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Use of a HSA?
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I just recently (last 2 years) started contributing to one of these accounts. I am not currently eligible to contribute to a Roth IRA and was looking for a way to reduce my taxes and this account made sense, because in the long run I am sure I will have plenty of medical expenses.

So currently I have very little in the way of medical expenses and the little that I did I was getting reimbursed out of the HSA, but when I thought about it, that didn't really make sense. Since I can easily pay all my out of pocket expenses with cash on hand it probably makes more sense to just keep as much money in the HSA and invest and let it grow. My account has access to a whole bunch of Vanguard Admiral Class funds and my balance is now high enough that I am not getting hit with any fees.

So my question:

Am I missing anything here, it seems like since I can afford it, I should maximize my HSA contributions and also not take any reimbursement? Let the money grow as eventually I am sure to be able spend down all the tax free dollars in the account, so there is no urgency to get reimbursed now and reduce the principal in the account that can grow.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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Are you able to roll the money over into subsequent years?

When I worked at Cornell they offered us an HSA option but whatever money you didn't use for the year you had to take out (minus admin fees) and pay taxes.

It was a shitty deal.

Callusing the mind through pain and suffering

- David Goggins
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Re: Use of a HSA? [Duffy] [ In reply to ]
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Duffy wrote:
Are you able to roll the money over into subsequent years?

When I worked at Cornell they offered us an HSA option but whatever money you didn't use for the year you had to take out (minus admin fees) and pay taxes.

It was a shitty deal.

HSA is like an IRA in the sense that the money stays there forever until you take it out. It is an account with an annual contribution limit, but no requirement to use the money in a certain timeframe, not use or lose like an FSA.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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"I am not currently eligible to contribute to a Roth IRA"


Do you have a traditional IRA? If not, you can still contribute to a Roth, see link here.




There are three kinds of people, those who can count, and those who can't.
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Re: Use of a HSA? [Duffy] [ In reply to ]
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Duffy wrote:
Are you able to roll the money over into subsequent years?

When I worked at Cornell they offered us an HSA option but whatever money you didn't use for the year you had to take out (minus admin fees) and pay taxes.

It was a shitty deal.

This sounds like an FSA and not an HSA
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Re: Use of a HSA? [windywave] [ In reply to ]
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windywave wrote:
Duffy wrote:
Are you able to roll the money over into subsequent years?

When I worked at Cornell they offered us an HSA option but whatever money you didn't use for the year you had to take out (minus admin fees) and pay taxes.

It was a shitty deal.

This sounds like an FSA and not an HSA

Ok. This was almost 20 years ago and I was baked when they explained it and I turned it down.

Callusing the mind through pain and suffering

- David Goggins
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Re: Use of a HSA? [r7950] [ In reply to ]
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r7950 wrote:
"I am not currently eligible to contribute to a Roth IRA"


Do you have a traditional IRA? If not, you can still contribute to a Roth, see link here.

Thanks for this link, I had no idea this was an option.

Am I correct in assuming a "rollover" IRA (rolled over from a 401K plan at a previous job) is a traditional IRA?

It sounds like there is no limit, other than since all the money in my traditional IRA is pre-tax, I would have to pay income taxes on any dollar I convert. Based on being in a high income tax state, where all of my marginal income is taxed at the top rate (9.9%), plus 28% federal, I don't think this backdoor option would make sense for me right now, as most likely when I would eventually draw down my traditional IRA my income tax rates would be lower. I'm not really seeing when the backdoor IRA would ever make sense, unless say I became unemployed and had no work income (so couldn't contribute to a Roth) and then could convert the IRA into the Roth through the backdoor at a lower tax rate (maybe I could conveniently move across the Columbia for a year and watch my state income tax rate go to zero).

Seems like there must be other scenarios and I'm missing something because people wouldn't be taking advantage of it if there wasn't an advantage. Maybe there is some weird discounting, like if I pay 38% tax on $10K now and then in 20 years it grows to $100K in a Roth and then I only payed $3.8K on the $100K in my pocket, where instead I leave it where it is and it grows to $100K and then I take it out and even if my tax rate is only 15% I still pay $15K in taxes. I guess I answered my own question;) I guess the rub is you need to come up with the money to pay the tax bill using funds you have on hand, so at 38% tax rate I am probably not going to be able to roll over $200K in one year because I don't happen to have $76K in my sock drawer.

Is this how Mitt Romney had a Roth IRA?

Did you do this with some assistance/guidance from a financial advisor? I have an account with Fidelity, I assume they could help me with this? It seems like it might make sense to try to move $10-20K over this year as I could reasonably pay the taxes on that without taking too big a hit on my emergency funds.
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Re: Use of a HSA? [Duffy] [ In reply to ]
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Sounds like am FSA, and you are right, they suck.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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You're it missing anything. I'm doing the same thing - been contributing about 3 years now and have around $23k or so. I have to keep $5k in one account to avoid fees, but the rest is with TD Ameritrade in various funds. I go with only commission free funds, such as the Vanguard funds. I treat it just like my Roth or 401k. At some point I may make a massive withdrawl simply to avoid saving receipts for 20 years, but at this point I just cash flow. Fortunately we are 2 healthy adults.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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I am in a similar situation so I am going to roll over my regular IRA into my employers 401k to empty out my IRA. Then star to do back door IRA's. The key is to zero out your regular IRA before you start contributing.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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Not missing anything. I am doing the same thing. Several of my partners are doing the same. Since I stopped doing triathlon, I don't seem to be in the hospital as often. So, on those few occasions wifie or I need treatment, we pay ourselves instead of from the HSA and are using the HSA to build up a fund to pay for supplemental coverage after retirement.

