How to Hack Your HSA

How to Hack Your HSA

Since it’s that time of year again when many people are able to make changes to their health insurance plans, I wanted to revisit the Ultimate Retirement Account (i.e. Health Savings Account).

Rather than simply link to last year’s post (which you should definitely check out if you haven’t already), I decided to use what limited artistic ability I have to make a graphic that describes how to best use an HSA for tax-avoidance purposes.


How to Hack Your Health Savings Account

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Max Out Contributions

Decrease your tax burden by contributing the maximum amount to your HSA each year and increase your savings rate by investing the tax savings.

Assuming you are in the 25% tax bracket, maxing out your HSA could save you over $800 in taxes each year.

Payroll Deduction

When you contribute to your HSA via an automatic payroll deduction, you are able to avoid paying FICA taxes (i.e. Social Security and Medicare) on your contributions.

Assuming you max out your HSA, this could result in an additional $248 of savings per year.

Invest

Rather than treat your HSA as a savings account, instead treat it as a retirement account and invest the entire HSA balance in low-cost index funds (note: not all HSA custodians offer low-cost index funds so make sure yours does before opening an account).

Medical Expenses

Rather than use your HSA to pay for medical expenses, instead use your after-tax money so that you can leave your HSA money to grow tax free.

Receipts

Keep track of all your medical receipts so you know how much you are able to withdraw from your HSA.

As you incur qualified medical expenses, you increase the amount that you can withdraw during early retirement (you effectively convert your HSA into an early-retirement Roth IRA over time).

Retirement

Assuming you reach the age of 65 and have not accumulated enough medical receipts to fully liquidate your account, the HSA can be used for ordinary expenses in the same way that a Traditional IRA can be used for any expenses after standard retirement age (note: withdrawals for qualified medical expenses will continue to be tax free but withdrawals for all other expenses will be taxed as income, just as Traditional IRA distributions are taxed).

Conclusion

By treating your HSA as a retirement account instead of a savings account for health-related expenses, you can use it to further reduce your tax burden during your working years, shelter more of your investment earnings from tax, and potentially provide a source of tax-free income during your early retirement years!



      


Personal Capital - Portfolio Manager

80 comments

  1. Mark W

    Can you recoup the cost of a medical expense at any point? For example, I have $200 in medical expenses in 2013. Can I withdraw $200 in 2020, or can it only be current year expenses?

    • The Mad Fientist

      Hi Mark,

      There doesn’t seem to be anything in the documentation that specifies when you need to reimburse yourself for a qualified medical expense so that’s why I recommend leaving your money in the HSA as long as possible (so that it will continue to grow tax free).

      To answer your specific question…yes, I would withdraw that $200 in 2020 instead of 2013 (or even later, if you don’t actually need that $200 in 2020).

    • Mark, you can defer withdrawals.

      See here: http://www.irs.gov/irb/2004-33_IRB/ar08.html
      An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established.

      • The Mad Fientist

        Great find, Jeremy! I had read through all of the official documentation but I never came across the Q&A Bulletin you linked to. It is great to see the IRS explicitly state that reimbursements can be deferred to future tax years.

        For those interested in the full question and answer in the document…

        Question: When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year?

        Answer: An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur. However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year.

        • Adam

          I’m a little worried about the last little bit of the rules you quoted there. Specifically: “that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year”. What do they mean “reimbursed from another source”? How do they expect me to have paperwork proving that something didn’t happen? Paperwork generally only shows things that did happen.

          Also, the general rule of thumb is to keep tax paperwork for the past 7 years. But it seems like if I have an HSA and plan not to reimburse myself from it for potentially 10, 20 years or more, then I need to keep all of my tax returns for that long as well, to prove I didn’t take those expenses as an itemized deduction at any time. That seems like quite a lot of paperwork to have to keep track of over ~40 years (I opened my first HSA at age 27).

          • The Mad Fientist

            Hey Adam, I think all that’s saying is that you shouldn’t have any medical deductions on your tax returns that you later reimburse yourself for from your HSA. Just keep track of your medical receipts and tax returns and I imagine that will be sufficient documentation, should you ever get audited.

            As far as keeping track of your previous tax returns, I just plan to maintain electonic copies of everything forever so hopefully I’d have exactly what the IRS is looking for in an audit situation. Since electronic storage is cheap and plentiful these days, why not just save everything?

