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Updated article and information on H.S.A Providers, investment choices (ETFs and Mutual Funds) and expenses for H.S.A ( Health Savings Accounts) eligible Health Insurance Participants:
@MikeM, I began contributing individually to an H.S.A (I'm retired & PT self employed) a few year ago. My first contribution was a one time rollover from my SD IRA account to the Bruce Fund (BRUFX). Its historical returns are pretty good:
As I have mentioned in other posts the Bruce Fund is a old school experience using snail mail for contributions and withdrawals, but the fund does have a basic online account service for viewing your account and downloading forms. I use Bill Pay at my bank which has allowed me to make monthly contributions electronically so I do not have a problem there and I infrequently make withdrawal.
I instead, keep track of my medically eligible expenses on a spreadsheet, pay for these costs out of pocket during the year and then decide at the end of the year whether I need to make a withdrawal from my H.S.A to reimburse these expenses. If not, I keep these records for the next year. H.S.A can roll eligible reimbursements into the future which is not the case with other health savings plans.
Anyway, to your question (I hadn't forgot) Bruce Fund does not offer some other features that other H.S.A provider do such as an investment platform and a debit/savings account. So no debit card, no cash account. Every dollar is fully invested in the Bruce Fund and only the Bruce Fund. From the articles I attached i would consider Optum Bank which seem to have a $1/month fee (eaccess account) and offers some mutual funds on its investment platform that interest me.
Again, fees and transaction costs are what I have been trying to avoid. Bruce charges $15 service fee and it fund ER. No transaction costs. I may roll over a portion of my Bruce H.S.A to Optum (you are not limited to how many providers you have H.S.A with) and see how that goes. Optum seems to work with employers who offer H.S.A to their employees, but individuals can hold accounts there as well. Finally, many Credit Unions offer the H.S.A (savings/debit accounts). So I may approach a local credit union and combine that with my Bruce H.S.A.
Hope that helps and it would be great to hear form others who may have other H.S.A experiences.
Fortunately I have the cash to be able to cover medical expenses, so I treat HSAs as super duper Roth IRAs. Money checks in, but it doesn't check out. (As you do, I also keep track of medical expenses so that I will, some years down the road, be able to pull all the money out tax-free.)
That said, I've worked with a few different HSAs. One way or another, with nearly all HSAs you're going to wind up paying at least $25 or so per year to invest. That could come from a trading requirement (or inactivity fees if you don't trade), a bank account or an investing account annual fee, etc.
The Bruce Fund seems to be an exception, but its offerings are, shall we say, not copious? Saturna has a $25 inactivity fee if you don't have a transaction each calendar year (though that drops to $12.50 if all you hold are mutual funds, and they do offer NTF funds including some that are popular here, such as DSENX).
One would like to avoid tying up money on the bank side (paying peanuts), and invest all the money - at least if you use the HSA as I do, as a supercharged IRA. Keeping cash on the bank side to avoid the annual fees seems like a losing proposition over the long term.
Lively is a VC backed startup that just started providing an investment option a month ago. Looks very good, assuming it will survive in this form. $30 fee is in the right ballpark, and has no min balance requirement to start investing or to keep on the bank side.
Regarding Optum Bank (a subsidiary of United Health) - here's an old fee schedule, but it seems consistent with bee's figures. The eAccess account does charge $1/mo ($12/yr), but that's on the bank side, and waived with balances above $500. You need (or at least needed at the time of the fee schedule cited) to keep at least $2K on the bank side, and you still paid $3/mo ($36/yr) extra to invest.
In case you're having problems with their fund list (I am), here's a simple pdf from January 2017:
@msf: I was not aware that current medical expenses can be rolled over to next year (or longer?) for the purpose of HSA distribution. Is there a limit in terms of amount/time? I do have an HSA and do not use the money for distributions just to build a nest egg for eventual big medical needs.
No time limit. The only requirement is that you must have opened the HSA (or its predecessor, if you moved accounts) prior to incurring the qualified expenses.
So if you opened your HSA in May 2010, then you can hold onto all those bills and proofs of payments from May 2010 on, and use them to justify HSA withdrawals that you make in 2025.
This seemed too good to be true, so years ago I bookmarked an IRS publication on the subject. Look for Q-39 in this 2004 IRS Bulletin:
As a public service, here is the elusive Q-39, in it's entirety:
Q-39. 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?
A-39. 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. See Notice 2004-2, Q&A 31 and also Notice 2004-25, for transition relief in calendar year 2004 for reimbursement of medical expenses incurred before opening an HSA.
Example. An eligible individual contributes $1,000 to an HSA in 2004. On December 1, 2004, the individual incurs a $1,500 qualified medical expense and has a balance in his HSA of $1,025. On January 3, 2005, the individual contributes another $1,000 to the HSA, bringing the balance in the HSA to $2,025. In June, 2005, the individual receives a distribution of $1,500 to reimburse him for the $1,500 medical expense incurred in 2004. The individual can show that the $1,500 HSA distribution in 2005 is a reimbursement for a qualified medical expense that has not been previously paid or otherwise reimbursed and has not been taken as an itemized deduction. The distribution is excludable from the account beneficiary’s gross income.
