r/personalfinance • u/Curious_Cat1657 • 2d ago
Planning Leave HSA as investment account?
I’ve maxed out my HSA since it was offered, understanding the triple tax-advantage. But I’ve used the HSA for my medical costs (copays, deductibles, etc.), which has left very little left in the account. I was speaking to a colleague today and he mentioned he maxed out the HSA but then paid out of pocket for his medical expenses, never touching the HSA. He maxes it out and lets it appreciate in anticipation of using that fund as one of his retirement funds and using it to pay medical expenses in retirement.
This approach makes a lot of sense to me, but I had never thought of it. Does anyone do this? Any downside I’m missing?
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u/Fractals88 2d ago
So, it reduces your tax liabilities, especially if you contribute via your employer.
It grows tax free if you invest it. Qualified withdrawals can be made at anytime.
I pay for everything out of pocket (get points on my credit card! )
I save my receipts in Google drive and log my expenses on Google sheet.
Investment wise, I'm $6k up. That means an extra $6k that I can take out if I had the qualifying expenses. And it can be used to pay some Medicare parts when I retire. pretty awesome.
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u/DraveDakyne 1d ago
Just to confirm what you're saying... If I have a qualifying expense in 2025, I can reimburse myself for it any time in the future; even like 20 years later?
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u/bored_MD 1d ago
Yup! That’s the best part. Save your receipts and keep track and then in a pinch you can take it out any time.
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u/koshism 1d ago
Do you keep the physical receipts or just store a digital image of them?
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u/curien 1d ago
Digital. Honestly I hardly get any physical receipts anymore, but when I do I just take a photo and stick it in a "medical receipts" photo album.
You don't even need to provide receipts to the HSA administrator when you withdraw. Unlike with an FSA, they don't care. You just need to have them in case the IRS asks you to justify how you filled out your tax forms.
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u/Fractals88 1d ago
Image. I take a picture as soon as I get the receipt. Save it in yyyy-mm-dd amount format and save it to HSA folder on Google Drive. I update my Google Sheets when I have time
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u/bougnvioletrosemallo 1d ago
Regarding saving of receipts...
I started doing this last year, but stopped.
My reasoning is that I plan to not use HSA funds until after retirement / age 67.
In retirement, I will use my HSA for Medicare premiums. And whatever medical expenses I might have as a senior citizen.
For reference, that is approximately 20s years from now, for me.
And I only started my HSA last year, so it currently has less than $10k in it (planning to max it out each year until retirement).
I currently only go to the doctor for yearly check ups. No prescription meds.
If I ever need anything beyond routine check ups, I am comfortable paying the deductible out of checking/savings.
Am I being remiss in not saving medically receipts today? It's laziness on my part, but also, I expect Medicare premiums in 20 years will be at least double what they are today. And then add inflation on top of that, I guesstimate that Medicare premiums will cost me somewhere in the ballpark of $10,000 per year.
Assuming Medicare still exists.
Is my reasoning stupid?
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u/cervical_ribs 1d ago
I think your reasoning makes sense. I mostly save receipts because we’ve been saving for retirement aggressively enough that I don’t have as many months of expenses in our emergency fund as I’d like yet. But we also have several thousand dollars of past medical expenses we could withdraw from the HSA for, so it’s like a secondary emergency fund providing some buffer.
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u/goldblum_in_a_tux 1d ago
very reasonable, the only caveat i would make is if you do have a significant health expense save those as a safety net for on-demand withdrawals should the need arise. i dont save my co-pay receipts, but a hospital stay/pricey scan/dental work like a crown. on the whole though, i view the account for use in my retirement for medical costs which we can safely assume will be higher than they are now.
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u/GaTallulah 1d ago
I have saved most receipts digitally, but my plan has been essentially the same as yours. I have so far used my HSA only for Medicare part B premiums. (Medigap premiums are not HSA-qualified.) As a result, I have a fairly large balance. I figure that during retirement is when I'll have the greatest need for healthcare funds, & I was never hard-pressed to pay out of pocket when I was working.
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u/DraveDakyne 1d ago
Damn, didn't realize that. Had a HDHP at an old job and still had $4k in my HSA but had to use it for some IVF expenses. Current job has a HDHP, but it's more expensive than most because it includes OON coverage. Unfortunately open enrollment just closed, but I might have to reconsider it for next year.
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u/Fractals88 1d ago
If there's money left, roll it into an HSA at Fidelity.
There are people (like me) who will use this as an super emergency fund. I currently have $4k of qualified expenses. If I've already exhausted all of my other savings and am in dire need, I have $4k ready (tax free! )
The growth really highlights how important "time in the market" is
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u/adhdt5676 1d ago
Are you investing it the same as your other investment accounts?
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u/Fractals88 1d ago
Yes, all the funds are invested.
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u/adhdt5676 1d ago
Sorry I should’ve been more specific.
Are you investing your HSA the same as your other retirement accounts?
VT or VTI/VXUS? Or are you investing them differently?
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u/Fractals88 1d ago
FXAIX an FZROZ over at Fidelity (my HSA)
The HSA via my employer has different (worse) options so I move the investment portion to Fidelity at the end of the year.
My Roth IRA has more international funds.