        • Further validation that you can postpone HSA withdrawals past the year you incur the costs.

          http://www.kiplinger.com/article/taxes/T056-C001-S003-reporting-hsa-contributions-on-your-tax-return.html?si=1

  2. Nice graph Brandon!

    Since the withdrawals from the HSA after age 65 are tax free for any purpose, should that last box say “At Age 65, Use HSA Like A ROTH IRA”?

    One of the things I’m most excited about is that the HSA reduces your Adjusted Gross Income for ACA purposes, allowing you to increase your ACA subsidy as well

    I haven’t done the math on that, but for individuals/families under 400% of the FPL this would be an additional savings beyond the income and FICA taxes. Win win!

    I believe also that unlike a Traditional or ROTH IRA, you don’t need “earned income” to make contributions to an HSA which will help us out

    • The Mad Fientist

      The withdrawals are only tax free if they are for qualified medical expenses. For ordinary expenses, you won’t be charged any penalties after the age of 65 but the distributions are taxed in a similar way distributions from a Traditional IRA are taxed after standard retirement age. I updated the post to clarify this point so let me know if it sounds okay to you.

      You’re absolutely right about the HSA lowering your AGI for ACA purposes and you are also correct that you don’t need to have earned income to make contributions. It really is the ultimate retirement account for early retirees, isn’t it?

  3. 13owie

    Hi Mad Fientist, Good timing as you note. Our plans are switching 12/1 and HSA is now a better option than the PPO plan, so we’ll be opening one. I’ll try to get as much in Dec under ’13 limit as can. With who do you have your HSA, or who would you recommend now? I’ve been trying to pour through the # of different lists of companies out there and weigh the rates/fees/limits, etc. One thought is to just find best rate w/o fees and treat it as low risk piece of your portfolio and move $ elsewhere to more aggressive investments (fungible). But am interested in considering investing the HSA into index funds too if you have a recommendation; 2.02% APY looks to be the most I can find.

    Thanks!

    • The Mad Fientist

      My HSA is through Fidelity and I’ve been very happy with them so far. They offer a good selection of low-cost index funds to invest in and they are one of the ones I can contribute to through a payroll deduction.

      I believe http://www.hsaadministrators.info allow you to invest in Vanguard index funds but they do charge an annual fee.

      Do any readers out there have any other suggestions for 13owie?

      • I’m looking also, now that our insurance will include an HSA again

        Best I’ve found (so far) is http://www.hsabank.com
        They have fees, but they are waived with reasonably small balances of around $3k afaik

        With hsabank.com, you can open a brokerage account at TD Ameritrade and invest in any mutual fund or ETF.

        All other options I’ve seen with the insurance companies we can use all have investment options, but they have bullshit funds with 3.5% front end loads and high expense ratios. It is for this reason that all of our current HSA funds have been in cash

        • The Mad Fientist

          Thanks for the recommendation, Jeremy. Since I’ve only used Fidelity, I haven’t had to shop around so I’m not really familiar with the other options out there. HSABank sounds like it could be a good choice though so let me know what you think of them if you end up going with them.

  4. Tom

    Hi Mad Fientist! What happens if I contribute more than the limit ($3250 for a single person in 2013)?

    I understand that only 3250 is tax deductible, but what would stop me from contributing $25,000 this year? It sounds like it would act almost like an unlimited Roth IRA provided I don’t withdraw until age 65. Thoughts?

    • The Mad Fientist

      Hi Tom, I like your thinking but you probably shouldn’t exceed the contribution limits.

      If you exceed the limits, you’ll be taxed on the excess and you’ll also possibly be charged an additional 6% excise tax.

      Also, as I mentioned to Jeremy in response to his comment, the HSA acts like a Traditional IRA after age 65 so you’ll be taxed on any withdrawals that aren’t used for qualified medical expenses.

  5. This is the first year we’re actually doing anything with Mr PoP’s HSA and I’m still working through all the details to do it right.

    You mention not paying FICA if we use payroll deductions for contributions, but I don’t see a way to select payroll deductions. Just one time or on a schedule straight from our checking account. Do you know if this is a requirement of all HSAs? I hate to bother his HR dept if they don’t offer it and Mr PoP avoids his HR dept like the plague.

    Also, do you know if the employer contributions count against what we can contribute up to the max? For instance, if his employer contributes $750 each year into his HSA, are our contributions then capped at $2500, rather than $3250?

