joetaxpayer wrote:


- quote -

Right, bozzle, not boggle. I can't even claim that the 'g' is near the
'z' on the keyboard...

-Will

<wyu[at]talisys.com> wrote in message
news:1185578680.867588.247450[at]i38g2000prf.googlegroups.com...
- quote -

Maybe I'm not viewing it correctly, but the way I see it, you start with
$2X dollars - $X in the HSA, $X in the taxable. You have $X in expenses.
Regardless of where the money comes from, you pay your expenses and have $X
left, right now. The only question is what do you have many years from now.

If your X dollars are sitting in a taxable account, then the gain is taxed
(along the way and/or when you sell off). If your X dollars are sitting in
the HSA, then they gain the same amount (assuming same investment choices),
but the gain is tax-free (assuming it is spent on medical expenses). It
seems like a no-brainer.

Same idea as a Roth. You have $X on which no more taxes are due (post-tax).
You can keep it in a taxable account or put it into a Roth. Which is
better? Obviously by putting it into the Roth your taxable account takes a
hit. But you have $X either way, and if put into a Roth, the gain never
gets taxed.

There are two gotchas:

1) The HSA money must be spent on medical expenses (should be easy, but not
guaranteed)

2) You have to have the extra cash up front - $2X instead of $X, so that you
can both pay current expenses out of pocket, and fund the HSA. I believe
this is the big stumbling block for most people.

(Remember, over 90% of people do not fully fund their IRAs.
http://waysandmeans.house.gov/hearin...e=view&id=2666 May 19,
2005 testimony)

Mark Freeland
BnetOnewsX[at]sbcglobal.net

Mark Freeland wrote:

[...]
- quote -

Well, good luck with that. HSA's have only been around a few years, and
Congress has been known to close loopholes in tax laws. But I respect
the thought and research that has gone into this.

I don't want to be the one who has an IRS auditor looking at my
qualified HSA distribution claiming twenty-plus years' worth of
paid-but-unreimbursed family medical deductions!

-Mark Bole

<wyu[at]talisys.com> wrote in message
news:1185578680.867588.247450[at]i38g2000prf.googlegroups.com...

- quote -

While you're working on this, maybe Joe's ideas on planning for the Social
Security bump in tax rates should come into play. It seems to me that being
able to take some tax-free dollars would offset some of that, no?

Elizabeth Richardson

On Jul 27, 1:05 pm, "Mark Freeland" <BnetOne...[at]sbcglobal.net> wrote:
- quote -

Hmmm, I was thinking in my head the scenario of small medical bills
now or big medical bills later in life. And since multiplication is
commutative, it doesn't matter whether you take 20% out of today's
balance or 20% out later in life.

But the idea of first paying from taxable and then reimbursing from
HSA after many tax-deferred years of growth is interesting. Obviously,
the taxable accounts would take a hit but how much would the tax-
deferred growth offset it? I may have to build a spreadsheet to run
the numbers.

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news:Ootqi.35$rG7.8[at]nlpi061.nbdc.sbc.com...
- quote -

However, that's not an exhaustive list. As the Treasury Dept writes:
"A *partial* list is provided in IRS Pub 502."
http://www.ustreas.gov/offices/publi...ing.shtml#hsa2

The actual HSA statute, 26 USC 223(d)(2) defines the term "qualified medical
expense" for an HSA as "amounts paid ... for medical care (as defined in
section 213(d)(1))" without verbiage regarding time of expense.
http://caselaw.lp.findlaw.com/script...tle=26&sec=223

[213(d)(1) defines medical expenses as expenses for diagnosis, cure, etc.
http://caselaw.lp.findlaw.com/script...tle=26&sec=213 ]

- quote -

Be careful. The instructions say "*Generally*". For example, the
instructions neglect to mention that OTC drugs are qualified expenses (same
as for 125 plans), even though they are excluded from Schedule A.
http://www.ustreas.gov/offices/publi...ing.shtml#hsa1

The only clear statement, one way or the other, that I've been able to find
is this Treasury Dept presentation, May 18, 2007 (see p. 30). But public
affairs presentations are hardly authoritative:

"HSA Distributions can be used to reimburse prior years' expenses as long as
they were incurred on or after the date the HSA was established.
- No time limit on when distribution must occur
- Individual must keep [sufficient] records ..."
http://www.ustreas.gov/offices/publi...SAs_051807.pdf

NB the placement of the apostrophe in "years'".