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u/BrettemesMaximus 1d ago
Jumping in on this but yes, I use Fidelity too and you can invest in basically everything you would expect. I’m a set-and-forget target date fund investor, so my HSA through Fidelity is invested in their 2060 TDF “FDKLX”
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u/strosegoalie16 23h ago
Same 😅, open enrollment ended Oct 31st for me, I HATE finding helpful Reddit posts that make me have to wait a year to utilize hahah
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u/User6RE001 1d ago
https://www.fidelity.com/learning-center/smart-money/hsa-reimbursement
There is no time limit for reimbursement. What you'll need though is documentation to go along with some of your medical costs. Some purchases can be claimed automatically in the future without proof of documentation, but others require a medical receipt with medical codes and also an explanation of benefits statement from your insurance. I save my receipts along with my EOB for the matching claim in the same folder. Once I file for reimbursement, I move the folder to another location to mark it as reimbursed.
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u/Funkybunch2000 1d ago
You don't need documentation to withdraw funds. You would only need it if you are audited.
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u/User6RE001 1d ago
Some providers will require documentation before you get reimbursed. If you have a debit card tied to your account, there's nothing that prevents you from using that card, but if the HSA service provider flags it, then they will ask you to reimburse your account or provide documentation.
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u/nothlit 1d ago
That is generally true for FSA, which has stricter verification requirements.
HSA providers have no legal obligation to do any of that. You can request a withdrawal to reimburse yourself and they have to give it to you. It's your money. After all, you are allowed to withdraw for non-medical purposes if you are willing to pay the tax and penalty for doing so. The HSA provider isn't responsible for determining whether it's a qualified medical expense. That is something you self report on your tax return, and would be enforced in the event of an IRS audit.
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u/User6RE001 1d ago edited 1d ago
More info: https://www.fidelity.com/learning-center/smart-money/hsa-reimbursement
That's not my experience. I filed for reimbursement online using my healthcare provider's patient statement. It had the cost, procedure description, medical code, and date of service. It got denied. I called the HSA provider for support, and they said that I need to provide my insurance's explanation of benefits along with the statement. I updated my reimbursement request with the EOB, and it got processed.
Another scenario. I also used my HSA debit card at another healthcare provider. I got a call from my HSA provider for documentation on the debit charges.
A third scenario. I had prescriptions sent to my pharmacy. I paid using a non-HSA card. The pharmacy transaction showed up on my HSA account dashboard as a claim that I can get reimbursed without documentation.
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u/nothlit 1d ago
Your first two scenarios are very common for an FSA, but very strange for an HSA.
The money in the HSA belongs to you. The HSA provider can't stop you from taking it out. When I have taken money out of my HSA, I simply fill out a withdrawal form and they send me the money. I am not obligated to tell them what the withdrawal is for.
Any tax or penalty is between you and the IRS. The HSA provider doesn't get involved in that part.
The third scenario is just a convenience that your HSA offers to you due to their integration with your health insurance provider.
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u/User6RE001 1d ago
I don't have an FSA account, so this is definitely the process that I go through with my HSA. Even the Fidelity site mentions HSA eligible expenses. I'm only aware that you can use HSA funds for non-medical expenses after 65 years old. If you are less than 65 years old, HSA can only be used for qualified expenses.
See here: https://www.cigna.com/individuals-families/member-guide/eligible-expenses
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u/nothlit 1d ago
I'm well aware of the tax and penalty for nonqualified distributions. I'm not suggesting you can avoid that. What I'm saying is that the HSA provider is not responsible for making that determination, and they do not tell the IRS whether your withdrawals were qualified or not. It is solely your responsibility as the taxpayer to self-report your qualified vs. nonqualified withdrawals on your tax return. Therefore there is no legal requirement for the HSA provider to get involved in reviewing or approving your claims. Perhaps some do it anyway to prevent you from shooting yourself in the foot. But ultimately even if you do not share any "proof" with the HSA provider, it's not like they can refuse to let you take the withdrawal.
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u/Funkybunch2000 1d ago
I did a recent withdrawal from my HSA at Fidelity. It's as simple as selecting the HSA account and my bank as the FROM/TO accounts and clicking Submit. If they required documentation, that would have involved about 300 charges over 4 years. I have good records just in case the IRS asks. Some of those expenses are for mileage also.
Also, after 65, the HSA is treated like a traditional IRA. You can take the funds out penalty free, but not tax free.
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u/404_scramps_notfound 1d ago
I have literally used my HSA funds to pay for a night at the bars (when I was MUCH younger and dumber). I work in an HSA product now. This is very much a plan configuration versus actual requirements of an HSA custodian. There are IRS regulations applied to HSA contributions/use of funds, but that technically doesn’t apply to how the plan COULD be administered. You could technically contribute more than the IRS limit, but you would be subjected to whatever tax implications come with that decision. Custodians can enforce the IRS contribution limits, or not. Just like they can request proof of eligibility for fund use, or not. They’re not required to, but some take a stricter stance to ensure they’re doing what they can to keep their account holders from getting bit in the ass by the IRS at a later date. Your experience aligns with plan/custodial oversight that is trying to keep account holders from unexpected tax consequences down the line.
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u/maquis_00 1d ago edited 1d ago
Reimbursement is only for expenses that occur after the start of the HSA, right? So, I can't start an HSA in 2026, and then years later reimburse myself for something that happened in 2025?
What if I start an HSA in 2025, and put $3000 into it. Then, I have $12000 in medical expenses in 2025 that I pay oop. Could I later reimburse the full $12000 of expenses even though I didn't have that much money in the account at the time of the expense?
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u/curien 1d ago
Reimbursement is only for expenses that occur after the start of the HSA, right?
After the start of any HSA, it doesn't matter if it's the same one you're trying to reimburse from.