    I know I’m a HSA newb – we mostly ignored it the first two years since we like paying med expenses out of my flex instead, but finally came around that it’s probably best to use it despite its annoyances.

    • The Mad Fientist

      Hey, good to hear from you, Mrs. PoP!

      You’ll likely have to talk to your husband’s HR department to see if an automatic payroll deduction is possible. I know talking to HR is usually a pain but the savings will definitely be worth it.

      To answer your question about employer contributions….yes, employer contributions do count towards your contribution limits. If your husband’s employer contributes $750 each year, he would only be able to contribute an additional $2,500.

      Glad you’re finally coming around to the idea of contributing to an HSA. Let me know if you have any other questions that I can help with as you look into it more!

      • Thanks! This was planned to be this weekend’s mission, but we’ll see what answer HR comes up with.

        I’m also under the impression that because Mr PoP’s HSA is through work we can’t switch which financial institution the HSA lives at (currently ChaseHSA). I’m putting it in the same category mentally as a 401K in that regard. Someone correct me if this is a wrong assumption as the investment options aren’t terrible, but the best is a SP500 tracking mutual fund that has a 0.20% ER, so if switching to another institution is an option I’d rather do it before getting everything else together.

        • The Mad Fientist

          You’ll likely have to stick with ChaseHSA if you want to go the automatic payroll deduction route.

          A 0.20% ER for an S&P 500 fund is a bit high but your FICA reduction will more than compensate for the higher ER.

          Keep me posted on how it goes with HR!

          • Thanks for the timing of this post, seriously. We got the HR stuff worked out and it looks like if we keep this plan for the next 5 years until FI, your heads up on the payroll/FICA will have helped us avoid paying almost $1000 in FICA over that period. Sweet!

          • The Mad Fientist

            I’m glad you got everything worked out! Hopefully it wasn’t too painful dealing with the HR department.

        • Andrew

          Late reply, but you most definitely can house your HSA wherever you want it, even if your company partners with an HSA bank. Your payroll deducations will have to go directly to that bank, but there is nothing stopping your from transfering over cash to another HSA provider.

          • The Mad Fientist

            Oh nice! I assumed you’d be stuck with whatever HSA bank your company partners with. Since I’m happy with my employer’s HSA bank, I never looked into the possibility of redirecting my payroll deduction somewhere else.

  6. Love the graphic, MF.

    You might also make the point, as I believe you have before, that HSAs are very different than FSAs (Flexible Spending Accounts).

    • The Mad Fientist

      Thanks, Jim!

      I’m glad you brought up FSAs. Yes, they are definitely very different than HSAs and the strategy I described in this post will not work with FSAs.

  7. Nick

    Mad Fientist, another awesome post! Thanks for sharing. There are a few other ways to reduce your FICA taxes, but definitely not many (i.e. medical, dental, and vision premiums, group term life insurance premiums (up to $50,000 in coverage), FSA contributions, and dependent care account contributions).

    @Jeremy – withdrawals from a HSA after 65 not used for qualified medical expenses are not subject to the 20% penalty, but would be subject to ordinary income taxes. So, this would be similar to a Traditional IRA. Still, I like the flexibility and some might be able to convert all of the traditional accounts over to the roth accounts by age 65 and pull the money out of the HSA without taxation (assuming they stay below the deduction and exemption level in that year).

    @13owie – keep in mind that you have until April 15, 2014 to make 2013 contributions to your HSA. Given you are changing coverage on 12/1, you probably will not be able to contribute much through your paycheck but might check with HR. However, you can take advantage of the “last-month rule” and still contribute the HSA maximum for 2013. You just need to remain covered in a high deductible health plan in all of 2014 (i.e. the “testing period”) to qualify. There are several places to go to contribute to a HSA. If your employer suggests a provider, it usually makes sense to go with them as this is usually the only way to contribute through your paycheck (and save FICA taxes). There are also several other options (i.e. HSA Bank, Optum Bank, etc.).

    • The Mad Fientist

      Hey Nick, thanks for providing a few other ways to lower your FICA taxes. Sadly, it doesn’t look like any of those other options are as exciting as HSA contributions but at least we have one good way to lower our FICA taxes while saving for the future.

      • Nick

        I agree! The HSA is awesome. Thanks again for all of your posts. This blog is great!