Mark Freeland
BnetOnewsX[at]sbcglobal.net

On Jul 27, 2:33 pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

I think you are too fixed on the issue of an HSA being used up for
medical. To explain my point more clearly, let's look at the
alternatives instead. Let's say you have access to both an IRA and a
HSA but you only have enough money to contribute to one of them.

Option 1: IRA contributions only
A) Lots of medical expenses before retirement. You pay income tax +
penalty. Maybe you can avoid the penalty if you qualify for the
hardship clauses.
B) Medical expenses during retirement. You pay income tax.
C) You remain healthy for the rest of your life and spend your IRA
money for non-medical retirement. You pay income tax.
D) You have non medical emergencies before retirement. You pay tax +
penalty.

Option 2: HSA contributions only
A) Lots of medical expenses before retirement. No tax, no penalty.
B) Medical expenses during retirement. No tax, no penalty.
C) You remain healthy for the rest of your life and spend your IRA
money for non-medical retirement. You pay income tax.
D) You have non medical emergencies before retirement. You pay tax +
penalty.

So what I'm getting at has nothing to do with HSA money possibly doing
double-duty. It has everything to do with the alternatives being not
as good. Only in scenario C & D do you have equal results. In
scenarios A & B, the HSA is clearly the better option. Yes, A & B will
mean reducing your HSA balance to deal with medical expenses but it's
better reducing the balance and paying tax+penalty ontop of that.
Obviously, if you can contribute to both, do both. But since HSA does
all the scenarios as good or better than an IRA, it should be your
first contribution target.

wyu[at]talisys.com wrote:

[...]
- quote -


Sorry if I'm beating the proverbial dead horse here. I'm not knocking
HSA's, in fact I plan to start one if and when I'm no longer covered
under an employer group plan.

I agree that the portability and accumulation aspects of HSA's are
unique and valuable.

I'm really just trying to make two points, which I promise not to make
again in this thread:

1) medical expenses are _already_ tax free if you handle them through
your employer (employer contribution to group health, your share of the
group health, and flex spending account -- all tax free). HDHP/HSA is
just another flavor of the same thing that has been around for a long
time -- a flavor that is better for some and worse for others. Sole
proprietors also get tax free self-employed health insurance deduction,
comparable to what they could get through an employer.

2) even if you fund an HSA to the max, I think it would be dangerous to
assume that that the same contribution does double duty, once for
medical expenses and once for retirement. It might work out that way if
you know right now that you (and your family) are going to be very
healthy for the next twenty years -- not a risk I would advise anyone to
take.

-Mark Bole

Mark Freeland wrote:
- quote -

Sounds too good to be true, no? For one thing, you can't include
expenses for someone other than your spouse or someone you (could) claim
as a dependent on your current year return. So if you got divorced,
widowed, or your kids have grown up, you can throw out that portion of
your old receipts.

More to the point, the way I read it, Pub 969 says qualified expenses
for an HSA are those documented in Pub 502. Pub 502 specifically states
you can only include expenses paid in the current year.

Another reinforcing instruction: Form 8889 says qualifying expenses are
those you could otherwise deduct on Schedule A. That implies current
year only.

-Mark Bole

"Justin" <nospam[at]insightbb.com> wrote in message
news:slrnfakb9j.1or.nospam[at]debian.dns2go.com...
- quote -

That's my theory, too, but I haven't been able to find anything definitive
and authoritative. Any pointers?

Mark Freeland
BnetOnewsX[at]sbcglobal.net

<wyu[at]talisys.com> wrote in message
news:1185553981.401045.22960[at]i13g2000prf.googlegroups.com...
- quote -

Suppose you have $1K in your HSA, $1K in spare cash (taxable account), and
$1K in current medical expenses. What do you do?

If you pay out of the HSA, then your taxable account grows (with taxes
bleeding off returns), and the remaining gain is taxed when you use it to
pay for medical expenses later in life (after you have reached 65 and can no
longer contribute to your HSA).

On the other hand, if you pay your current bill out of the taxable account,
the HSA account grows tax free until you pay for medical expenses later in
life. The gains (that would have been taxed in the taxable account) have
completely escaped taxation. So it effectively lets you convert post-tax
money (the $1K in your taxable account) into a "Roth" that grows tax-free.

Of course, if you don't use it for medical expenses, you could come out
worse, since you'd be paying taxes on the original contribution that you
wouldn't have paid had they been used on qualified expenses.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

wyu[at]talisys.com wrote on [Fri, 27 Jul 2007 11:33:21 -0500]:
- quote -

Apparently you are able to reimburse any qualified medical spending that hasn't
been reimbursed or deducted previously, no matter how old it is, since
you opened the account.