"The individual can show that the $1,500 HSA distribution in 2005 is a reimbursement for a qualified medical expense that has not been previously paid or otherwise reimbursed and has not been taken as an itemized deduction."
This presents an interesting situation. How does one go about proving that something didn't happen?
This is one of those rare cases where it is possible to prove a negative, because it's a negative of something very specific.
To prove that something was never used as an itemized deduction, you could hold onto your Schedule A (itemized deductions) from the year of the medical expense. If you did not itemize any medical expenses that year, end of story.
If you did itemize medical expenses that year, in all likelihood you did include the the medical expense in question as part of the deducted expenses. (Why would you not have done so?)
Nevertheless, if for some bizarre reason you (a) itemized expenses for a given year, and (b) did not include a particular medical expense you could still prove that:
You would need to have proof of all the expenses that did go into calculating the itemized medical expense for that year. Those expenses would need to match the expense claimed (after allowing for the fact that 7.5% of AGI was excluded from the deduction). So long as the expense in question wasn't used to add up to the itemized medical expense for that year, you're fine.
Thank you msf and Old_Joe! Very illuminating. I have been tossing all my medical receipts at the end of each year - never made the 10% AGI cut to claim deduction. Better late than never!
@Kaspa, Lost medical receipts might be retrievable by finding past checking statements (my bank keeps these available online electronicly in pdfs going back multiple years). Once you identify a lost payment save as a pdf (download to a storage device or the cloud). Also, lost payment records by credit card can be retrieved similarly.
You might even be able to ask your dentist's/doctor's office or hospital billing department to retrieve patient payments.
Items and services that are reimbursable are linked here (Qualified medical expenses):
Many out-of-pocket expenses qualify for tax-free H.S.A withdrawals even after you’re on Medicare. You can use the money to pay premiums for Medicare Part B, Part D prescription-drug coverage or all-in-one private Medicare Advantage plans (but not for medigap premiums). You can also use the money for co-payments and deductibles you pay for medical expenses, out-of-pocket costs for prescription drugs, vision and dental care, and even a portion of qualified long-term-care premiums ($3,500 in 2012 for people ages 61 to 70, for example and more if you’re older)
To take a medical deduction, you need proof of two different things: 1) That a qualified medical expense was incurred, and 2) That you paid the expense.
Old checks should suffice for #2, but you should also have proof of #1. That check to your dentist might have been for an electric toothbrush. Your doctor might be your next door neighbor who just sold you his old lawnmower.
EOBs and doctor bills seem to be good ways to show what services were paid for.
Regarding using HSAs for Medicare premiums - watch out for a gotcha.
From IRS Pub 969: "if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally aren’t qualified medical expenses."
Comments
I began contributing individually to an H.S.A (I'm retired & PT self employed) a few year ago. My first contribution was a one time rollover from my SD IRA account to the Bruce Fund (BRUFX). Its historical returns are pretty good:
Anyone interested can view the fund here:
M* link to BRUFX-
morningstar.com/funds/XNAS/BRUFX/quote.html
As I have mentioned in other posts the Bruce Fund is a old school experience using snail mail for contributions and withdrawals, but the fund does have a basic online account service for viewing your account and downloading forms. I use Bill Pay at my bank which has allowed me to make monthly contributions electronically so I do not have a problem there and I infrequently make withdrawal.
I instead, keep track of my medically eligible expenses on a spreadsheet, pay for these costs out of pocket during the year and then decide at the end of the year whether I need to make a withdrawal from my H.S.A to reimburse these expenses. If not, I keep these records for the next year. H.S.A can roll eligible reimbursements into the future which is not the case with other health savings plans.
Anyway, to your question (I hadn't forgot) Bruce Fund does not offer some other features that other H.S.A provider do such as an investment platform and a debit/savings account. So no debit card, no cash account. Every dollar is fully invested in the Bruce Fund and only the Bruce Fund. From the articles I attached i would consider Optum Bank which seem to have a $1/month fee (eaccess account) and offers some mutual funds on its investment platform that interest me.
https://optumbank.com/
Mutual Fund offerings through Optum Bank (need Adobe Flash to view):
https://optumbank.com/individuals-families/how-to-invest-with-hsas/mutual-funds.html
Again, fees and transaction costs are what I have been trying to avoid. Bruce charges $15 service fee and it fund ER. No transaction costs. I may roll over a portion of my Bruce H.S.A to Optum (you are not limited to how many providers you have H.S.A with) and see how that goes. Optum seems to work with employers who offer H.S.A to their employees, but individuals can hold accounts there as well. Finally, many Credit Unions offer the H.S.A (savings/debit accounts). So I may approach a local credit union and combine that with my Bruce H.S.A.
Hope that helps and it would be great to hear form others who may have other H.S.A experiences.
That said, I've worked with a few different HSAs. One way or another, with nearly all HSAs you're going to wind up paying at least $25 or so per year to invest. That could come from a trading requirement (or inactivity fees if you don't trade), a bank account or an investing account annual fee, etc.