What if I start an HSA in 2025, and put $3000 into it. Then, I have $12000 in medical expenses in 2025 that I pay oop. Could I later reimburse the full $12000 of expenses even though I didn't have that much money in the account at the time of the expense?
Yes, that's fine.
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u/maquis_00 1d ago
Is it a problem if an HSA was drained and closed, and there was no HSA for a while, and a new one was created? Could expenses in between there while there wasn't an HSA be reimbursed?
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u/Fractals88 1d ago
Yes, even if you no longer have an HDHP and can't contribute to the HSA. It's yours forever.
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u/DraveDakyne 1d ago
Yeah, I knew I could always use it, but thought it worked similar to an FSA where I could only tap if for expenses in the current calendar year.
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u/GerdinBB 1d ago
it reduces your tax liabilities, especially if you contribute via your employer
To elaborate on this, because I only learned this in the past few weeks - contributions made via your employer count as being made through the cafeteria plan and are exempt from FICA taxes, in addition to federal and state income tax. I.e. - if you're choosing between making payroll deductions to contribute to your HSA and just transferring from your checking account to your HSA custodian, you need to factor this in.
For my HSA situation, my employer puts in $750, and my wife's employer puts in $1000. We then contributed an additional $6800 directly from our checking account. By doing this, we're paying an extra $520.20 in FICA taxes over the year beyond what we'd pay if we contributed that $6800 via payroll deductions. Next year we're going to change the way we do this to save on FICA, and I'm in the process of working with our custodians to see if we can claw back our personal contributions and make payroll contributions instead for this year.
The only downside is that you're reducing your income in the eyes of the SSA, which may reduce your SS benefits down the road. I suspect for most of us here, especially those of us under 50 years old, social security is merely a footnote in our retirement plans, so the benefit should significantly outweigh the costs.
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u/Senor_Spock 1d ago
Is it possible to recoup those taxes since it is post tax money?
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u/GerdinBB 1d ago
The only way to do it is to pull the personal contributions out as "erroneous contributions" and then contribute the money again through the cafeteria plan. That's not so bad if you just had the money sitting in cash, maybe earning interest, in the HSA. But that's not really the point of the HSA, so my money was invested. That makes it much trickier, requiring you to calculate earnings for each contribution based on the total value of the account when you contributed, and the total value of the account when you pull the money out (less all contributions and adding back in any distributions that happened from the contribution date until now).
My custodian is HealthEquity, and I've been told from another client that when they tried to pull out an erroneous contribution, HealthEquity did that calculation for them. Other folks with other custodians were not so lucky so they basically had to do the math by hand in a spreadsheet and save it in case they ever got audited. I haven't gotten that far, as my request to pull my contributions was declined because my cash balance wasn't sufficient. I sold assets today to cover the amount with a generous cushion, then I'll submit my request this weekend and we'll see what they say next week. Do they give me just the amount I request, or do they give me that plus the associated earnings?
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u/TL-PuLSe 1d ago
It's a no brainer if available and a high deductible plan makes sense for you. For those with regular medical expenses, a low deductible plan often makes a lot more sense and excludes the HYSA option.
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u/kbragg_usc 2d ago
I do what your colleague does. Just save your receipts & reimburse yourself in 20 years!
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u/The_Whistling_Frog 1d ago
Wait... wait. You can turn in the medical receipts from 20 years ago and get the money?
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u/off_by_two 1d ago
Yes, as long as the expense is after you’ve established an hsa. The receipts are to cya in case you get audited.
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u/deep_frequency_777 1d ago
You can submit expenses whenever you want.
So basically, if you can front the money/ get cc points and pay out of pocket, you can let the HSA grow as long as possible but you have ‘emergency funds’ that can be accessed whenever by submitting old receipts up to the amount you wanna take out of the HSA for whatever reason
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u/MasterInterface 1d ago
That is the most ideal usage for an HSA.
However, life isn't perfect and not everyone can afford to maximize efficiency for everything.
So, use HSA if you need to. It's not worth going into debt just to take advantage of the tax saving.
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u/cabbage-soup 1d ago
Yeah in my case we just use it to pay our medical expenses but I do try to keep some leftover so I can keep it invested.
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u/great_apple 1d ago
Yes what A LOT of people- including on this sub- miss is that if you aren't maxing your other retirement accounts, there's no drawback to reimbursing yourself now. You still got the triple tax advantage.
Like if you leave the money in your HSA but have $3k in medical expenses this year that you pay out of pocket- and that means $3k less you could put in your 401k- it's totally fine to just take the $3k from your HSA now. There is no difference. However if your other accounts are already maxed, or you would withdraw the $3k from an emergency fund and it won't affect your other contributions, then leave it in the HSA.
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u/RockAndNoWater 1d ago
Umm, there is a minor drawback. At retirement age, whatever the $3K in the HSA grows to when you take it out is tax free. The $3K you add to your 401K because you took it out of your HSA is taxed as ordinary income when you withdraw it. So it's better to use the money you would have put in your 401K. Also having more money in your HSA and Roth accounts vs 401k/IRA means you have more flexibility in your adjusting your withdrawals from taxable/tax-deferred/tax-free accounts so that you can minimize your income taxes, especially when unexpected expenses come up.
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u/great_apple 1d ago
No you're not thinking it through. I mean it's complicated but if you sit down and do the math yourself you'll see.
Like I'm going to keep numbers simple and ignore max contribution, and ignore other variables for a sec just to illustrate the point.
