Using the HSA for Long-Term Medical Expenses

A Health Savings Account, or HSA, is a valuable tool in managing medical expenses. They can help you save, pay for certain expenses not covered by your insurance and you can reimburse yourself at any time in the future for medical expenses you incur while the HSA is open.

First, let’s look at Qualified Medical Expenses, or QMEs.

The HSA can be used to pay for QMEs that are not covered by your HDHP. QMEs are medical expenses the IRS allows HSAs to pay, including (but not limited to) dentist and optometrist visits, eyeglasses, transportation to medical care, chiropractic care and much more. The best part is that these expenses can be paid tax-free with the HSA. QMEs include expenses of the individual, their spouse and dependents regardless of their medical insurance coverage.

Secondly, your HSA can reimburse you for QMEs at any time. You decide. You can take a reimbursement the day you incur the medical expense or 30 years in the future. Regardless of when you take the QME reimbursement, it is tax free.

Say you go to the doctor for a checkup and get a bill for $1,000. With an HSA, you can pay that bill with your HSA funds immediately, or you can pay the bill out of pocket, keep the receipt, and reimburse yourself that $1,00 anytime, tax-free, in the future. That gives you $1,00 more dollars in your HAS to invest, which will hopefully appreciate over time.

Note that your HSA cannot pay for medical expenses incurred before the account is opened, but it can reimburse for any expense after that even if the account does not have that amount in it at the time.

Lastly, any withdrawals are subject to ordinary income tax, just like traditional IRAs. So if you and your dependents are fortunate enough to not have medical expenses but you need the money for non-medical expenses after age 65, the HSA works in your favor by letting you keep that money in the account.

There are no Required Minimum Distributions (RMDs) for HSAs. That means you may continue to make contributions as long as you are not enrolled in Medicare. When you die, your HSA funds can be used by your spouse or it can be taxed and pass on to your non-spouse beneficiaries.

Alternative assets in an HSA

At New Direction the focus, rather than selling or recommending investments, is to help the clients learn about their options and guide the client through the process of making it happen. Co-founder and CEO Bill Humphrey said, “Self Direction is not for everyone. The self directed investor must be willing to take the responsibility for investment choices. Although their outside advisers or associates can help. Since we don’t sell any investments, we don’t question your choices or try and steer your decisions. Our clients already have the sexiest IRAs on the block.” New Direction offers Roth and Traditional IRAs, SEP IRAs, as well as 401k plans.

Humphrey warns clients and potential clients not to overlook the HSA for retirement expenses of the medical variety. Creative investors are discovering the investment potential of HSA funds and some clients feel that the tax shelter of an HSA can be better than either a Roth or Traditional IRA. New Direction includes Self Directed Health Savings Accounts in the available plans, Humphrey explained, because many employers are now offering plans in conjunction with HSA contributions.

Most investors look at an IRA as a long term investment, and recently, according to New Direction, more HSA investors are doing the same thing. As mentioned in the WSJ article, investors in hardwood trees are looking for a long term return. Humphrey said, “Our clients mention the low initial amount required as one of their reasons for making the investment aiming that the trees will ‘grow’ in value between now and retirement.”

A New Direction HSA can purchase Hawaiian Koa trees or whatever investment they choose, and harvest future profits. Those profits are never subject to tax, provided distributions are used for qualified medical expenses. And HSA contributions are not subject to tax either. Thus, HSAs offer tax free contributions and distributions as well. Account holders generally defer distributions from HSAs to retirement years while allowing the account to grow in the meantime.

Given the lower typical balances in HSAs, the focus is often on lower priced investments. Small plan balances don’t necessarily limit the client to small investments. HSAs and IRAs with low balances may also, as mentioned in the WSJ article, make purchases with other investors or using debt leverage.
Since 2003, New Direction has focused on education of investors on the details of the process and rules. They teach hundreds of free webinars and classes to educate both new and experienced investors how the take advantage of a self directed plan. Through their professional training classes for CPA and others, the details of tax treatment of profits of the plan and any UBIT (unrelated business income tax) are also addressed.

