly under estimate medical expenses in retirement. 2018 projections are that a couple retiring at age 65 will have $280K (2018 dollars) in medical expenses during their retirement. This does not include over-the counter products, (dental, vision and hearing) products/services and LTC or insurance. You will need proportionally more if you plan on retiring early.

    It will be the rare individual who runs out of life before they run out of tax-free HSA distributions. An individual should almost never take non-qualified taxable distributions distributions from an HSA before all other sources of income.

    Click to expand…

    I’m curious why you quoted my stuff on here? I don’t think I’m advocating a stealth IRA.

    I am NOT trying to do any kind of stealth IRA at all. I don’t have any plans to take non-qualified distributions.

    This is my decision process (please help me see where I’m wrong)

    1. Money goes into my HSA pre-tax and with a small match

    2. I am easily able to cash-flow medical bills and save receipts

    3. Every year that I add to the receipt pile is a year that I am (hopefully) getting tax free growth in my HSA

    4. I will withdraw from my HSA only under one of 3 conditions

    a) a future but immediate w/d for a medical expense

    b) health care needs in retirement

    c) some portion of my saved receipts for a future purchase where cash is needed

    5. On a short time horizon (I’ve been doing this for 2 years) it’s kind of a push

    6. On a long time horizon (retirement) I could end up with some serious growth in my HSA tax free

    #167123 Reply

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