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Posted by Tad Borek on August 25, 2008, 4:14 pm
Mark Freeland wrote:
>> But a retiree is likely to have medical expenses also, no? So the money
>> in the HSA would still potentially be completely tax exempt.
>
> More than potentially...
> It doesn't seem to matter if you have the expenses in 2008 and withdraw the
> HSA money in 2025, using the 2008 expenses to offset the HSA withdrawal.
I wouldn't even consider doing that! I think it's best to match the
withdrawal to the right tax year even if you can read ambiguities into
the law allowing late reimbursements. Plus, I expect these issues to get
tightened up in the future, perhaps very soon. Have you followed the HSA
substantiation bill? It's already creeping in - HSA Bank now requires a
different process/form for reimbursements vs. expenses paid directly by
check/debit.
Will - you're right, there is that argument of rolling it forward to pay
larger medical expenses in the distant future. One might believe that
these costs are going to be so much higher that tax-deferred growth of
the money is more important than getting reimbursed now. And, you have
enough excess cash to cover not only all the other spending/saving needs
in life, but also these medical expenses you could be paying from the
HSA. I think that's an unusual individual though.
On a more practical level, I do some mental accounting...health
insurance plus HSA is the "medical expense" budget for the year. Some
(or all) of the HSA rolls forward in a "healthy" year, but that's good,
it will help in a more costly one. But at a certain point, it's enough.
Even the HDHPs have out of pocket maximums that aren't all that high,
and with family coverage you can add another $5800/year, going up
annually. So you start thinking about questions like "what if I die
before using that up?" or "do I have too much spooling up in
tax-deferred accounts?" or "isn't it likely the health insurance scheme
will change substantially by the time I retire?" There's a bird-in-hand
aspect to just writing that check now, and a risk of "hoarding" for a
day that never comes.
-Tad
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Posted by Will Trice on August 25, 2008, 10:27 pm
Tad Borek wrote:
> On a more practical level, I do some mental accounting...health
> insurance plus HSA is the "medical expense" budget for the year. Some
> (or all) of the HSA rolls forward in a "healthy" year, but that's good,
> it will help in a more costly one. But at a certain point, it's enough.
> Even the HDHPs have out of pocket maximums that aren't all that high,
> and with family coverage you can add another $5800/year, going up
> annually. So you start thinking about questions like "what if I die
> before using that up?" or "do I have too much spooling up in
> tax-deferred accounts?" or "isn't it likely the health insurance scheme
> will change substantially by the time I retire?" There's a bird-in-hand
> aspect to just writing that check now, and a risk of "hoarding" for a
> day that never comes.
All of this is true, of course, but doesn't apply just to HSAs. You've
pointed out before how tax-deferred accounts can be overly used in some
circumstances and how things can change out from underneath you.
-Will
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Posted by Mark Freeland on August 26, 2008, 1:52 pm
> Mark Freeland wrote:
>>> [...]
>> More than potentially... It doesn't seem to matter if you have the
>> expenses in 2008 and withdraw the HSA money in 2025, using the 2008
>> expenses to offset the HSA withdrawal.
> I wouldn't even consider doing that! I think it's best to match the
> withdrawal to the right tax year even if you can read ambiguities into the
> law allowing late reimbursements. Plus, I expect these issues to get
> tightened up in the future, perhaps very soon. Have you followed the HSA
> substantiation bill?
http://www.govtrack.us/congress/billtext.xpd?bill=h110-5719&version=rfs&nid=t0:ih:186
HR 5719, Section 17, as you note, deals with substantiation (evidence), but
doesn't deal with what is or isn't a qualified expense. This bill (like
most) places the effective date significantly into the future (here,
starting 2011). So even if a bill like this were to be enacted, one would
probably have ample warning to make withdrawals before the new rule kicked
in.
There's no question that this strategy contains a two-fold risk: (1) that
the current law, albeit vague, is found to prohibit applying prior year
expenses, and (2) the law might be changed before you could take advantage
of the old rule. Personally, I'm more concerned about the former than the
latter, but each person's take and risk assessments (not to mention the
amount of money at risk) will differ.
>It's already creeping in - HSA Bank now requires a different process/form
>for reimbursements vs. expenses paid directly by check/debit.
What's distinctive is that HSA Bank's form asks the reason for the
withdrawal. (Most banks require withdrawal forms if you go to them and ask
for cash directly, as opposed to making a third party payment via
check/debit card.)
I'm not convinced that HSA Bank's change was anticipatory. Rather, HSA Bank
is using Evolution Benefits' debit card system, and Evolution Benefits (EB)
had been pushing Congress on substantiation (not qualification)
requirements. So seeing a client (HSA Bank) of EB conform to what EB was
pushing may suggest nothing more than usual business pressure. Apparently
EB only wanted legislation to promote its business, and not help the IRS
collect money. When the House obliged with legislation, but went the
obvious extra step of taxing unsubstantiated withdrawals, EB withdrew its
support.
http://www.healthinsurancecolorado.net/blog1/wp-content/uploads/2008/04/eb_letter.pdf
Mark Freeland
nNeEwTs@nyc.rr.com
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Posted by Gil Faver on August 26, 2008, 10:45 am
> What is your thinking about not using money in an HSA for medical expenses
> if you can afford to pay from your other resources, to allow the HSA to
> build up. Assume a healthy, well off person, 50 years old, little medical
> expenses or needs. If they pay what little medical expenses they will
> have out of pocket, their HSA will continue to build in value.
>
> related questions:
>
> once you are on Medicare, can you still have an HSA qualified insurance
> coverage (like Medicare plus or some such thing) and still contribute to
> HSA?
>
> what happens to the HSA when you no longer need it? Or when you die?
>
> thanks.
lots of good info and thoughts.
What happens to the HSA when you die?
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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