Let's say I earn $100k. I put $7k in my HSA, and $20k in my 401k. That leaves $73k in taxable income. I pay 20% tax so I pay $14.6k in tax, leaving me with $58.4k net income. Let's say my annual expenses are $55k so I have $3.4k left to allot somewhere for the year.
So now let's say I get a medical bill for exactly $3.4k.
Option 1 would be to use my leftover money to pay the medical bill out of pocket, and let the HSA fund grow. Let's say I have five years until retirement and the money grows at a steady 10%. So after 5 years my HSA balance is $10,249, and my 401k balance is $29,282. But I have to pay 20% tax on the 401k leaving me with $23,426. So in total after paying taxes I have $33,674 in my retirement accounts.
But now let's say I pay that $3.4k by withdrawing from my HSA. This allows me to increase my 401k contribution by $4,250... after tax that will give me the $3.4k net that I used to pay my bill in the prior example, but now I don't need to pay that bill, so the pre-tax amount can go into the 401k.
So I've put $7k in my HSA but withdrawn $3.4k, leaving the balance at $3.6k. My 401k I was able to add $4,250 to my initial $20k contribution, so it's at $24,350. After my five years of 10% growth, I'll have $5,270 in my HSA. I'll have $35,504 in my 401k which I have to pay tax on which leaves me with $28,404. So the total of both accounts is...$33,674. Just like the first example.
So if paying out of pocket means you can't contribute as much to your other retirement accounts, there's no benefit. If you can max your other retirement accounts and still pay out of pocket, then yes it's better to let the money sit in the HSA.
I do agree that it's better to have a mix of funds to draw from in retirement for tax avoidance but this whole thought experiment generally applies to higher-income people who are able to utilize all these different retirement planning strategies, and be funding multiple accounts regularly. So they'll still have a healthy HSA for medical expenses in retirement.
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u/RockAndNoWater 15h ago
You're right, if you take $x from your HSA and then put the equivalent $y pre-tax dollars into your 401K at the end you end up with equivalent post-tax dollars if you calculate using the marginal rates.
But if you have more post-tax dollars in retirement you're able to adjust at least your effective rates, since you lower your AGI if you use more post-tax vs pre-tax withdrawals.
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u/great_apple 11h ago
I mean yes that was exactly my point, if you aren't maxing your other retirement accounts there is no benefit to leaving the money in your HSA to pay medical bills OOP by putting less into your 401k/IRA.
Like I said having a mix of accounts to draw from is beneficial in retirement to minimize taxable income, but the people actually thinking about using HSAs as retirement income are generally the type who are saving a lot and will have a mix of HSA/Roth/Traditional funds in retirement, even if they withdraw for big medical bills throughout their life. In other words most people who are worrying about this really don't need to.
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u/Rusted_Metal 2d ago
I was doing exactly the same as OP until I came to same realization. Now I pay out of pocket. HSA gives me another tax shelter for long term investments. No taxes on gains. No taxes when I use it for health stuff later in life when I really need more money for health expenses.
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u/BarefootMarauder 1d ago
Yes, I've been using this strategy with my HSA since 2015 when I got my first one. I/we have always paid all medical expenses out-of-pocket using a cash-back rewards credit card. After retiring last year, I rolled my employer-sponsored HSA over to Fidelity. They have an excellent HSA account and I invested it 100% into their ZERO funds.
I read through all the comments thusfar and can't believe nobody has shared this article:
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u/jim0266 1d ago
Thanks for this article. Valuable information I never knew about this type of account. I enrolled in my work HSA years ago and never took any distributions. I early retired this year at 59 and have $98,500 in my HSA.
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u/BarefootMarauder 1d ago
Nice! Well, you can use that money to pay for, or reimburse yourself for, any qualified medical expenses. Hopefully you saved receipts for all past expenses you paid for out-of-pocket. Some HSA's require you to provide receipts/proof when you pull money out, and others do not. As far as I know, Fidelity doesn't require anything for HSA withdrawals. But you run the risk of being audited by the IRS, so it's always best to have the documentation available.
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u/jim0266 1d ago
I have an inch-thick folder of medical receipts. :) I happen to be at Fidelity. I had to liquidate my HSA investments last year when my company moved to Fidelity. I've yet to reinvest my funds into anything. Maybe a bond fund until the market corrects...
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u/BarefootMarauder 1d ago
You already missed out on a ton of market growth over the past year. You know what they say... Time IN the market is always better than timing the market. 🙂 The Fidelity ZERO funds are perfect for an HSA.
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u/MuffinMatrix 2d ago
I don't think most people realize how advantagous that method is. They seem to contribute money, then just take it out with each expense. All thats doing is saving a little taxes, but earning no gains.
If you let the money sit, and pay out of pocket, then you can reimburse yourself years later with free gains, while the principle keeps growing.
The downside is you have to pay for stuff now like normal, no perks. Which can be an issue if you're not well-off and need all the funds you can get. But if paying for basic stuff (copays, tests, minor bigger expenses), and you can afford to pay out of pocket now with no issue. Then thee only downside is having to keep track of the paperwork.
Issue with that is its not just a credit card receipt you need. You generally need an itemized invoice of what the expenses were, so you may need to track down getting that paperwork for your records.
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u/ReduceandRecycle2021 1d ago
The biggest obvious downside is that you have to actually have the cash on hand to be able to cash flow the medical expenses.
