Health Saving Account
I asked this question last December and did not get a response. I have a number of clients that have either Health Savings Account or Health Reimbursement Accounts. When they retire (for HRA) or retire/leave employment (HSA) they have a balance in their account that is theirs to use for health related costs.
Where to I show this account balance since it won't be taxed if used for health related costs when use it?
Do I just enter it as special receipt with no tax consequences? I know an HSA is like an IRA that has an underlying investment while a HRA has no investment option.
Thanks,
Bruce Galvin, CFP
RSS
I'm an individual user with an HSA. I keep track of my expenses using MS Money, and in that program I've chosen to track HSA contributions as "spending" on healthcare. When I actually write a check on the HSA, I don't count it at all, because that money was already "spent". This allows health care "expenses" to be much less variable year to year (and more controlled), which enables me to treat them as part of my Consumption for ESPlanner.
Another way to look at it would be to consider how you would treat these contributions if, instead of savings, they were health insurance premiums. You would count the premiums as spending, and would ignore any payout from the insurance company. That's sort of how I model it - as self insurance.
This is not ideal, particularly for someone who is actually using the HSA as a tax advantaged investment account. But I am simply using the HSA as a way to smooth health care spending, so it works for me.
I am contributing the maximum to my HSA, so I'm building up a reserve. But once I retire and take on the complete burden of my health insurance premiums, I'll stop contributing and start drawing. Since the maximum contribution is almost equivilant to the COBRA cost of my insurance, this will smooth my spending enough that, with minor adjustments in std of living percentage, or small special expenditures, I can model it in ESPlanner. The HSA balance is "off the books" w.r.t. ESPlanner.
Hi Bruce,
Sorry, I missed this. We've been very busy adding additional features, which will appear in the next release and the one after that.
I think one easy way to model HSAs is to treat the contributions as special expenses that are exclusions from AGI. This is what jfshelton is recommending in his posting.
You could also treat them as Roth contributions and enter special withdrawals from the Roth corresponding to the projected medical expenses, but you'd need to enter the expected medical expenditure (corresponding to the special Roth withdrawal) as a non-tax related special expense. You'd also need to enter a non-taxable special receipt in each year when you make the contribution and an equal sized special expenditure that's excludable from AGI to get the tax break for making the contributions. This is cumbersome compared to the first option, but you'll be able to point to the Roth balances as including the HSA balances.
At some point, we'll add an HSA screen to the program and do this right.
best, Larry
I asked this question last December and did not get a response. I have a number of clients that have either Health Savings Account or Health Reimbursement Accounts. When they retire (for HRA) or retire/leave employment (HSA) they have a balance in their account that is theirs to use for health related costs.
Where to I show this account balance since it won't be taxed if used for health related costs when use it?
Do I just enter it as special receipt with no tax consequences? I know an HSA is like an IRA that has an underlying investment while a HRA has no investment option.
Thanks,
Bruce Galvin, CFP
Thanks, I appreciate both of your comments. Always moving towards perfection.
Bruce Galvin, MBA, CFP