"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:aoEsk.19247$jI5.9894[at]flpi148.ffdc.sbc.com...
- quote -

http://www.govtrack.us/congress/bill...&nid=t0:ih:186
HR 5719, Section 17, as you note, deals with substantiation (evidence), but
doesn't deal with what is or isn't a qualified expense. This bill (like
most) places the effective date significantly into the future (here,
starting 2011). So even if a bill like this were to be enacted, one would
probably have ample warning to make withdrawals before the new rule kicked
in.

There's no question that this strategy contains a two-fold risk: (1) that
the current law, albeit vague, is found to prohibit applying prior year
expenses, and (2) the law might be changed before you could take advantage
of the old rule. Personally, I'm more concerned about the former than the
latter, but each person's take and risk assessments (not to mention the
amount of money at risk) will differ.

- quote -

What's distinctive is that HSA Bank's form asks the reason for the
withdrawal. (Most banks require withdrawal forms if you go to them and ask
for cash directly, as opposed to making a third party payment via
check/debit card.)

I'm not convinced that HSA Bank's change was anticipatory. Rather, HSA Bank
is using Evolution Benefits' debit card system, and Evolution Benefits (EB)
had been pushing Congress on substantiation (not qualification)
requirements. So seeing a client (HSA Bank) of EB conform to what EB was
pushing may suggest nothing more than usual business pressure. Apparently
EB only wanted legislation to promote its business, and not help the IRS
collect money. When the House obliged with legislation, but went the
obvious extra step of taxing unsubstantiated withdrawals, EB withdrew its
support.
http://www.healthinsurancecolorado.n.../eb_letter.pdf

Mark Freeland
nNeEwTs[at]nyc.rr.com

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote in message
news:9pWqk.171307$102.111518[at]bgtnsc05-news.ops.worldnet.att.net...
- quote -

lots of good info and thoughts.

What happens to the HSA when you die?

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Tad Borek wrote:

- quote -

All of this is true, of course, but doesn't apply just to HSAs. You've
pointed out before how tax-deferred accounts can be overly used in some
circumstances and how things can change out from underneath you.

-Will

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jIM wrote:
- quote -

My point was that you'll get the tax benefit regardless of when you make
the withdrawal (barring changes to the law...), so you misht as well
reap the rewards of tax-deferred (or -free) accumulation.

-Will

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Mark Freeland wrote:
- quote -


I wouldn't even consider doing that! I think it's best to match the
withdrawal to the right tax year even if you can read ambiguities into
the law allowing late reimbursements. Plus, I expect these issues to get
tightened up in the future, perhaps very soon. Have you followed the HSA
substantiation bill? It's already creeping in - HSA Bank now requires a
different process/form for reimbursements vs. expenses paid directly by
check/debit.

Will - you're right, there is that argument of rolling it forward to pay
larger medical expenses in the distant future. One might believe that
these costs are going to be so much higher that tax-deferred growth of
the money is more important than getting reimbursed now. And, you have
enough excess cash to cover not only all the other spending/saving needs
in life, but also these medical expenses you could be paying from the
HSA. I think that's an unusual individual though.

On a more practical level, I do some mental accounting...health
insurance plus HSA is the "medical expense" budget for the year. Some
(or all) of the HSA rolls forward in a "healthy" year, but that's good,
it will help in a more costly one. But at a certain point, it's enough.
Even the HDHPs have out of pocket maximums that aren't all that high,
and with family coverage you can add another $5800/year, going up
annually. So you start thinking about questions like "what if I die
before using that up?" or "do I have too much spooling up in
tax-deferred accounts?" or "isn't it likely the health insurance scheme
will change substantially by the time I retire?" There's a bird-in-hand
aspect to just writing that check now, and a risk of "hoarding" for a
day that never comes.

-Tad

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On Aug 22, 3:45 pm, MyVeryOwnSelf <s...[at]emailNot.nul> wrote:

- quote -

Or a single, fairly high ceiling, generalized "tax-incentive-savings
plan".
Now there are several different kinds of retirement savings plans,
college savings plans, and health plans. I must have about ten of
these myslef and big families have even more. Lots of paperwork for
both taxpayers, companies and the government.