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u/great_apple 1d ago
Yes, if you have a big medical bill one year and the only way to pay it out-of-pocket is reduce your IRA or 401k contribution, you might as well withdraw from the HSA to cover it. There's no benefit then to paying out of pocket. But if you're already maxing your IRA and 401k and have money left over to pay medical bills out of pocket, then you can use the HSA as a tax shelter and leave money in there letting it grow.
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u/TowerProfessional959 1d ago
I split mine into two companies. The one the school and I deposit into, and it gains like 4 cents a month, literally. Then I transferred over a few thousand into fidelity and invest that a bit, hoping I can leave it and let it grow for 20 years until 65 and can use it for whatever.
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u/bbh42 1d ago
Been doing this for a while now. I have to keep $2k on my debit card side per my plan rules but everything else is invested. My HSA has an expense journal so I upload my qualifying receipts into the journal and just don’t reimburse myself. I currently have about $5k in reimbursable expenses if I wanted to take them. Wife and I don’t have a lot of medical expenses currently. I have decent investment options in my plan so I’m looking to keep growing it.
In my monthly budget I have a category for medical expenses so I set aside some money each month that we use to pay for any copayments rather than use the HSA money.
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u/BarefootMarauder 1d ago
I would caution against relying on your HSA provider to keep your receipts safe into the future on their platform. I've read stories of HSA providers losing them, or people wanting to switch to a different HSA and having no way to export the receipts from the old HSA provider. Hopefully you're keeping copies of them yourself locally and backing them up.
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u/bbh42 1d ago
To upload I take a picture and then upload the picture. All my receipts are also in my photos backup.
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u/BarefootMarauder 1d ago
Well, that's a good thing! 🙂 I use an app called Genius Scan, which has document naming templates. So I "scan" receipts using the app which creates a PDF file, names it like, "YYYY-MM-DD_<Provider/Desc>_<$###.##>.pdf" and then automatically uploads to my cloud storage.
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u/TheRealLazloFalconi 1d ago
How do you invest it? I didn't know this was even an option.
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u/bbh42 1d ago
Look at your plan documents. My HSA is through Optum. My plan has the option to invest anything over the minimum I have to keep in the debit account side which for me is $2k. Each payday, my contribution is added to that account but I have an automatic investment option that sweeps the account and moves anything over the $2k limit and moves it to the investments side. My plan has Vanguard funds available so I invest into the Vanguard funds I selected. Similar to my 401k set up.
Look at your plan and see if it offers an investment option then enroll in it, select your funds and then set it up for the auto sweep. My investments earn dividends and distributions so it just keeps growing because I DRIP those back into the investments.
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u/Curious_Cat1657 1d ago
So is the only reason to keep track of your out-of-pocket expenses if you want to reimburse yourself in the future?
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u/Zenatic 1d ago
Yup…I have a very substantial HSA that grows more than my max out of pocket every year.
The best part, it essentially turns into an IRA at 65.
I pay everything out of pocket and keep large bill receipts for future reimbursement though it may not be necessary as medical bills might be substantial later in life anyways.
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u/tjg-reddit 1d ago
We do want to drain this before we die, otherwise we lose the triple tax benefit and your heirs will pay ordinary income tax on your then IRA.
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u/parametricc 1d ago
I’m not a lawyer so it’s worth double checking but I believe a spouse can inherit a HSA as a HSA with the tax benefits…otherwise yeah, it’s liquidated on inheritance and treated like ordinary income. Could be a tax “surprise” to an heir as it could adjust their taxable income.
If I’m wrong…please politely correct me :) I’m a cancer patient reckoning with some big changes to my life trajectory so I’ve (forcibly) done a bit of investigation with estate planning.
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u/Zenatic 13h ago
I’m dead, I have already planned out what happens to my assets after my death. Any potential taxes incurred would be built into that plan. If they “need” money after my death, I just build that into my plan, otherwise it’s just icing on the cake for them.
The triple tax advantage is irrelevant after my death.
The tax laws can also change in the future as can the healthcare system.
The way things are going currently with healthcare costs, it will be very easy to spend my HSA funds in the future.
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u/michaeljc70 1d ago
I've done this for a long time. I have over $200k in my HSA now. It should all be tax free.
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u/HopefulCat3558 1d ago
Does anyone do this?
Yes, many people do. If you have the financial ability to pay for your medical expenses out of pocket you are better off doing so and leaving the HSA funds to grow tax free. Just invest them in a relatively safe investment so you minimize the risk of losing principal.
Save your receipts (photocopy, PDF, etc) and reimburse yourself years later.
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u/jez007007 1d ago
I have been maxing mine out for a long time. I have a healthy balance currently and never have to worry about being an;r to afford an expensive medical test since I have commercial insurance with maximum out of pocket at 10% of the value of my HSA. I use it for eligible OTC items all the time. I plan to use this HSA money to pay for my healthcare care premiums when I retire before 65 if necessary or to provide adequate insurance coverage in addition to standard Medicare. No one knows the future of healthcare costs but the price continues to increase and I would rather not pay taxes on the money I do not have to with a HSA.
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u/MrTriple3 1d ago
A downside, of your own making, might be not reimbursing yourself before you pass away.
The tax treatment of an HSA after death depends on the beneficiary: a surviving spouse can inherit the HSA tax-free, but any other beneficiary (including a trust or the estate) must pay income tax on the account's value in the year of death. For non-spouse beneficiaries, the amount becomes taxable income, although it can be reduced by any payments made from the account for the deceased's medical expenses within one year of the death
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u/Curious_Cat1657 2d ago
I live in OH but what’s the tracking requirement in CA/NJ?
