Can You Have Too Much Money In Your HSA?

Can You Have Too Much Money In Your HSA?

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[liveslisa]

Before I retired 7 years ago, I had saved up a large chunk of money in my HSA. Then I found out that I could invest my HSA money, so I took 2/3's of the money and I put it in an ETF. Then the money started growing. I've been retired a long time now and I have not had to touch the invested portion. The savings account has been paying all my out of pocket expenses and co-pays. I think HSA's are great. I advise all people who are still working to start funding an HSA.

[steves]

Also, it can be used to cover Medicare parts B and D premiums. It's a good deal if you have the spare cash flow.

[LukeofAllTrades]

This makes me wonder if this would work as a "bridge" strategy, to help you retire early. Say at 59 you have $50, 000 in medical expenses you haven't reimbursed yourself for (not crazy for someone in their 30s or 40s who may have had a few major expenses before 60), you could retire early and use that $50k to help bridge the gap until you can start drawing on other retirement accounts. Probably couldn't be the only bridge account, but could help augment it, and tax free since it's reimbursement.

[markburton]

Thanks for explaining that, it was very helpful

[paulbrown]

I Literally just wanted an answer to this today hahaha thank you money guy team!

[mirandadamsmith]

I would love to hear a follow up question to this one that expands on the taxation of HSA if you should die with dollars left in the account. What tax implications are there for your heirs?

[KG-oeoo]

And if you contributed to an HSA through your workplace paycheck, you didn't pay FICA tax on it either so even if it is taxed as ordinary income after retirement, you still saved the FICA taxes.

[aberlin]

I’d love a segment on 529 strategies and/or overfunding (if that’s a thing).

[rapfreak]

No! You can always take it out in retirement and pay taxes and avoid penalties. It effectively is another traditional investment vehicle like a 401k or IRA.

[jimv]

My wife and I have about $80, 000 in our HSA account since 2012 and we are healthy. I see it as future money for a ONE night stay in the Hospital...maybe TWO nights. My wife works in a hospital providing bedside care and it's true that if you have serious health issues, you want to be dirt poor and everything is covered by "someone else"....sad country we live in when this is how the healthcare system works.

[DrWeaselander]

I've only been tracking receipts for 6 years and I'm already over $30k that I can reimburse tax free. That's half my current HSA value.

[wemustdissent]

Married couple with kids can do $7750 into HSA, $5k into child dependent care FSA, $45k into 401k That is $57, 750 in tax deductions. If you are in the 24% bracket that is $13, 800 in tax savings a year that you can use to fund 2x Roth IRAs

[jacobg]

What about using the HSA VS emergency fund in a health related emergency? Would it be better to draw from your emergency fund so the HSA can grow and reimburse later? Or is that the same as investing your emergency fund?

[logicalparadox]

Yeah, but correct me if I'm wrong, but you can't just go and pull out a lump some in a single go to reimburse yourself you 20-30 years of expenses. Back when I used to have an HSA, the reimbursement process was very much like an FSA, where I had to submit a claim form for each expense. And it was a PITA. How many claims will that be? Hundreds? Thousands? Who is going to submit all of those? Who is going to fight with the HSA custodian when they deny some percentage of them randomly with little to no explanation. Or you find out you lack proper documentation going to be a qualified expense. For example, some things are only qualified if you have a letter of medical necessity and they might want one filled out currently and not some generic one. And it just seems like trying to reimburse that many expenses from decades ago might open you up to extra suspicion. Am I wrong??

Lastly, the qualified expense rules can change. So what happens if the expenses you have are suddenly no longer qualified when you go to reimburse yourself?

[Zorlig]

I've experienced the same thing, expenses on the spreadsheet actually rack of faster than the money in the account. Someone should do a full accounting of everything to can use it on after retirement too.

[maxspellman]

Should I invest the max in 401k or 401k roth with 0 match at a bad brokerage or save up to buy a home in Seattle tax free state. I make 85k to 110k a year.

[krowchuk]

My employer only uses one vendor for this and it’s a local bank, that doesn’t pay any interest to speak of and I feel like I wasted my time and money putting it there. I work for my local government, happy with my job but don’t like this one rule that is placed on me. Feel like no one here really understands HSA.

[ndjohnson]

I can't imagine there are more than a dozen people in the entire US with seven figure HSA balances, and probably not many with six figures. But Bo, your, "even if it's too much, you can use it like a Traditional IRA, " comment seems to ignore the very real problem that RMD-age folks have with forced taxable income. Also, and maybe you addressed this more in the show, but HSAs are terrible assets to leave behind. While I agree that HSA should take priority over backdoor/Roth IRA contributions for most people most of the time (for that sweet tax deduction and likely tax-free distribution in the future), I would also say that, if the contribution deadline is approaching, and you have maxed out your HSA but not your Roth IRA, and you can take tax-free distributions from your HSA, you SHOULD do that to shift those funds into a Roth IRA.

[djpuplex]

So is it smart to take a tax deduction now or save the receipts? I assume I can't do both? I thought the IRS only has 7 years to look back?

[Foslopac]

After 65, can't an HSA be used like a regular retirement account to cover any expense?