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MyVeryOwnSelf <self[at]emailNot.nul> writes:

- quote -

Not to argue Congressional intent, but had they done it
that way, you'd be deducting those expenses on your
federal income taxes, but your employer and you would
still both be paying social-security taxes on it. Your
employer wouldn't have any incentive to contribute,
and you'd have less cash to use for it, too (unless you
are one of the top few percent of earners). Moreover,
the accrual/growth features - it's a tax-free/tax-deferred
account - add huge value if you don't use up all you've
saved in the early years. Healthy young folks with low
medical expenses can end up with huge balances later on
to use for future (likely higher) medical expenses and
if they never use them for medical expenses, eventually
the money can come out of it like an IRA - pay taxes
but no penalty after 65. (and, again, never have paid
any SS taxes on it in the first place).

HSAs, for those with low current medical expenses, are
a huge win.



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
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"Will Trice" <not[at]monitored.net> wrote in message
news:V9adnWBQ6ZtozjPVnZ2dnUVZ_hKdnZ2d[at]comcast.com...
- quote -

The expense is certain and must be paid for now. The question is thus which
pocket does the payment come from - taxable account or HSA account? The
question assumes, and the OP implied, that one isn't going to spend the
other pocket's money elsewhere, for now. See more below.

- quote -

More than potentially. My understanding is that so long as you have medical
expenses after opening the HSA _and_ you don't use the expenses for tax
deductions, then you can withdraw from the HSA tax free up to the amount of
accumulated medical expenses at any time.

It doesn't seem to matter if you have the expenses in 2008 and withdraw the
HSA money in 2025, using the 2008 expenses to offset the HSA withdrawal.
Yes, it sounds weird, but so far, I haven't found anything that contradicts
this.

See, e.g.
http://retirees.dowcorning.com/hr/Be...P-Retirees.doc,
or http://www.capeschool.com/download_c...C_web_text.pdf (p.
28/41). Not the best citations in the world, but with the IRS being as
clear as mud, authoritative sources are hard to find.

If correct, then keeping money in the HSA becomes a no-brainer. The two
choices for, say, a $100 medical expense this year are:
1) Pay $100 out of the HSA, and keep $100 in a taxable account
2) Pay $100 out of post-tax dollars, and keep the $100 in the HSA.

Then, in 2025 (or whenever), you have (1) $100 + growth in a taxable
account, subject to taxes; or (2) $100 + growth in a nontaxable account,
probably tax-free. (Your expenses through 2025 or whenever will have to
match not only the original $100, but the growth of that investment.)

Mark Freeland
nNeEwTs[at]nyc.rr.com

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- quote -

The reason there's such a wide discussion is that different people look at
an HSA in different ways.

Personally, I think of it as a way to get around the 7.5% threshold for
deducting medical expenses on Schedule A every year. With an HSA, I (in
effect) get to deduct medical expenses from the first dollar every year.

Now if only California would conform with the federal policy!

Editorial: If Congress had wanted to do things right, it would not have
invented HSAs. Instead, they would have eliminated the 7.5% threshold for
anybody having a high-deductible health plan. That would have accomplished
the same objectives with far less bureaucratic rigmarole (IMO).

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jIM wrote:
- quote -

401(k), and maxing out my Roth contributions (would rather put the Roth
money in a traditional IRA right now, but part would not be deductible
and I don't want to contaminate my IRA.)

Needless to say, there's not much money left over at the end of the
month to pay medical bills, and my wife is running up pretty big medical
bills each month so I put them on a credit card (paying the full balance
gets me a 10% discount from the clinic, and running it thru the CC gets
me rewards dollars back and easy to track statements.) Then I pay the
CC off when it comes due, and when money gets tight I write myself a
check from the HSA for a prior month's medical bills and put a copy of
that month's CC statement in my medical expenses file. It's not as
complicated as it sounds. If the medical bill does not cause things to
get tight, I just pay it from general funds.

The goal is to have the HSA grow over time to build up a medical slush
fund (like I think it's supposed to be) but it's growing awfully slowly
right now because of the drawdown.

If I ever accumulate a healthy balance in the HSA, I will start paying
*all* my medical expenses from it for the immediate tax savings. I'm
not sure if that will ever happen, but currently I'm at least avoiding
the taxes on $5650* per year without being subject to the floor on
itemized deduction of medical expenses.