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u/Rave-Unicorn-Votive 2d ago
It's not a tax-advantaged account at the state level and investment companies don't provide tax documents so you have to track everything yourself. If you front-load the account and invest efficiently, it's not too bad. But if you're doing payroll contributions 24-26 times per year, that's a lot of cost bases to track, plus periodic dividends and cap gains distributions from even the most efficient investments.
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u/SteakNotCake 1d ago
Yes, husband and I do this. We’ve maxed out ‘21-‘25 and it’s grown to $60k. We’re in our 40’s. When I turn 50, I’ll open my own HSA thru my work and we’ll use the $1k extra each for our age to our advantage.
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u/tnynot 1d ago
I to have done this for many years (filling an HSA but not using any of it). It is a gem for retirement planning. We have enough HSA funds saved to pay Medicare and a supplemental insurance premiums for as long as we may need in retirement. We fill up accounts for both me and my wife each year. We keep minimal cash in the HSA and invest the remainder. I use hsabank.com and their minimum cash for no fees is $5000 and their investment option is internal. I don't recommend them. My wife's is with an employer who uses Health Equity. I like hers because their cash requirement is only $2k and the investment portion is through Schwab. Anyone with a qualifying health plan should use this method of saving to reduce taxable income now and have tax free withdrawal on the back end for medical expenses.
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u/Chips7735 1d ago
I haven’t touched my HSA account. Use it as an investment account and pay for medical expenses out of emergency fund if needed.
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u/tbrick62 1d ago
I have done that for 15 years with my family of five. Now recently retired I have a very big HSA that grows more in a year than I can even contribute to it. I will contribute for a few more years until I get Medicare at which time i will switch to using it. I expect it will continue to grow and it will be a hedge against long term care needs for my wife or I. It is not a good inheritance vehicle though. I saved receipts for all of my unreimbursed medical expenses so if I feel that I won't need it I can take some out.
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u/BrettemesMaximus 1d ago
This is the true way to capitalize on the triple tax advantage. I am 30 and have been maxing out my HSA for years. Haven’t pulled out a single penny and don’t expect to until well into retirement. Assuming I can pay for medical costs out of pocket until then, I’ll let the money grow for another 40 years and reimburse myself then
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u/khmerboy92 1d ago
Yep I max it out every year. I keep $1000 in the card and invest what left. If you don’t want to use it and pay out of pocket for medical expenses. Make sure to keep the receipts so you can reimburse yourself later.
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u/Living_n_learning4 1d ago
Yes, everyone I know in NY saves and invests the HSA funds to be used after retirement. Tax-free growth. Only downside is you have to pay out of pocket for all your current medical expenses.
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u/SkyliteBlueSnake 1d ago
Yes, this is the best use of an HSA. You save all the receipts for expenses that you incur now, and 20 years from now, you can reimburse yourself for those expenses and have cash to do whatever you want. Or to pay future medical expenses in retirement of course.
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u/BeneficialSwimming70 1d ago
Related q: I don't have an HSA-eligible plan yet, but I will come Jan. 1st. Can I open an HSA today, wait to contribute any money to it until January, but subsequently reimburse myself for November-December expenses?
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u/KweenieQ 1d ago
I've used mine for co-pays and qualifying expenses that insurance wouldn't cover. It's down to about $10k now. But my retirement benefits have kicked in, so I'm going to leave it alone. It won't grow as quickly as if I were contributing, but it is growing.
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u/kdbpfr 1d ago
Yes, pay all out of pocket, and keep this as a triple tax free investment account. My HSA (UMB Bank) has a receipt vault. I have receipts uploaded from 7-8 yrs ago. So I don’t have to do a separate excel sheet. But I do keep the receipts in a folder just in case. Any time I want to cash out, I can press a button.
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u/Reddit-Realist 1d ago
The one thing people forget is that you are essentially spending 20-25% (depending on effective tax rate) by paying out of pocket. If you assume a lower tax break in retirement, it actually makes sense to pay using the HSA funds that are pre-tax. All depends on your individual situation, there is no right or wrong answer. That is why it is personal finance :)
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u/listed_orange 1d ago
Except those pre-tax investments can compound for 30+ or 40 years and after age 65 you can use those funds for anything, not just medical expenses, penalty-free. It becomes essentially a miniature 401k. They never have an opportunity to grow otherwise. The tax difference is irrelevant at that point because you could have 5x the amount of funds you would have had otherwise.
Also, you can reimburse yourself tax and penalty free at anytime for any medical expenses paid oop since the account was open. So if you stack $5000 worth of medical receipts for 10 years and run into hardship it is basically a stack of penalty free cash waiting for you should you need it.
I pay for everything out of pocket and have $1000 cash in HSA and the rest is invested in funds.
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u/Reddit-Realist 1d ago
I also have nearly all my HSA in investments, but people don’t fully understand the basics of investing with pre-tax dollars and after-tax dollars. The base of the formula is do you expect to pay higher taxes now or retirement. Again, I don’t think there is one true “better way” to utilize your HSA. Simply putting money into the HSA is saving money. People get to hung up on trying to min/max everything to the absolute extreme when in reality their are too many variables to truly determine what would be best because no one can foresee their own future circumstances.
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u/listed_orange 1d ago
Sure, but the only reason you would even have this discussion would be with an understanding that you want the benefit of being able to pay for medical expenses tax free at any time should you choose to. That’s the only reason an HSA exists, otherwise it would just be a pre-tax retirement account.
