HSA Strategy

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Buffetologist
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HSA Strategy

Post by Buffetologist »

Looking for feedback on something.

Married couple late 50s, very high income, net worth 10 Millionish. Retirement plans maxed out every year. Mortgage paid off. Overall asset allocation target is 65/35 stocks/fixed income in terms of risk tolerance. No immediate plans to retire, we both like our jobs, no grandkids yet. If something changed, we could retire any time.

Prior to the low interest rates, my thinking was income in tax advantaged, stocks in taxable. However, my thinking changed when the rates dropped because my tax on the fixed income outside tax advantaged was very low and it made more sense to shift towards doing all of our new stock investing in tax deferred. (I'm not selling any taxable stock due to large capital gains). Also, the return on intermediate duration bond funds didn't seem worth it and I shifted all of my non inflation fixed income to cash or short duration bond funds. Nonetheless these fixed income returns are very low. Additionally, using credit unions I found on depositaccounts.com, I now earn a fairly high return on taxable cash or CDs that even after tax, surpasses the interest earned on my tax deferred bond funds. I also have some IRA money ~500K earning great returns from some credit union and bank CDs.

We've only had a HDHP for the past 3 years and have been investing the max in stock funds in our HSA. However, it occurred to me recently that I could achieve the same asset allocation by using the HSA to pay medical expenses and just moving some of the low yielding fixed income (cash or short duration) within our retirement accounts to replace whatever HSA stock funds I had. This would relieve the nuisance of saving every receipt, which unfortunately for me is substantial.

In other words, I think the benefit of the HSA plan administrator adjudicating my medical expenses so that I don't have to save receipts, and returning taxable cash may be worth more to me than the minuscule amount of additional tax deferred space the HSA provides.

Does this seem reasonable or am I missing something?
chitownguy
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Re: HSA Strategy

Post by chitownguy »

I would still use the HSA for a long term health savings account. You only need to save the receipts if you plan to reimburse yourself for past expenses. Why bother with that? Consider the HSA like a Roth and max it out with the most highly appreciating stock funds you are offered. Then use it when you're older tax free for all your health care spending.
WalterMitty
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Re: HSA Strategy

Post by WalterMitty »

+1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
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JoeRetire
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Re: HSA Strategy

Post by JoeRetire »

Buffetologist wrote: Fri Oct 15, 2021 10:43 amIn other words, I think the benefit of the HSA plan administrator adjudicating my medical expenses so that I don't have to save receipts, and returning taxable cash may be worth more to me than the minuscule amount of additional tax deferred space the HSA provides.
If not saving receipts is that important to you, then it's a reasonable plan.

If you expect to have high future medical expenses, then there's no real need to save receipts now.
And remember that things like LTCi premiums can be paid for with HSA money.
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Topic Author
Buffetologist
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Re: HSA Strategy

Post by Buffetologist »

Thanks for all the feedback. Some interesting thoughts. Maybe if I have trouble getting reimbursed, I'll revert back to just using it as a tax-deferred account. I guess I'm concerned about not being able to use the HSA. I have enough medical expenses every year that I wonder if I'll ever get to BE old, and my wife is so healthy that she may never need medical care. As far as LTCi, I did the math and we decided that it made most sense for us to self insure.

The thing I was asking about is that I still have so much tax deferred space earning practically zero in cash or short term BBB/A rated bond funds, that ensuring that the HSA is tax-free seems worth it, and because cash in federally insured taxable accounts actually earns more after tax than in tax deferred because of the high interest paid by the credit union accounts which are unavailable in our 401Ks due to the limited options.
Atretes1
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Re: HSA Strategy

Post by Atretes1 »

I am maxing my HSA with no plans to use the money until after retirement. I am investing all of it I can. I cash flow any medical expenses. I am saving all my receipts for future draws if needed.
MrBeaver
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Re: HSA Strategy

Post by MrBeaver »

Buffetologist wrote: Fri Oct 15, 2021 12:46 pm I guess I'm concerned about not being able to use the HSA.
I would not worry about this since your current balance is low. Sure, spend out of it now instead of using receipts if that makes your life easier though. It just won’t make much difference.

