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Health Savings Accounts and When to Withdraw

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AUTHOR: Randy Dobkin on 7/18/2024

My family has been using HSAs as stealth Roth IRAs (with the added benefit of a tax deduction), in that after a couple of years in the beginning, we no longer make withdrawals for current medical expenses.

One neat trick we were able to pull off is that my son, while on our insurance before age 26, made the family contribution to his HSA (in addition to my wife’s family contribution and $1000 catch-up contributions for me & her).

But since an HSA is not something you’d want to pass to your heirs, seeing that the entire amount is treated as ordinary income in the year of inheritance, it makes sense to draw it down to zero before death.  I’m currently planning on starting withdrawals when I hit Medicare age, to be reimbursed for the premiums.  That’s allowed, right?

What do you all think about when it’s best to start withdrawing from an HSA?

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Mark Eckman
3 months ago

I also consider my HSA to be similar to a Roth. Each January I reimburse myself for my Medicare Part B premiums when I get the SSA-1099. Most recently I withdrew from the account for a new air conditioner and replacement windows and have supporting receipts to use so this was tax free money.

R Quinn
3 months ago

But you can’t use HSA funds to pay Medigap premiums. Strange, but true.

Mark Eckman
3 months ago
Reply to  R Quinn

CMS used the same logic to kill the F plan Medigap plans – you need to have skin in the game. So everyone that has an F plan, don’t change.

William Perry
3 months ago

IRS Pub 969 (2023) page 9 lists the insurance premiums that qualify as an eligible medical expense for HSA distribution purposes.

https://www.irs.gov/pub/irs-pdf/p969.pdf

Besides your premiums for Part B & D you referenced and the qualifying LTC premiums that Chris referenced the following insurance premiums are also referenced as eligible –

1. Health care continuation coverage (such as coverage under COBRA).
2. Health care coverage while receiving unemployment compensation under federal or state law.

There has previously been proposed changes to change the rules regarding what medical insurance are eligible for HSA reimbursement but those proposals have not become part of the tax rules to date.

Best, Bill

Last edited 3 months ago by William Perry
Kevin Madden
3 months ago

Not answering your question but… you can withdrawal from an HSA for medical expenses incurred in prior years as far back as you have records so no need to match it to when medical expenses are incurred. I am waiting until I need some money (like for a major unplanned purchase) and don’t want to spike my taxable income.

OldITGuy
3 months ago
Reply to  Kevin Madden

I agree. I also plan to use the HSA as a pot of money available for a major unplanned expense so I don’t have to spike my taxable income. Just being able to prevent spiking our income into the next IRMAA bracket would save my wife and I over $4K alone, in additional to any income tax savings.

baldscreen
3 months ago
Reply to  Kevin Madden

Oh yes,I forgot that part. I had saved our receipts also. Thanks, Kevin. Chris

baldscreen
3 months ago

From what I have read you can use for Medicare Parts B and D but not any supplements. We are planning to use for expensive things Medicare doesn’t cover like dental, glasses and hearing aids. The last of us that is left, may use some for LTC. Chris

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