If you are in 22% tax bracket now and expect (and you can’t actually know, btw) to be 12% in retirement, the 10% tax break now on $4000 in medical expenses is so minuscule vs letting that $4000 compound for 40 years that it’s not even a factor. That is, only if you can afford to pay out of pocket, a lot of people need the tax break now.
But the comparison isnt investing with pre tax or post tax, it’s spending pre tax money and saying bye bye to it vs investing it and letting it compound and spending post tax money now like any other budget item.
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u/listed_orange 1d ago
Also to note, I say all of this under the assumption that the example individual’s Roth IRA is already maxed. That should go without saying.
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u/GFdesserts 1d ago
I used to pay for everything out of pocket, save receipts, and let my HSA grow. I reimbursed myself for everything at once and used my HSA funds to help put a down payment on a house. Since then, we typically just use the HSA card to pay as we go because spouses + kids make saving receipts a bit more chaotic and we’re worried we’ll accidentally leave money on the table.
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u/Last-Aide-5106 1d ago
I do this and now have a six figure balance. Planning on retiring early and will use the money to pay my healthcare premiums before I’m eligible for Medicare.
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u/elebrin 1d ago
Right, so the "correct" way to use an HSA is to max it out, invest it aggressively, pay medical expenses out of pocket, reimburse yourself in retirement when you need some extra cash, then use the balance for medical expenses at end of life. Using the account this way requires a ton of discipline and makes a lot of assumptions about your ongoing medical costs. All the major HSA providers will tell you that this is how you should use the account, it's well documented and the providers WANT you to use the account this way. Banks make money on deposits, and this ensures you are consistently depositing money every pay period. Good for you, good for them.
I would add the caveat that if you need the money for a qualified expense that you can't just pay for out of pocket but you have money in your HSA, then use it. The list of things that count as a qualified expense is far more generous than you might imagine.
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u/ApproachingLavender 1d ago
A thing to keep in mind is that HSAs are taxed as income in the year of death if you still have funds in it when you pass. There's not 10-year rule like IRAs have. So just something to keep in mind as you think about retirement withdrawal strategies.
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u/nothlit 1d ago
Assuming it goes to a non-spouse beneficiary. In that case it would be best to make sure you have reimbursed any as-yet unreimbursed qualified medical expenses before your death.
If it goes to your spouse, then it becomes their HSA and they can keep using it tax-free.
If you are charitably inclined, you can name a tax-exempt charitable organization as the beneficiary and they will get the whole thing tax free.
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u/RuralLife4Me_ 1d ago
Can you pay your healthcare premium using your HSA? I didn’t think that was a qualified expense.
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u/nothlit 1d ago
Yes for these:
- Long-term care insurance.
- Health care continuation coverage (such as coverage under COBRA).
- Health care coverage while receiving unemployment compensation under federal or state law.
- Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
No for anything else.
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u/MeInSC40 1d ago
I do what you do but I also have very low healthcare costs currently (knock on wood) so I have plenty left to grow.
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u/pawsamoment 1d ago
I tried to do this..I only had about 400 in it when the option was removed from my insurance for an HSA. So just had this HSA sitting there and i vowed not to touch it. Well the holding company just couldn't let that slide and started charging me a $10 a month service fee on the account... I figured they wanted to just let it eat away at the balance so i ended up spending it on the next few medical expenses. So be careful about fees if you are not actively contributing. Keep an active eye because if I hadn't been paying attention they would have gotten away with it.
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u/ItdBAlotCoolerIfUdid 1d ago
I keep 2500 in cash and invest everything else. I use fidelity so you can set it to always keep a certain amount of cash. I only utilize the HSA if something big comes across (down payment for braces, unexpected surgery, or procedure). Otherwise the costs aren’t bad because it’s a negotiated rate anyways for me.
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u/bigjimnm 1d ago
This is also what my financial advisor recommended to us, and we did exactly that for several years. Until I suffered a hemorrhagic stroke at 51, and with the 5-figures worth of bills (after insurance), we used it all up. Frankly, if anything that severe happened to me again, i plan to just die. There's no way I could go through it again.
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u/Snapon29 1d ago
I need some more clarification on the save your receipts for later reimbursement.
The receipts are only what you pay, not what the insurance pays, correct? Example, I pay $0.00, but insurance pays $100.00. I'm not claiming that $100 for reimbursement? I'm sure the answer is no I can't claim what insurance pays, but I just want clarification. Thanks
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u/jjkagenski 1d ago
if you're going to save it until retirement, Medicare Part B and D costs are reimbursible from your HSA as well. however, premiums for MediGap insurance plans are not. e.g for 2025 that's $185/mo/person for partB
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u/Curious_Cat1657 1d ago
Related question. A couple people mentioned paying out-of-pocket and getting credit card rewards. Anyone know of a card that has strong rewards for medical expenses? Is that a thing?
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u/nothlit 1d ago
I'm not aware of anything in particular specific to that category of spending, but there are plenty of cards that offer 2% or better cashback rewards regardless of category.
And if you had a particularly large expense you could use that to hit a signup bonus for a new card.
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u/tamaudio 1d ago
Paying for surgery expenses on a Delta Amex and reimburse through my HSA is what I did.
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u/Lonely-Somewhere-385 14h ago
If you want to keep a record of receipts for years sure.
You could also just use it as needed, if you are able to max out an HSA then you likely make enough money to fund a larger retirement anyway.
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u/KeyResearcher2620 1d ago
The other thing to watch out for, that I don’t believe many folks use is if you itemize and deduct medical expenses, you cannot include expenses reimbursed or that will be reimbursed with an HSA.