So, you can save for 20 years and spend healthcare out of pocket, then
use receipts from 20 years of medical spending to withdraw tax and
penalty free from your HSA at once.

On Jul 27, 8:51 am, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

I was making this point that it does everything an IRA does but more.
If you use it for medical, it tax-free contributing, tax-free
withdrawal. If you don't use it for medical during retirement, then it
acts like an IRA. Studies show that medical is a HUGE expense during
retirement so why would you use a HSA for non-medical and then use
your IRA/401K for medical? Switch it around, save it for medical and
given how people's lifespans are getting extended by medicine, it's as
good as tax-free as long as you can avoid dipping into it for non-
medical.

Now my statement about better than 401K w/ matching was:

- quote -

An employer might give you matching but it could be (1) a small amount
or (2) the 401K plan is truly horrible. It happens that employers get
sold some high expense plan (free to the employer, expensive to the
participants) that has 2%-3% ER insurance wrapper funds. And the
employees have no choice. The existence of that plan probably will
mean they can't contribute to their own Traditional IRA even if they
decline participation in the 401K.

Meanwhile, a HSA is totally under the control of employees whether the
money is funded by themselves or the employer. They can at any time
transfer money to better investments/lower fees. So for money that
will be used for medical expenses (which will happen for almost
everybody), you are getting a match equal to your tax bracket. Would I
fund an HSA before a putting money into a crappy 401K plan with high
expenses and long vesting periods for matching? I certainly would.

Mark Freeland wrote:

- quote -

Thanx, I certainly missed that one. So yes, this change would make it
somewhat more likely that one could actually accumulate a "significant"
balance in an HSA over a number of years, similar to a Traditional IRA
(but still nowhere near what you can accumulate in a 401k with its
higher limits).

I still don't see how it's a "super IRA" or "the ultimate retirement
account" "even better than a 401K w/ matching" that one should "plan
[their] investments around" as was claimed in wyu's first post. I still
see it as just one of several ways to deduct medical expenses from
taxable income, not "the only tax-free vehicle". Unless I'm missing
something (again), withdrawals used for other than medical expenses are
still taxable income (plus a 10% penalty if under age 65).

-Mark Bole

"idp" <idp[at]ido.to.ch> wrote in message
news:5grp7tF3egtvoU1[at]mid.individual.net...
- quote -

The restriction is usually that you MUST INVEST it in either thier
proprietory fund, or interest account.
Cal

Will Trice wrote:

- quote -

On 11/12/06 I posted: "If I were offered 10% for my money, I'd run the
other way, it would likely be a scam, not a legitimate offer."
And Mark Replied : "Unless, of course, it were a 50% "immediate return
on investment" such as bozzle money from your employer."

So three points, (1) Mark (and I) agree that any employee benefit is
part of the pay package, and some people may not take advantage of it
all, esp in the of 401(k) matching. (2) it's 'bozzle'. (3) I need a life.

JOE

Mark Bole wrote:
- quote -

First, your point wasn't all that similar - and I thought we agreed it
was "boggle".

Second, I know some employers do offer compensation for switching plans
(or charge less, which is the same thing). For example, my wife's
employer offers both an HMO plan and an HDHP+HSA plan, both of which are
paid for via payroll deductions. But the HDHP+HSA has a lower cost to
her. We looked closely at both plans. It seems that the HDHP+HSA plan
is mainly suitable for people who either infrequently need health care,
and thus can save on the premium, or who need a lot of heath care, and
thus will end up paying more in co-payments and co-insurance with the
HMO than with the HDHP+HSA, even considering the deductible. We fall
somewhere in between, so we didn't go with the HDHP+HSA.

-Will

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news:Rtcqi.115$Cg.54[at]nlpi069.nbdc.sbc.com...
- quote -

Publication 553 (3/2007), Highlights of 2006
tax changes. Specifically, the section entitled "Health Savings Account
(HSA) Deduction Limits Increased", at
http://www.irs.gov/publications/p553/ch01.html#d0e1626

Mark Freeland
BnetOnewsX[at]sbcglobal.net

wyu[at]talisys.com wrote:

- quote -

That's not what I read when I go to the following site and look at
Revenue Procedure 2006-53 (pages 16 and 17):

http://www.ustreas.gov/offices/publi...dAmounts.shtml

Still says "lesser of deductible or [statutory amount]".

Can you elaborate or provide a link that shows the description and
impact of the new law you are referring to?

-Mark Bole

On Jul 26, 5:52 pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

Law was changed for 2007. You now can contribute up to the IRS max no
matter what your deductibles are.