Investing advice: Should you use your HSA (health savings account) money now or save it?

[Julian]

We've been using the money we put into our HSA to cover annual medical expenses.....didn't think much about it. But IF you can afford NOT to do that, then the best advice is to use it as a savings account. It has better tax advantages than your 401k or IRA does! And yes - you'll need the money in retirement on healthcare! Here is an article that covers this:

Should I use my HSA to save money or spend it on Healthcare?

While HSAs are meant to primarily be used for healthcare, you can also use it as a saving vehicle. We detail how you can use your HSA as both a way to help pay for healthcare and save money for the future.

livelyme.com

 

[ifly4fun]

I've been using mine that way for a few years now, I max it out ($7100/yr) and don't draw against it unless i need to. I save all my medical receipts and consider it a 'rainy day' fund since you can reimburse yourself at any time - it doesn't have to be in the year you incurred the expense. Paid cash for my daughters braces and saved the $4k receipt for a rainy day and cash it out whenver i need it..

 

[jlcj7]

Same. I haven’t ever touched mine and don’t plan to until retirement or absolutely needed.

 

[HangOutdoors]

Just to chime in....... Some employers offer FSA's instead of HSA's. The limits are different, but unlike an HSA an FSA (Flexible Spending Account) is a use it or lose each year without rollover. Which means you basically declare how much you are putting in and if you don't use it for allowable items, your employer will keep the balance at the end of the year. Have seen people get burned by that. I would recommend that make sure of which type of account is offered to you if you already don't know and are planning for a new allocation.

Also if you contribute to an FSA plan and your employment changes, you lose it.

 

[Julian]

@ifly4fun good point! So if you, or your kids, have health expenses now, pay them out of pocket, but keep the receipt......you can use it later to pay yourself back! The only rule is the expense has to be incurred after you open the account.

So keep your receipts for all healthcare expenses you pay out of pocket after you establish your HSA. If in your later years, you find yourself with more money in your HSA than you know what to do with, you can use your HSA balance to reimburse yourself for those earlier expenses.

EBRI noted that people with HSAs had an average balance of just $3,221 in 2019—a pittance, considering that the allowable annual contribution in 2020 is $3,550 (rising to $3,600 in 2021) for those with individual health plans and $7,100 for those with family coverage (increasing to $7,200 in 2021).​

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In addition, only 6% of HSAs were in investment accounts. EBRI found that virtually no one contributes the maximum, and nearly everyone takes current distributions to pay for medical expenses.​

Embarrassed to say....the above was me! Just had the money in the basic account, and was spending it as needed to expenses until recently. Now its in an investment account with TDAmeritrade in a retirement based fund.

 

[Crob83]

I tried, but between my wife and 2 step kids it always got ran thru. Wife has has some major medical issues so it was well spent. I ended up switching to an HRA for cheaper co-pays, just works out better for us. Will probably switch back to HSA in a few years once the kids are too old to be on my insurance and start saving it. Plus my job gives us 2K a year on HRA for co-pays and only $1600 for the HSA, obviously can't save the HRA funds but they have gotten fully used every year so far. Once that stops happening I'm going back to HSA

 

[Renod]

I've been using mine that way for a few years now, I max it out ($7100/yr) and don't draw against it unless i need to. I save all my medical receipts and consider it a 'rainy day' fund since you can reimburse yourself at any time - it doesn't have to be in the year you incurred the expense. Paid cash for my daughters braces and saved the $4k receipt for a rainy day and cash it out whenver i need it..

That's what I have been doing for several years now. I'm looking at it as an extension to my retirement plan, whether it ends up getting used for healthcare related expenses or as a "rainy day" fund.

 

[2kwik4u]

I've had an HSA for at least a decade now, maybe longer. I've always contributed the max, but will pull from it as needed for various expenses along the way. I was relatively healthy in my 20's, and didn't use it for several years. Then had some health issues, and used it up. It now hovers around the zero mark as we pay as many medical expenses from it as we can throughout the year.

Interesting thought to throw money in an HSA, invest it, then save the receipts (from paying for healthcare with cash I assume) to use as a penalty free withdrawal later.