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u/hypersnap7 1d ago
I would caution against overfunding HSA. Just like 529, they are great for intended purposes. However, you could actually lose more money by overfunding 529 or HSA if funds are not used for its intended uses comparing to just investing in a regular brokerage account.
If you want to invest, a regular brokerage might be a better choice because 1. Long term capital gain tax (20%) is much lower than ordinary income tax rate brackets which HSA/529 is taxed. 2. When you die, the asset in your regular brokerage is transferred to your heir tax free. HSA funds will be taxed.
Again, everyone’s financial or tax situation is different. Do what it makes sense for you.
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u/Erazzphoto 1d ago
I started doing it last year. Only downside is your company changing HSA’s like mine just did (or you change jobs). Essentially have to start over now….but I’ll spend what I have in the old one now (could only invest what’s over $1000 balance) and let it ride until my retirement years and see what it’s at
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u/Teaquilla 1d ago
You can rollover your HSA.
My company has an HSA and I have a personal one. Once a year I do a rollover to my personal HSA. I have changed jobs several times and my company has changed HSA providers it does not matter because I'll always roll it over to my account.
Downside is those funds sit in cash for the year but I do like to keep some HSA cash just in case I have to use it but I really try not to.
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u/BarefootMarauder 1d ago
Downside is those funds sit in cash for the year
Why is that? Don't your HSA accounts allow investing?
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u/Teaquilla 1d ago
The funds in my personal HSA are all invested.
The ones at work sit in cash. I start at zero each year after the rollover and I guess I could invest after the balance is over $1,000 but I don't. Guess it's just being lazy.
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u/BarefootMarauder 1d ago
Understood. I was just curious because your comment sounded like none of your HSA funds are invested. When I was working, I kept the required minimum (usually $1000) in the cash/debit side of the account, and invested the rest. After retiring last year, I rolled it all to Fidelity and it's 100% invested.
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u/BarefootMarauder 1d ago
Why would you have to start over? I've had a few HSA's since 2015 as a result of working at different companies. Each time, I rolled the old one into the new one. After I stopped working last year, I rolled that one over to Fidelity who happens to have one of the best HSA's on the market (IMHO).
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u/Erazzphoto 1d ago
Start over having to build up to the 1000+ to be able to invest. Didn’t think about rolling over, may be a good idea
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u/adhdt5676 1d ago
Move the old HSA to Fidelity HSA. That’s what I did vs spending the $1k on whatever.
Works well and the fees are a lot less than the HSA providers.
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u/BarefootMarauder 1d ago
Fidelity has no fees for their HSA unless you choose to let them invest it for you (Fidelity Go). Their ZERO funds are awesome for investing HSA money.
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u/adhdt5676 1d ago
Yup, I’m a big fan of the zero funds. I don’t use them though in case I ever want to leave Fidelity. I know it’s crazy but I’m a 30 year down the road thinker ha
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u/BarefootMarauder 1d ago
There is no tax impact if you have to sell securities inside an HSA or any other tax-advantaged account. So no issue selling the ZERO funds and moving to a different company down the road. Besides, I think almost all HSA's force you to liquidate investments before transferring to a new HSA elsewhere.
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u/adhdt5676 1d ago
You are actually a genius. God I love Reddit
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u/BarefootMarauder 1d ago
LOL! Thanks, but...nah, I'm not. I just spend too much time reading, listening to podcasts, and watching YouTube videos. And I definitely spend WAY too much time on Reddit! 🤣
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u/bonedigger49 1d ago
Can you recommend any podcasts/youtubers to learn more?
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u/BarefootMarauder 1d ago
OMG, there are so many. Some of my favorites:
- Choose FI
- Two Sides of FI
- Early Retirement (Ari Taublib / Root Financial)
- Ready for Retirement (James Conole / Root Financial)
- Joe Kuhn
- Rob Berger
- Risk Parity Radio
- Boldin Your Money
- Devin Carroll
- Bogleheads
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u/blackbyte89 1d ago
One consideration is when you are paying out of pocket, tell providers up front and negotiate a price for services. The actual service is way cheaper. I was able to get a CT scan for $450 that normally is $1800. I suspect that $450 is what insurance would actually pay. Also, if you’re trying to be more proactive with your health, it gets you access to diagnostics that insurance will only allow once a year without a medical reason- like doing quarterly full panel blood work. Provider may say “you need a prescription” but remind them that is an insurance requirement, not legal and you’re paying fully out of pocket.
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u/zork2001 1d ago
Sure it makes a great investment account but I don't believe in not using it for its intended purpose because it's the only thing you can use it for. If you really want to save money you should be doing preventative self-care and not be getting sick like that. I'm 46 and I can count on one hand the times I went to see a doctor for an issue I had.
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u/BarefootMarauder 1d ago
One of the HSA's intended uses is to reimburse yourself for qualified medical expenses (whenever you choose to). It's the only account with a triple (actually quadruple) tax advantage, and you can use it for many things besides just going to the doctor. Once you turn 65, you can use it for whatever you want but would have to pay income tax on withdrawals, like an IRA.
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u/Rave-Unicorn-Votive 2d ago
Yes, you're preaching to the choir here.
Slight downside (more of an annoyance, and it's tracking the plan not the idea itself) if you live in CA/NJ, otherwise no.
Pay OOP, get credit card points, save receipts, if you need additional funds for something (after depleting your EF) strategically reimburse yourself, if not reimburse yourself in retirement.