New Direction IRA, Inc., a self-directed IRA plan provider and record-keeper, offers only self-directed IRAs, HSAs, Coverdell educational savings accounts, plus company sponsored SEP, SIMPLEs, 401k plans and recordkeeping for qualified plans and defined benefit plans. They can be reached at 303-546-7930 or toll free at 877-742-1270. Visit their website at NewDirectionIRA.com. New Direction does not offer investment advice nor do they sell any investments.

Gold HSA: Holding precious metals in an HSA

Health Savings Accounts (HSAs) are becoming increasingly popular for investors looking to save money and help pay medical expenses. Most investors don’t realize that like other IRAs, the HSA can be used to invest in alternative assets such as gold and other precious metals.

HSAs enable you to save on your medical expenses because you can make pre-tax contributions to your HSA, and withdraw those moneys tax free when you want to pay for the expenses. Anyone can make contributions into your HSA—and you can contribute to anyone else’s—until the contribution limit is met.

HSAs even allow the HSA account-holder to pay themselves back for bills paid out of pocket (provided paperwork still in hand and that the HSA was opened prior to the medical expense). You can hold on to those receipts for years, allowing the account to grow to its maximum potential before using the funds to reimburse yourself for those expenses.

At the same time, you may have been considering the merits of holding real physical precious metals such as gold and silver in a retirement account. Holding precious metals in an IRA provides protection against the erosion of purchasing power via inflation as well as the potential for appreciation as hard assets.

A Gold HSA, then, will allow you to create a reoccurring purchase plan with a metals dealer of your choosing to make specific bullion or precious metals purchases at regular intervals. As your HSA accumulates funds, it can buy more assets, potentially generating more money to pay for expenses. This is called Dollar Cost Averaging.

Dollar Cost Averaging Basics

Dollar Cost Averaging has long been popular with mutual fund investors, since this practice of buying the same dollar amount or same number of specific items, at regular intervals, means that you automatically a bit less when prices have risen, and you buy a bit more when prices have fallen.

In other words, over time these price fluctuations even themselves out, enabling the investor to accumulate the investment at a lower average cost, while also protecting against the risk that prices will drop just after making a big lump investment.

What’s the bottom line to me?

Obviously, since prices — whether they be stocks, gold, or foodstuffs — will tend to rise over time, the best investment strategy (provided you knew what you wanted to buy and how much of it) would be to invest all the funds now, rather than over time. Since this is a retirement account, however, and therefore one is typically making annual contributions over a number of years’ time, the “all at once” strategy may not be feasible.

The next best thing, however, is Dollar Cost Averaging—and the Gold HSA utilizes the power of this principle in tandem with the practical matter of accumulating hard assets such as gold or silver to your retirement account.

How to use an HSA: Save for medical expenses, save for retirement

It's difficult sometimes to make ends meet while putting away enough to reach our retirement goals, especially with an uncertain market and ever-changing legislation. The government recognizes this. And so we're fortunate, at least, that our current tax laws provide us with a great way to save and reduce our taxes in retirement accounts.

Health Savings Accounts (HSAs), specifically, are rapidly growing in popularity and provide a unique way to save money, grow retirement accounts and pay for medical expenses. HSAs have been available since 2004 and have the tax-free quality of a Roth IRA but the tax deductibility of a Traditional IRA.

Rising health insurance costs have forced employers into offering High Deductible Health Plans to employees. Some employers choose to fund the HSA for the employee to take some of the sting out of the high deductible. However, what makes these HSAs alluring is that contributions to HSA accounts made by the individual are 100% tax deductible and distributions for qualified expenses from the HSA are not taxable.

The best part of taking HSA distributions is that there is no time limit on how long you can hold onto qualified expenses before requesting a reimbursement. In fact, waiting to take distributions from the HSA gives the account time to grow.

Most HSA accounts are meant to be spent, which means that most of those offered are without access to true investments. In order to gain access to investments that are going to grow your HSA, you need to open a self-directed HSA account and direct the funds. You may direct the funds into brokerage accounts, precious metals or, in the case of one account holder, real estate. There is no limit on what you can invest in as long as you stay within the IRS guidelines.

