Question: Use HSA or pay out of pocket?

I moved to my companies high deductible plan this year. I typically have very few medical expenses and this was also a great way to add to my retirement as I already max out my 401k contributions and I also maxed out my HSA contributions. I am in a position that I can pay my expenses without going into my HSA or other savings. I already have 9 months living expenses in a saving account, so this would not take away from money that would go to my safety net.

If I am considering my HSA as a way to save for retirement, it seems to me I would want to minimize withdraws and let the amount accumulate into retirement.

Do I pay with the HSA withdrawing money from a tax deferred account to pay the bills and invest the money not used in another investment?

Or do I pay out of pocket and leave the money where it is safely tucked away for major medical expense or retirement?


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I never use my HSA to pay for medical expenses. In this way, I am creating another retirement-type vehicle (triple tax free -- on deposit, on growth, on withdrawal). Of course, I am not sure if AMT eats into the tax value on deposit -- who can tell! The catch, you need to keep detailed records of all medical expenses. I do this by downloading EOBs from my health & dental insurers every year (make sure you backup your downloads). Make sure you grab pharmacy claims as well (typically within your health insurer's claims section). I also scan other expenses -- like vision plan out-of-pockets for contact lenses, glasses, exams, etc. You will also want to create a spreadsheet for each year totaling these expenses (remember, only the "patient amount" is your expense -- not the amounts paid by your insurance). When you withdraw money from your HSA (I hope when I stop working and am old), you will need to have evidence that you have sufficient medical expenses to cover the withdrawal. Of course, this evidence only needs to be presented upon an audit from the IRS (low risk). I am amazed that more financial advisers do not stress this awesome savings vehicle for higher income families.
I'm curious about the HSA. I have children covered under my plan and my wife is single covered under her plan and she has the HSA. If I switch next year and go to my employer's "High Deductible" plan and she brings children under her plan, then does she have to stop her HSA? Who defines a plan as "High or Low Deductible" They all seem to show annual increases in the personal payouts required of an employee. What if you decide to skip Dr visits for a few years in order to save money in HSA, and pay for it later with increased Medicare demands due to earlier unaddressed Maladies? Could IRS say "Uh Uh", you can't have your cake today and then take your neighbor's cake tomorrow?
Steve55, you can ask your health insurer if your health plan is a qualified High Deductible Health Plan (HDHP). You can only contribute to an HSA if you are covered by an HDHP, but you can have an HSA before and after you are covered by an HDHP (you just can't add to it while you are without insurance or under a non-qualified plan). If you switch health plans mid-year, you effectively have to prorate the amount you can contribute to your HSA. If your wife and kids are under an HDHP, then she can contribute to her HSA. If you are under a HDHP, then you can contribute to yours. But I think the single limit would apply to your contributions and the family limit would apply to hers (not sure about this). In any case, if you file jointly, you can't exceed the family limit for both of you. As to your second question about Medicare, you can use funds in an HSA to pay for Medicare supplemental insurance premiums or out-of-pocket expenses. As for your last line about the IRS, I am not sure what you mean. Congress can always change the tax law, which is what determines what the IRS uses to create rules and regulations. Congress could wipe out all forms of tax-free savings or it could increase them at any time.
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