Health Savings Accounting
August 24, 2013 9:16 PM Subscribe
Can I really use my now empty Health Savings Account plan to pre-tax reimburse myself for expenses in the past, if I contribute to it today?
I've had an HSA for a while, and I created it when I started my job about 5 years ago. I was originally going to contribute some % of my income into it every year but didn't bother to. There was also talk of the employer contributing some amount as part of the benefits package but they never did.
Anyways, I was talking to a friend today about taxes, and he mentioned that I could collect up all my "medical expenses" in the past 5 years such as buying glasses, doctors' visits, dental bills, etc. and contribute that amount to my HSA pre-tax, and then reimburse myself that amount, so essentially deducting all those expenses from my taxes. My impression was that you needed to have money in the account when you incurred the expense and then had to use your account money to pay for the medical expense.
Is what he's saying right? And if so, what's the point of contributing anything into an HSA until you have reached a year where you are making high income, and then you can just deduct everything since the beginning? It seems kind of tax-sheltery to me.
I've had an HSA for a while, and I created it when I started my job about 5 years ago. I was originally going to contribute some % of my income into it every year but didn't bother to. There was also talk of the employer contributing some amount as part of the benefits package but they never did.
Anyways, I was talking to a friend today about taxes, and he mentioned that I could collect up all my "medical expenses" in the past 5 years such as buying glasses, doctors' visits, dental bills, etc. and contribute that amount to my HSA pre-tax, and then reimburse myself that amount, so essentially deducting all those expenses from my taxes. My impression was that you needed to have money in the account when you incurred the expense and then had to use your account money to pay for the medical expense.
Is what he's saying right? And if so, what's the point of contributing anything into an HSA until you have reached a year where you are making high income, and then you can just deduct everything since the beginning? It seems kind of tax-sheltery to me.
My understanding is that this is generally true for HSAs (see this general HSA faq). The limit is that you can only contribute a certain amount to an HSA every year no matter your income.
Yes, HSAs seem to be primarily used as a tax shelter, but because of the contribution limit it's still best to contribute the maximum every year, either saving receipts for reimbursement later or simply betting that your medical expenses in old age will be high enough to make this worthwhile. Additionally, withdrawals can be made for non-medical expenses, similar to an IRA (with a penalty before age 65 and no penalty after), so if you are hitting your tax-free IRA limits this is another vehicle to defer tax from a high-tax period of your life to a low-tax period.
posted by muddgirl at 6:36 AM on August 25, 2013 [1 favorite]
Yes, HSAs seem to be primarily used as a tax shelter, but because of the contribution limit it's still best to contribute the maximum every year, either saving receipts for reimbursement later or simply betting that your medical expenses in old age will be high enough to make this worthwhile. Additionally, withdrawals can be made for non-medical expenses, similar to an IRA (with a penalty before age 65 and no penalty after), so if you are hitting your tax-free IRA limits this is another vehicle to defer tax from a high-tax period of your life to a low-tax period.
posted by muddgirl at 6:36 AM on August 25, 2013 [1 favorite]
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posted by Bonzai at 9:29 PM on August 24, 2013