*I think that's the number.

Bob

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- quote -


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Tad Borek wrote:

- quote -

But a retiree is likely to have medical expenses also, no? So the money
in the HSA would still potentially be completely tax exempt.

-Will

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"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:9cad8231-7ac5-4201-9661-82cc381aeea6[at]x35g2000hsb.googlegroups.com...
- quote -

I was thinking you were looking to get both the deduction for the
contribution to HSA and deduction for expense. How else would you be getting
a tax benefit for the expense?

Elizabeth Richardson

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On Aug 21, 2:27*pm, "Elizabeth Richardson" <erich...[at]worldnet.att.netwrote:
- quote -

What makes you think I can deduct on schedule A? The medical bills
thus far for kids have been mostly covered by insurance. How much
expense would need to be out of pocket to put on schedule A?

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"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1ce83d8c-6307-459a-9a6d-02cd174939ef[at]59g2000hsb.googlegroups.com...

- quote -

And because you have current large medical expenses which you will enter on
Schedule A, you will be getting another tax deduction this year, in addition
to the HSA contribution. Is that the trend of your thinking?

Elizabeth Richardson

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Gil Faver wrote:
- quote -


I could see an argument for leaving dollars in an HSA for someone
nearing retirement, whose retirement assets were far behind. It's
another tax-advantaged place to accumulate wealth, after you've maxed
out 401ks, IRAs, etc. A forever-unused HSA eventually becomes, in
effect, a traditional IRA in terms of its tax rules. You can withdraw
the money for non-medical purposes, paying tax but no penalty on the
distribution.

And if the medical expenses are so high that they're deductible, that
could be another scenario where you pay with after-tax money. Rarely
happens though.

Absent that...well you're missing out on a benefit of the HSA, which is
paying bills using before-tax dollars. In exchange you're able to leave
money invested tax-deferred, but on balance I think "immediate benefit"
wins out on this one. The medical expense is certain, the future
earnings in the account (relative to inflation, especially) is
uncertain. There's already more "contribution capacity" in tax-deferred
accounts than most people make use of. And if you aren't maxing out your
401k because you spent $500 in after-tax money instead of drawing $500
out of the HSA, so you can preserve the HSA...well, that makes no sense.

I also think of HSA funds as slower-growth than the typical long-term
tax-deferred dollar, because of account fees, somewhat limited
investment alternatives, and here in CA, the lack of a state tax benefit
(CA still doesn't recognize HSAs, only MSAs). Plus, even if you go with
one of the companies with decent investment alternatives, until the
account is really large, it's a good idea to invest it relatively
conservatively in case you need to draw it all down over a couple-few
years. Conservatively may mean "money treading water vs. inflation" --
another argument for spending it now from the account.

-Tad

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On Aug 20, 8:35*pm, Will Trice <n...[at]monitored.net> wrote:
- quote -

The lack of financial "education" probably made me mix my words/

Money is deposited into HSA pre-tax (like a 401k)
Money is withdrawn from HSA pre-tax (like a Roth).

My thought is to avoid taxes on as much of my income and spending now
as possible.

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rick++ wrote:
- quote -

I don't think spending HSA dollars leads either to a tax deduction or
deferred income, does it? Adding to the account does, but taking out
does not. If you have enough medical expenses for them to be
deductible, would spending from an HSA increase your taxes? Or do you
get to double-dip?

-Will

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jIM wrote:

- quote -

This might make sense, but spending the HSA money does not result in tax
deductions. I tend to look at an HSA as another tax-advantaged savings
vehicle, so I would think that spending money out of pocket and keeping
the HSA intact would be beneficial.

Having said that, I have an HSA available to me and I opted for a PPO as
it appeared to be the better choice. In addition, this particular HSA
has crappy investment options and high expenses meaning that depleting
the assets in the account as medical expenses come up might make more
sense anyway.

-Will

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"rick++" <rick303[at]hotmail.com> wrote in message
news:78ebedb0-dbf8-4e26-98f8-17935d81b8e1[at]e53g2000hsa.googlegroups.com...
- quote -

both money in an HSA and money not in an HSA "depreciates with time".
Doesn't the money in an HSA depreciate at a lower rate than money not in an
HSA?

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