        • The Mad Fientist

          Glad you’re still enjoying it. Thank you again for providing extra details in the comments!

  8. Justin Katz

    At my current employer I am offered a NON-HDHP (not eligible to open an HSA). I can opt out of the health care and receive $115 per week on top of my paycheck.

    Do you know of any HDHP plans for a 25 year old healthy male in Pennsylvania.? Can I even do this legally if I am offered health insurance?

    • Vijay

      I’m not an expert, but I am a lawyer, so my formal advice is to consult someone else. That being said, I’m pretty sure you would be better off with an HSA eligible HDHP as a 25 year old healthy male. $115 a week is pretty generous and is very likely to cover the cost of a HDHP policy. Under the ACA these are being phased out but still exist for those under 30. You can go to your state exchange and compare plans. As far as the legality of it, it’s only a question if you are seeking subsidies under the ACA. You would not be eligible for subsidies in the exchange if you have available employer sponsored coverage (I’m guessing you wouldn’t qualify based off of income anyway). The exchanges are still a good place to compare policies though. Given the website issues and your apparent in eligibility for subsidies, I would compare policies on the exchange and if the math works go to the individual insurance company directly to sign up for the plan.

      • Vijay

        And just to be clear, there’ s definitely no legal problem with buying your own insurance, even an HSA eligible plan with the accompanying tax advantages if you turn down employer sponsored coverage. Only issue would be eligibility for subsidies.

      • The Mad Fientist

        Thanks a lot for the great response, Vijay!

  9. This year my employer is giving us an HSA as part of our new health insurance plans. I’m really excited to start taking advantage of the tax free contributions I can stash away along side my 401k. The only thing I was bummed about was employer contributions count towards the IRS limit. I originally figured it was similar to a 401k where employer contributions are seperate from your own.

    • The Mad Fientist

      Yeah, it is a shame employer contributions count towards the annual limit but look at the bright side, at least your employer is contributing for you!

  10. Robert D

    I am an owner of a small business and we offer our employees a health care plan. I am pretty certain it is not an HDHP. Who would I contact to see if I can open up an HSA for them?

    • The Mad Fientist

      Hi Robert, you should probably contact the health care provider you currently work with to see if they have an HDHP option. You’ll need to make sure the health plan you offer is an HDHP before you try to set up an HSA.

  11. kyle

    So funny you created this post. As I just received my new, fresh HSA literature in the mail the other day, I thought of this exact same method. If I can access HSA funds at 65 with no penalty, why not just leave the HSA alone until then to grow tax free and continue to pay $20 – $50 co-pays out of personal accounts? If I get into a dire health situation before 65, I can always use the HSA. I like how you are thinking!

  12. You know, this never occurred to me before until you brought it up – “Keep track of all your medical receipts so you know how much you are able to withdraw from your HSA – Rather than use your HSA to pay for medical expenses, instead use your after-tax money so that you can leave your HSA money to grow tax free.” I’m going to start doing this and let the HSA grow! This year was the first year I maxed out my HSA. Thanks for the tips!

    • The Mad Fientist

      My pleasure, J.R! I’m glad you found the article useful.

  13. Charlie

    I don’t think this strategy actually helps you, overall. By all means use the HSA for health expenses, but leaving money in there until 65 while you pay expenses out of regular savings doesn’t actually help. Yes, you avoid taxes on the HSA money, but you deplete your regular savings, which you had to pay full taxes on and could have gotten tax-free (or low tax) dividend money from forever. And having an account that you can’t touch until age 65 seems like the opposite of what you’d want for early retirement.

    • The Mad Fientist

      Charlie, check out the Ultimate Retirement Account article.

      • MooseOutFront

        Mad Fientist, I have the same question and I don’t think either article addresses it. If a person is maxing all tax advantaged space including HSA and investing everything else in taxable, then I’m thinking that paying medical bills out of pocket with funds that otherwise would have gotten invested is in effect pre-paying your income and FICA taxes. I need to run the numbers, but this specific scenario is relevant to FI’ers in the accumulation phase. One may come out ahead by spending the HSA money in this case.