I'm guessing the tax benefits are better on the contributions, and there is no tax on interest/gains earned along the way?

 

[Julian]

@2kwik4u it has the trifecta of benefits: tax free contributions, tax free growth, tax free withdrawals. Which is why the consensus is to leave it in there if you can. Because it is the best investment option of all the ones available. All others only hit 2 out of 3 max.

 

[HangOutdoors]

HSA funds can be used without penalty when you are 65 or older for any expense but you will still be taxed on it when you withdraw. If you use the money before 65 for a non-qualified expense you will be taxed and you will incur an additional 20% withdrawal penalty on top of income tax.

Also be wary of Qualified vs. Non-Qualified HSA's differ a bit on what those are for medical. Examples of non-qualified medical expenses. (Cosmetic Surgery, Premiums, Diet and Weight Loss, Vitamins, etc.)

The only time you won't be taxed on usage of HSA funds is for Qualified Medical expenses.

 

[AZMark]

I let mine build up. Healthcare cost inflation is outrageous and I figure we’ll probably need all we can save when we get older and need more medical care. I do not trust the government to take care of me.

 

[Julian]

The only time you won't be taxed on usage of HSA funds is for Qualified Medical expenses.

There is no way I'll be able to save more than I would use....keep in mind you can save every medical bill between now and retirement+ and submit it, and withdraw tax free. OTC drugs, meds, Part B and co-pays alone will probably suffice! Let alone medical devices.

 

[CarolinaJet]

Thanks for bringing this up. When my son was born I spent all the HSA money on the copays because “that’s what the health care money was for” but at some point I was fortunate to learn what you all are saying- it’s a tax-protected investment vehicle primarily and now we treat it as such.

Great topics on this board, both related to and unrelated to our boats, I’m sure bringing this up will help someone.

 

[HangOutdoors]

There is no way I'll be able to save more than I would use....keep in mind you can save every medical bill between now and retirement+ and submit it, and withdraw tax free. OTC drugs, meds, Part B and co-pays alone will probably suffice! Let alone medical devices.

No doubt. It is a fantastic plan. Was just fulling in the nuances. If it isbavailable, everyone should take advantage of it.

 

[seanmclean]

I keep enough liquid in my HSA to cover my deductible for the year, but don't spend it unless there is something unexpectedly large that happens. Rest of it is in an index fund invested. We just pay out of pocket for day to day medical expenses because we're fortunate enough to be able to (and there aren't that many), I'm sure that'll change in a couple decades.

 

[etiennepatierno]

Thank you for sharing; I'm thinking about my retirement now. In this case, a person should not completely rely on the state because we cannot be sure that it will take care of us after 20 years. I've been reading articles on the greedyrates.ca site lately, and choose between different credit cards to open my account to save a part of my salary there every month to use this money when I retire. I think this is the most logical decision that will allow me to live with dignity after I can no longer work

 

[adrianp89]

Good information here, missed the thread originally.

I assume it lowers your taxable income in the year you contribute?

 

[Julian]

Thank you for sharing, I'm thinking of thinking about my retirement now

I'm very glad my dad got me into the habit of saving for retirement EARLY. As now I'll be able to retire early.

@adrianp89 - Yup...it comes out pre tax. Part of the trio of benefits: Pretax contribution, tax free growth, tax free withdrawals (if used for medical expenses). And you can collect all your expenses from the start of contributions as withdrawal claims (just keep the receipts).

 

[adrianp89]

Awesome. I have been looking for more ways to reduce my taxable income. What other tax secrets do you have lol

 

[AZMark]

Awesome. I have been looking for more ways to reduce my taxable income. What other tax secrets do you have lol

Taxes are pretty historically low right now and we’re going to have to pay for all this covid spending sometime. The HSA thing is a no brainer, but on other retirement accounts I am paying all the taxes I can right now (Roth 401k / Roth IRA) vs deferring the taxes until retirement (traditional 401k / IRA). This includes converting portions of old traditional IRAs to Roth every year and eating as much of the taxes as I can afford to (without impacting my boat mod budget of course).