Very basic HSA question

[Anonymous]

I contributed the max to my HSA last year (7K) but at open enrollment this year tried harder to understand the whole concept. What I now get is that this is really a way for me to lower my taxable income; not help pay for medical expenses. I'd have to exceed 10% of my AGI (which is about 250K) to be able to dip into my HSA account. DD and I are very healthy (knock on wood) so barring an unexpected event, we'd never spend 25K on med expenses (obviously this is possible with a single hospital stay, and I know that).

If I wanted something to help out with copays for a HDHP I'd need an FSA. An HSA is more of a tax shelter.

Do I have that right?

[Anonymous]

I should add that my employer does not contribute anything to my HSA since my salary exceed 250K. I max out my 401k and get the max deduction on DD's 529. I understand the tax benefit of putting 7K/yr into the HSA, just trying to make sure I want to keep parting with those dollars monthly as I won't see them for another 25 years (in theory); my orig thought was that they'd help us now with the HDHP.

[Anonymous]

There’s no threshold to reach before you can reimburse yourself for medical expenses from your HSA. Just make sure you save your receipts. It has nothing to do with your AGI.

Many people choose to save their receipts and cash flow current medical expenses with an eye to reimbursing themselves later as a supplement to other retirement income. Most people just treat it like an FSA that doesn’t have a use-it-or-lose-it aspect.

[Anonymous]

You can use the money in your HSA at any time for any medical expense.

Once you get above a certain age (I'm not sure what that age is) you can use the money for anything, it doesn't have to be medical.

[Anonymous]

The 10 percent rule is if you want to itemize medical expenses on your tax return. You can use your HSA on qualified medical expenses whenever you want.

[Anonymous]

What are the downsides of HDHP? I have BC/BS basic but am wondering if I should switch.

[Anonymous]

Anonymous wrote:The 10 percent rule is if you want to itemize medical expenses on your tax return. You can use your HSA on qualified medical expenses whenever you want.

+1

[Anonymous]

Geez. Thanks people. It's discouraging sometimes that I have so much trouble with this stuff (I'm a single parent and it feels overwhelming sometimes).

Appreciate the help.

[Anonymous]

You are confusing several concepts. You CAN use the HSA as just a tax shelter. That means you just save it and invest it. Or you use it as a tax advantaged way to pay your OOP medical expenses. Or both if you dont need it all for medical expenses. You can use it for medical expenses immediately. You should have gotten a credit card for that purpose.

The tax deductibility of medical expenses is a very high hurdle, as you note. Even with a hospitalization you aren't likely to get over $25k because your OOP max would kick in and usually they are well below $25k. I've hit mine twice in the last 3 years with hospitalizations for DC and our OOP was $13k. We had some expenses (like copays) over $13k but never got close to the 10% of AGI level.