The Bruce Fund seems to be an exception, but its offerings are, shall we say, not copious? Saturna has a $25 inactivity fee if you don't have a transaction each calendar year (though that drops to $12.50 if all you hold are mutual funds, and they do offer NTF funds including some that are popular here, such as DSENX).
One would like to avoid tying up money on the bank side (paying peanuts), and invest all the money - at least if you use the HSA as I do, as a supercharged IRA. Keeping cash on the bank side to avoid the annual fees seems like a losing proposition over the long term.
You'll find my thoughts on the three HSA mentioned in the cited article as a comment there: https://thefinancebuff.com/best-hsa-provider-for-investing-hsa-money.html#comment-21591
Someone there just posted about a new HSA administrator, Lively ($30/year to invest):
https://thefinancebuff.com/best-hsa-provider-for-investing-hsa-money.html#comment-21595
Here's the TDA commission and fee schedule for that account (short term trading on NTF funds is defined as 90 days, and just $25 for TF funds):
https://www.tdameritrade.com/retail-en_us/resources/pdf/SDPS1009.pdf
Lively is a VC backed startup that just started providing an investment option a month ago. Looks very good, assuming it will survive in this form. $30 fee is in the right ballpark, and has no min balance requirement to start investing or to keep on the bank side.
Regarding Optum Bank (a subsidiary of United Health) - here's an old fee schedule, but it seems consistent with bee's figures. The eAccess account does charge $1/mo ($12/yr), but that's on the bank side, and waived with balances above $500. You need (or at least needed at the time of the fee schedule cited) to keep at least $2K on the bank side, and you still paid $3/mo ($36/yr) extra to invest.
In case you're having problems with their fund list (I am), here's a simple pdf from January 2017:
So if you opened your HSA in May 2010, then you can hold onto all those bills and proofs of payments from May 2010 on, and use them to justify HSA withdrawals that you make in 2025.
This seemed too good to be true, so years ago I bookmarked an IRS publication on the subject. Look for Q-39 in this 2004 IRS Bulletin:
https://www.irs.gov/irb/2004-33_IRB
"there is no time limit on when the distribution must occur"
Q-39. 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?
A-39. 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. See Notice 2004-2, Q&A 31 and also Notice 2004-25, for transition relief in calendar year 2004 for reimbursement of medical expenses incurred before opening an HSA.
Example. An eligible individual contributes $1,000 to an HSA in 2004. On December 1, 2004, the individual incurs a $1,500 qualified medical expense and has a balance in his HSA of $1,025. On January 3, 2005, the individual contributes another $1,000 to the HSA, bringing the balance in the HSA to $2,025. In June, 2005, the individual receives a distribution of $1,500 to reimburse him for the $1,500 medical expense incurred in 2004. The individual can show that the $1,500 HSA distribution in 2005 is a reimbursement for a qualified medical expense that has not been previously paid or otherwise reimbursed and has not been taken as an itemized deduction. The distribution is excludable from the account beneficiary’s gross income.
This presents an interesting situation. How does one go about proving that something didn't happen?
To prove that something was never used as an itemized deduction, you could hold onto your Schedule A (itemized deductions) from the year of the medical expense. If you did not itemize any medical expenses that year, end of story.
If you did itemize medical expenses that year, in all likelihood you did include the the medical expense in question as part of the deducted expenses. (Why would you not have done so?)
Nevertheless, if for some bizarre reason you (a) itemized expenses for a given year, and (b) did not include a particular medical expense you could still prove that:
You would need to have proof of all the expenses that did go into calculating the itemized medical expense for that year. Those expenses would need to match the expense claimed (after allowing for the fact that 7.5% of AGI was excluded from the deduction). So long as the expense in question wasn't used to add up to the itemized medical expense for that year, you're fine.
Well, you asked
Glad some good came of all of this.
Lost medical receipts might be retrievable by finding past checking statements (my bank keeps these available online electronicly in pdfs going back multiple years). Once you identify a lost payment save as a pdf (download to a storage device or the cloud). Also, lost payment records by credit card can be retrieved similarly.
You might even be able to ask your dentist's/doctor's office or hospital billing department to retrieve patient payments.
Items and services that are reimbursable are linked here (Qualified medical expenses):
hsacenter.com/what-is-an-hsa/qualified-medical-expenses/
H.S.A can be very helpful after age 65: Article:
health-savings-accounts-after-medicare
IRS Link to Pub 502:
https://irs.gov/pub/irs-pdf/p502.pdf
Regards,
Ted
1) That a qualified medical expense was incurred, and
2) That you paid the expense.
Old checks should suffice for #2, but you should also have proof of #1. That check to your dentist might have been for an electric toothbrush. Your doctor might be your next door neighbor who just sold you his old lawnmower.
EOBs and doctor bills seem to be good ways to show what services were paid for.
Regarding using HSAs for Medicare premiums - watch out for a gotcha.
From IRS Pub 969: "if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally aren’t qualified medical expenses."