Consider this example: Joe has been contributing to his HSA for 3 years and has accumulated more than $16,000. Although he has more than $10,000 in reimbursable medical expenses he plans on holding on to them for a while. As a real estate broker Joe sees lots of opportunities for second mortgages. One of his office mates, Phil, has a deal that requires additional cash. A first mortgage has been obtained by Phil’s client for the purchase but the renovations will require an additional $15,000. Joe offers to lend the funds to Phil’s client for 8% and will secure the financing with the property. The money will be tied up for 2 years but during that time it will be earning a reasonable interest rate.

Why not invest in something long-term and request reimbursement 10, 15 or 20 years in the future? Allowing your contributions to grow long-term (now $6,450 per family in 2013) could result in a lucrative and pain-free investment.

New Direction IRA is a self-directed IRA and HSA account administrator and does not sell or sponsor any investment products nor provide investment or tax advice. Since 2003 New Direction has helped clients invest in what they know and understand.

HSAs continue to grow in popularity

More than 13.5 million Americans are enrolled in Health Savings Accounts as of January, 2013, according to an annual census released by America’s Health Insurance Plans.

Considering the economy, many small businesses are choosing HSAs to save on healthcare costs for employees and the company itself. Any healthcare change can be difficult, but many employees have discovered their HSAs can be as good as, or better than, their previous health care.

Many of the 13.5 million have discovered that they can use an HSA to save for future health expenses after they retire. Self-directed HSAs can provide a unique investment opportunity in the healthcare arena. Anyone with a self-directed HSA can invest the funds in real estate, precious metals, or many other investment alternatives. If the HSA holder has investment success, the funds will be tax-free to pay for qualified medical expenses.

HSAs can be used as an investment tool, or just as a savings account and tax break. Especially with the healthcare overhaul, HSAs will continue to provide many options for Americans in all tax brackets.

10 Reasons to Consider an HSA

10 Reasons to Consider an HSA:

Healthcare costs rise every year. Employers, employees, self-employed people and their families all feel this pull. Americans pay more and more for basic health care at a time when many mortgages are going up and many people are unemployed or underemployed.

One solution that has worked for a growing number of families is the Health Savings Account. Here are 10 reasons to consider an HSA:

1. HSA premiums are vastly cheaper than other healthcare plans.

This immediately saves money. In order to use an HSA, you must be part of a High Deductible Health Plan (HDHP). Though the deductible is high, your premiums are low and you are still covered for catastrophic medical events. The renewal costs are also much cheaper than an HMO, PPO or other plans.

2. HSA will cover peripheral medical costs.

With many HMOs or PPOs, dental care, eye glasses, and eye surgery are not covered. HSAs can be used for this, and also acupuncture, psychiatric treatment, fertility treatment and more. See IRS Publication 502.

3. You control your medical care with an HSA.

There is no network. No one will force you to choose from a list of doctors or hospitals. With an HSA, you play an active role in every healthcare decision. Even the best doctor may benefit from having to explain his or her recommendations when you ask the right questions about your healthcare.

4. HSAs are tax-deductible.

All the money you deposit into your HSA is tax-deferred. Even if you spend it all on approved medical expenses, the money is still deductible.

5. Money saved in an HSA never expires.

Unlike a flexible spending account, the money in your HSA can grow for years until you need it. You can pay for medical expenses out of pocket, save the receipts and then reimburse yourself for those qualified medical expenses any time in the future with HSA funds.

6. HSAs can be filled from an IRA.

You can pay for your health care from your retirement account one time. If you’re short on cash, you can take a bit from your retirement and transfer to your HSA without a penalty.

7. With a self-directed HSA, your health care dollars can be an investment.

Your HSA money can join with your self-directed retirement funds and invest in real estate, gold, private stock, or a loan.

8. HSA investment earnings are tax-deferred.

If you make a good investment and earn thousands, that money will stay in your HSA until you need it, tax-deferred.

9. HSA money earns interest when you’re not using it.

If you can’t find a good investment, or if you are between investments, the money in your HSA earns tax-deferred interest.

10. Contrary to common sense and popular belief, health care costs are not tax deductible for most Americans.

Healthcare costs must be 7.5% of your income to be tax deductible. Most Americans do not qualify for this, even in a bad health year.