1. Medicare premiums can be paid from the HSA.
2. Use any excess during self funding of long term care.
3. With 10M net worth, I imagine you have plans to gift to charitable organizations at your death. If any is left over after 1 & 2, gift it to a specific charity, foundation, or DAF if you leave your DAF to be managed by others after you and your spouse’s death.
nix4me
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Re: HSA Strategy

Post by nix4me »

We gave up and just use our HSA to pay for med bills. Anything left over each year gets invested in SCHB and SCHD. We keep $3000 in cash account at all times and invest the overage.
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camillus
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Re: HSA Strategy

Post by camillus »

So wait.

You guys are saying that you're not planning on buying a boat with HSA funds in 20 years and pulling out a shoebox full of faded old health receipts in case of audit?
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anon_investor
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Re: HSA Strategy

Post by anon_investor »

camillus wrote: Fri Oct 15, 2021 11:05 pm So wait.

You guys are saying that you're not planning on buying a boat with HSA funds in 20 years and pulling out a shoebox full of faded old health receipts in case of audit?
Nah, scanned receipts in the cloud, and in 20 years it will be a space ship not a boat! :beer
TropikThunder
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Re: HSA Strategy

Post by TropikThunder »

WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
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camillus
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Re: HSA Strategy

Post by camillus »

TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
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camillus
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Re: HSA Strategy

Post by camillus »

anon_investor wrote: Fri Oct 15, 2021 11:08 pmNah, scanned receipts in the cloud, and in 20 years it will be a space ship not a boat! :beer
No, Mr. IRS auditor. As you can clearly see, my qualified health expense in 2021 for an annual prescription for Viagra went towards 2041's jetpack purchase. It was the qualified expense for the bionic hair transplant in 2029 that went toward last year's lunar vacation. I know working with these old PDFs is a pain. Please respond to me via neural mesh at your earliest convenience.
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anon_investor
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Re: HSA Strategy

Post by anon_investor »

camillus wrote: Fri Oct 15, 2021 11:29 pm
TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
Probably worth it to transfer some of that HSA $ to Fidelity. Just to avoid that hassle.
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anon_investor
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Re: HSA Strategy

Post by anon_investor »

camillus wrote: Fri Oct 15, 2021 11:35 pm
anon_investor wrote: Fri Oct 15, 2021 11:08 pmNah, scanned receipts in the cloud, and in 20 years it will be a space ship not a boat! :beer
No, Mr. IRS auditor. As you can clearly see, my qualified health expense in 2021 for an annual prescription for Viagra went towards 2041's jetpack purchase. It was the qualified expense for the bionic hair transplant in 2029 that went toward last year's lunar vacation. I know working with these old PDFs is a pain. Please respond to me via neural mesh at your earliest convenience.
Others have posted about their IRS audit experience for HSA withdrawals. I took some notes and it wouldn't be hard to respond. I keep everything I would need to respond to an audit organized in the cloud, my computer and a backup hard drive.
TropikThunder
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Re: HSA Strategy

Post by TropikThunder »

camillus wrote: Fri Oct 15, 2021 11:29 pm
TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
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anon_investor
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Re: HSA Strategy

Post by anon_investor »

TropikThunder wrote: Sat Oct 16, 2021 12:05 am
camillus wrote: Fri Oct 15, 2021 11:29 pm
TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
I think that is not usual. PayFlex and Fidelity do not require this to withdraw funds.
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camillus
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Re: HSA Strategy

Post by camillus »

anon_investor wrote: Fri Oct 15, 2021 11:36 pmProbably worth it to transfer some of that HSA $ to Fidelity. Just to avoid that hassle.
TropikThunder wrote: Sat Oct 16, 2021 12:05 am That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
Yes, I personally am bound to Healthequity due to my workplace's cafeteria plan. They ask for a date of service, name of provider, etc. A spot to upload your receipt. It's very cumbersome. Once a worker has a high enough HSA balance, it's worth doing a rollover/transfer to another account annually.
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WalterMitty
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Re: HSA Strategy

Post by WalterMitty »

anon_investor wrote: Sat Oct 16, 2021 12:14 am
TropikThunder wrote: Sat Oct 16, 2021 12:05 am
camillus wrote: Fri Oct 15, 2021 11:29 pm
TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
WalterMitty wrote: Fri Oct 15, 2021 11:14 am +1 on what was said above.