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: Use of a HSA? [JSA] [ In reply to ]
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Quote:
Since I stopped doing triathlon, I don't seem to be in the hospital as often.

Wait, I thought triathlons were a healthy pursuit. At least that's the implication judging by the comments of my friends.

Callusing the mind through pain and suffering

- David Goggins
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Re: Use of a HSA? [oldandslow] [ In reply to ]
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oldandslow wrote:
Sounds like am FSA, and you are right, they suck.

How so? We get a FSA from my wife's employer every year. It's an amount of money we chose that is matched by the employer to use how we need. It used like a gift card (Visa). Does free money suck?
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Re: Use of a HSA? [Duffy] [ In reply to ]
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Duffy wrote:
Quote:
Since I stopped doing triathlon, I don't seem to be in the hospital as often.


Wait, I thought triathlons were a healthy pursuit. At least that's the implication judging by the comments of my friends.

My partners used to make fun of me. Seemed like every Sep I would do an IM (sometimes my second) and every Oct I would have surgery on one of my limbs. I used to kid that my torso will live to be 120 years old, but my limbs will be shot by age 50.

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: Use of a HSA? [JSA] [ In reply to ]
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Tris were taking too big a toll on my body...so I started doing jiu jitsu and kick boxing.

I'm smart.

Callusing the mind through pain and suffering

- David Goggins
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Re: Use of a HSA? [JSA] [ In reply to ]
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JSA wrote:
Duffy wrote:
Quote:
Since I stopped doing triathlon, I don't seem to be in the hospital as often.


Wait, I thought triathlons were a healthy pursuit. At least that's the implication judging by the comments of my friends.


My partners used to make fun of me. Seemed like every Sep I would do an IM (sometimes my second) and every Oct I would have surgery on one of my limbs. I used to kid that my torso will live to be 120 years old, but my limbs will be shot by age 50.

A surprise Panera gift card will take care of that.
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Re: Use of a HSA? [Duffy] [ In reply to ]
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Exactly!

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: Use of a HSA? [Old Hickory] [ In reply to ]
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Well played ...

If there are no dogs in Heaven, then when I die I want to go where they went. - Will Rogers

Emery's Third Coast Triathlon | Tri Wisconsin Triathlon Team | Push Endurance | GLWR
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Re: Use of a HSA? [Old Hickory] [ In reply to ]
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Quote:
Does free money suck?

If you don't actually need it, or use it, or can't get reimbursed, and then lose it .... yes. If you have consistent ongoing medical costs that you can track, and you don't endlessly have to fight with the company that administers of the program, then it may be great. We haven't been that fortunate. (live and learn)
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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In my situation (and where it tends to work), is if you have no other pre-existing Traditional IRAs. I can't say for certain if your rollover 401k counts as a traditional IRA, if it does, then you are correct, it probably does not make sense with your tax situation.

If you had no pre-existing traditional IRA's, here are the steps:

  1. Open Traditional IRA account
  2. Fund it to the max for a given year (do not deduct this amount on your Form 1040)
  3. Roll the amount over to a Roth IRA (since you never deducted it from your 1040, it is after-tax funds)
  4. Repeat every year while the law permits you to do so





There are three kinds of people, those who can count, and those who can't.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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The best way to handle is to roll your traditional IRAs into a current 401k plan (if available.) This is what I did a few years ago. If you have a high $ amount in a traditional IRA the backdoor roth doesn't really work out.
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Re: Use of a HSA? [Old Hickory] [ In reply to ]
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Old Hickory wrote:
oldandslow wrote:
Sounds like am FSA, and you are right, they suck.


How so? We get a FSA from my wife's employer every year. It's an amount of money we chose that is matched by the employer to use how we need. It used like a gift card (Visa). Does free money suck?

I agree. As long as you know you are going to spend the money (e.g. kids with braces or contact lenses), why not use pre-tax money.
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Re: Use of a HSA? [oldandslow] [ In reply to ]
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oldandslow wrote:
Quote:

Does free money suck?


If you don't actually need it, or use it, or can't get reimbursed, and then lose it .... yes. If you have consistent ongoing medical costs that you can track, and you don't endlessly have to fight with the company that administers of the program, then it may be great. We haven't been that fortunate. (live and learn)

Well, the FSA is a spending account and the HSA is a savings account. Both are really great to have as options.
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Re: Use of a HSA? [tri_yoda] [ In reply to ]
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We are doing the same thing --- maxing out contributions to HSA pre-tax. We are funding any incidental medical bills with current monies and just banking the HSA for the future. Another bonus to using an HSA - when you turn 65 the money is treated like and IRA -- you don't HAVE to use it for medical expenses...you can just withdraw as you please (no RMD's) but just have to pay tax on the amount that has been earned through interest or capital gains (above and beyond the amount contributed pre-tax) if it is NOT an approved medical expense.
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Re: Use of a HSA? [orchidrun] [ In reply to ]
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I have been doing this for ~10 years now. I max out my HSA contribution and then move the money from the HSA bank over to a brokerage firm where I can invest the money. I haven't taken any of the money out. Meanwhile, I have also been keeping track of my yearly medical, dental, and vision expenses. When it comes time, and I finally want to take that money out, I'm going to have proof of medical expenditure for all of it.

I haven't checked my plan -- of taking most of the money tax free with documented medical expenses over the years -- with a lawyer, but it sounds like it's in the spirit of the law.
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