        • Lifehacker

          You’re aware that you can reimburse at anytime down the road, correct? So you can pay personally, and then reimburse much later (post market run up or whatever)

        • The Mad Fientist

          Say you have $2000 available to invest in your taxable account, $4000 sitting in your HSA, and a $1000 medical bill. You can’t lower your taxes any more by investing that $2000 because you said your retirement accounts are already maxed out so you’re stuck paying FICA and income taxes on that money no matter what you do. So you can either pay that $1000 medical expense out of the $2000 you have to invest in your taxable account or you can pay for that expense out of your HSA.

          If you pay for it out of your taxable account, you’ll have a total of $5000 invested ($1000 in taxable and $4000 in HSA).

          If you instead pay for it out of the HSA, you still have a total of $5000 invested but $2000 will be in taxable and $3000 will be in the HSA.

          Since the totals are equal, it makes sense to keep more money in the tax-sheltered investment so that it can grow unimpeded.

          As Lifehacker said, you can then withdraw that $1000 from your HSA at any time but it makes sense to leave it growing tax free until you absolutely need it.

  14. fiveoh

    If I have an individual HSA account(not thru my employer), is there a way to do payroll deduction?

    • The Mad Fientist

      Sadly, I don’t think you’ll be able to take advantage of pre-tax contributions unless you contribute through your employer.

  15. Srini

    Hi,
    I’m big fan of your hacking posts. This one the best. Could you please let me know which companies offer the HSA with index fund option(most of them I checked have mutual funds).

    Thanks,
    Srini

  16. Vicki

    It was my understanding that the HDHP could not have a co-pay per Dr visit.

    • The Mad Fientist

      Hey Vicki, there’s nothing I’ve read that states HDHPs can’t have co-pays.

  17. Suneeta Nallakatla

    Hi there,

    I love how brilliantly you’ve explained what has been intuitive to me all along, in a manner that I can now use as ammunition to convince my new husband that this is the right thing to do!!

    I have a question that I’m wondering if you’ve run into. My husband and I both work for the same employer, and we have 4 kids between us. Our employer offers a HDHP that covers only ‘Employee and Dependents’, but excludes the spouse. Separately (obviously) they also offer a HDHP that covers ‘Individuals’.

    If my husband picks up coverage that covers himself and ur daughters (but excludes me, and I then pick up coverage that covers myself only, would he be able to contribute the ‘family’ maximum of $6,550, while I am able to additionally contribute the ‘individual’ maximum of $3,300 for a total of 9,850?

    Thanks so much! Any help would be greatly appreciated!

    Suneeta

    • The Mad Fientist

      Hi Suneeta, sorry for the delayed reply; I’ve been traveling the last few days and haven’t had much time to be on the computer.

      I’m glad I was able to provide that very valuable spousal ammunition :)

      Sadly, the limits are per individual/family and not per plan so you both would only be able to contribute up to the $6,550 family max. I like your thinking though!

  18. Hey good and timely topic. My employer only offers the HSA if you are getting a high deductible health plan. Currently I am under the Mrs. work plan so I cannot contribute towards an HSA. Do you know if there is a loophole to this specific scenario?

    • The Mad Fientist

      Sadly, I don’t think there are any loopholes. You need to be enrolled in a High Deductible Health Plan to contribute to an HSA.

  19. We max the HSA but still use it to actually pay for the occasional medical expense. I figure the few hundred we pay out won’t have a huge impact, though perhaps this isn’t optimal.

    • The Mad Fientist

      Yeah, it’s the tax you save up front that’s the big deal so I wouldn’t worry about using the HSA for a few hundred dollars worth of medical expenses.

  20. Kingston

    I can’t find anything about HSAs on the Fidelity website. Is it possible new customers can no longer manage their HSAs through Fidelity? Or am I not looking in the right place?

  21. Lori

    This was our 1st year on an HSA, and I have $3800 in qualifying expenses that I could take out. I know that I could save these qualifying expenses until future years and let the money stay invested in the HSA, but would it not be better for me to take the $3800 reimbursement and open a Roth IRA with that money?

    • The Mad Fientist

      Hi Lori, I tend to max out my IRA in addition to maxing out my HSA so for me, it makes sense to leave the money in the HSA.

      If you are only going to contribute to an IRA if you use the money from your HSA though, then it may make sense to do that if the fees associated with the IRA are lower or if your IRA offers better investment options.

  22. JC

    One more benefit you get from your HSA once you reach 65 yrs old is that you can make your Medicare Policy payments (and probably MediGap policy payments, I’ll have to check on that) from your HSA account with no penalty OR taxes.

