(taken from the bogleheads discussion forum with minor edits)
Quote:
Almost seems like it makes sense to leave the funds in for a while, pay medical
expenses out of after tax money (never pay or write a check from HSA to oneself)
and
let the account build up. Seems like worst case is you remain really healthy and
risk
having some funds revert to regular IRA tax status when/after you are 65. I can't
imagine not having some out-of-pocket medical expenses forever though. Am I
missing
anything here?
Answer:
You are missing a lot.
You don't have to revert to regular IRA tax status at 65. You can keep the HSA
till
beyond the grave. You can use it for long-term care premiums (up to a limit) and
Medical B and D premiums, and a long list of medical and dental expenses after
65 even
if you are not still in an HDHP. But you can't contribute more after you go into
Medicare.
The account can be transferred to a surviving spouse.
Note that you can withdraw tax free from your HSA for anything that you paid out
of
pocket in the past since the date you started your HDHP. After you die, your
executor
can pay those old bills. If you don't have a surviving spouse, the executor
probably
should pay the old bills since I believe that has the effect of transferring the
HSA
to
your estate. That is, it converts from income taxes for the inheritors to
typically
lower estate taxes.
The only drawback to this is that you have to keep the records on all your past
bills
for a long time in case the IRA audits.
Posted by rick++ on October 24, 2007, 3:24 pm
I have noticed administration fees have dropped on such accounts.
Last year several places want about $100 a year. This year its half
of that.
I presume the main reason for fees is the adminstrator much check
the receipts to see if its a valid medical cost.
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