My wife and I also became frustrated with the what became a bigger and bigger pain trying to get reimbursed. Matching receipts with bills...one number or date off, denied, etc. So we just use the HSA as another tax deferred account...max it each year, and don't touch it. We now just pay the med bills out of pocket....so much less of a hassle.
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
I think that is not usual. PayFlex and Fidelity do not require this to withdraw funds.
I'm not sure what the current practices are in terms of ease of use. Our opinions were shaped years ago when at another employer...whose HSA admin was a total PITA about reimbursements. From then on, we just said it wasn't worth the hassle and pay expenses out of cashflow. So now we just use the HSA as a tax deferred savings plan (current employer allows money to be invested with TD Ameritrade). Once we reach 65, then we can either use the cash for medical expenses, or just withdraw, pay taxes and spend it on whatever we want.
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anon_investor
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Re: HSA Strategy

Post by anon_investor »

WalterMitty wrote: Wed Oct 20, 2021 2:58 pm
anon_investor wrote: Sat Oct 16, 2021 12:14 am
TropikThunder wrote: Sat Oct 16, 2021 12:05 am
camillus wrote: Fri Oct 15, 2021 11:29 pm
TropikThunder wrote: Fri Oct 15, 2021 11:21 pm
What are you referring to? You don't have to explain to the HSA custodian what you need the money for, just transfer it to your checking account. They can't "deny reimbursement".
Some HSA custodians make you jump through hoops. Heathequity is an example. If you want to make a withdrawal, you have to link it with or make up a health expense. It seems Healthequity wants to keep records to make sure your withdrawals are qualified. It's a pain.
That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
I think that is not usual. PayFlex and Fidelity do not require this to withdraw funds.
I'm not sure what the current practices are in terms of ease of use. Our opinions were shaped years ago when at another employer...whose HSA admin was a total PITA about reimbursements. From then on, we just said it wasn't worth the hassle and pay expenses out of cashflow. So now we just use the HSA as a tax deferred savings plan (current employer allows money to be invested with TD Ameritrade). Once we reach 65, then we can either use the cash for medical expenses, or just withdraw, pay taxes and spend it on whatever we want.
Fidelity HSA is definitely the way to go if no longer bound by an employer's selected plan due to contributions via payroll. We also plan to save up our HSA balances for use in retirement.
MrJedi
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Re: HSA Strategy

Post by MrJedi »

camillus wrote: Sat Oct 16, 2021 12:28 am
anon_investor wrote: Fri Oct 15, 2021 11:36 pmProbably worth it to transfer some of that HSA $ to Fidelity. Just to avoid that hassle.
TropikThunder wrote: Sat Oct 16, 2021 12:05 am That's ridiculous. I know HSA Bank doesn't act like your nanny, they specifically say on the HSA Bank website "you do not need to submit any receipts to us or file any claims" and trust that you will follow the rules. Hopefully HealthEquity is the exception rather than the rule.
Yes, I personally am bound to Healthequity due to my workplace's cafeteria plan. They ask for a date of service, name of provider, etc. A spot to upload your receipt. It's very cumbersome. Once a worker has a high enough HSA balance, it's worth doing a rollover/transfer to another account annually.
Are you sure it is required?

I have an employer sponsored HSA through BoA. They have all these expense management "features" you are describing like categorization, receipt upload, etc. but they are all optional. I can just directly withdraw from it like a bank account without filling that stuff in.

I keep my own spreadsheet ledger of reimbursible expenses. When I make a distribution from HSA I do a quick summation of several lines, mark them off as reimbursed on this date, and then make an HSA withdrawal with that exact summed amount without filling in any individual expense information (I do keep that info in my separate spreadsheet though for audit purposes).

If it is indeed required, that would be unacceptable for me, and I would probably do periodic rollovers to something like Fidelity's HSA. I have not used it but I hear mostly positive things about it and I am a Fidelity user already.

Edit: I looked up Health Equity support and found this

https://answers.healthequity.com/app/an ... /Reimburse
You do not need to submit substantiation documents for a reimbursement from your HSA, but you should retain those receipts in your personal files in case of an IRS audit of your HSA.
I do not have direct experience with Health Equity but something to look into. This is what I would expect because I would be surprised if an HSA administrator would actually try to implement this extra overhead of verifying medical expenses when they are not required to. This is between the individual and the IRS.
Last edited by MrJedi on Wed Oct 20, 2021 5:46 pm, edited 3 times in total.
MrJedi
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Re: HSA Strategy

Post by MrJedi »

Also for OP, a middle ground option is to perhaps only keep receipts for big expenses, say $500+ or so. Less to track and less paperwork to fuss with, but you can still capture most of the tax shielding benefit by allowing the HSA to stay invested if you are maxing out other tax advantaged accounts.
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