  23. Mike

    Love the article. I have a question though. It is my goal to leave my 9-5 by age 30. I am 23 now. I currently am maxing out my Roth IRA each year. Should I continue doing so or should I take that money and max out my HSA? I can’t afford to max out both. Would appreciate any insight. Thanks

    • The Mad Fientist

      That depends on how much you are still able to invest in your IRA each year when investing in the HSA. If you are only able to invest a little bit, you may want to divert some of your HSA funds to your IRA so that you can access that money early, if necessary.

      The only way to access your HSA early is to have a medical expense so if you’ll need that money during the first part of your early retirement, you may not be able to access it since you’ll hopefully be a healthy young guy that doesn’t spend much on healthcare.

  24. I agree with you on the HSA, but I would argue for taking it one step further (if you have a second source of non-w2 income) and use an HRA. I wrote an article very similar to yours with this extra piece added on. I would appreciate your critique or downside analysis to what I wrote:

    http://jaredfielding.com/2014/02/26/my-insurance-analysis-health-savings-accounts-health-reimbursement-plan/

    • The Mad Fientist

      Looks great, Jared!

      What type of business entity do you have? It seems like the only way I’d be able to take advantage of an HRA as a sole proprietor is if I employed my wife. Do you know of any other loopholes?

      • Lifehacker

        I have a C-Corp that I tie with my HRA currently. I’ve been doing that for 10+ years. The HSA + HRA straddle is a new strategy I just thought of this year. I ran it by an investment adviser and a former IRS agent and an insurance agent — all linked me to articles that show it’s an allowed approach.

        As you saw, I’m treating the HSA as an investment account (without income restrictions) that I will use in my later years (60-70).

  25. Kyla

    I’m a little late to this article, but I saw the comment about changing the bank your HSA is at (through your company) to another one so that you can invest your HSA (versus keeping it in a savings account). Can you speak a little more about how this is done?

    Thanks!

    • The Mad Fientist

      Hi Kyla, I actually haven’t done this before so maybe one of the other readers can chime in with some firsthand experience?

      You’d probably be able to call the bank you’re hoping to move your money to and they could help walk you through it.

    • KC

      I just did this in January as my employer’s investment options were meager. You can either “transfer” or “rollover” your employer’s HSA to another HSA. You may have more that one.
      You may transfer as many times as you like but there may be a fee. You can Rollover once per year and there’s no fee.
      I went with HSA Administrators through the HSA bank. It was pretty easy.
      Basically you just send your HSA a form from the new HSA and they make the transfer.
      I found a link that really covers this well at The Financial Buff make sure you read the comments, too,

      • Kyla

        Thanks to everyone who submitted a helpful comment and thanks Madfientist for writing this article!

  26. My employer only offers a FSA (flexible spending account). My wife and I never contributed because I believe you have to use up all the funds in the same year. Now that we are expecting our first child, we may fund it. Are there any hacks for a FSA? Since our employer doesn’t offer a HSA, are we out of luck?

    • The Mad Fientist

      Correct, Nick. You do have to use up all of your FSA funds within the year, otherwise you’ll lose them, so sadly there aren’t any good FSA hacks.

  27. WTB

    Hi there – I have been using this strategy since my employer first offered the H.S.A. back in 2009. Slowly got better at it as I began to learn how the H.S.A. operates. I wish you had this blog post back then. Biggest mistake I made along the way was paying for my Lasik out of H.S.A. funds. I could be earning tax free on those expenditures right now!

    Anyway, you mentioned you were engaged or recently married in your other post. I will be getting married in July so will being upgrading to the family contribution – woot!. My question is (which stumped by H.S.A. administrator by the way) since I will technically be married (for tax purposes) all of CY14, if my future wife has QME prior to July in CY14, can I claim those expenditures?

    My H.S.A. administrator answer, “This could potentially put you in a gray area with the IRS, you should contact a tax professional”. I haven’t done much reading up on this yet, my thoughts since I am not talking huge dollars here, disburse only these expenditures this year and fight them at audit if necessary. That way the issue is isolated to one tax year. Any thoughts?

    • The Mad Fientist

      Hey WTB, my wife and I still maintain separate HSAs so I’m not sure. You may want to call the IRS helpline to see what they have to say. Good luck and please let us know what you find out!

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