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Health Savings Account (HSA) Reimbursement Strategy

"My question to you is in regards to using a Healthcare Savings Account (HSA) as a retirement vehicle given its tax advantages.  I have been enrolled in a HDHP since 2007 and have maxed out the federal contribution limits since then and have these contributions invested into a few mutual funds which are offered within my HSA account menu.  I have been keeping the receipts of medical expenses since 2007 and have paid for medical expenses out of my pocket rather than using the HSA account so as to maximize the tax benefits (investment growth) of the HSA.  My plan is to use the HSA as a retirement tool and/or a cash reserve that I can use for past medical receipts.  I haven’t found that many articles on this subject but have stumbled across a few blogs that confirm my understanding of the IRS tax law about HSA in that there isn’t a time limit on claiming medical receipts (withdrawing $ from your HSA to reimburse yourself).   What are your thoughts about this retirement strategy and my understanding of the timeframe in which you can reimburse yourself for medical expenses from your HSA?"

This is a terrific question and it sounds as though you have a real strong grasp of the significant benefits of tax deferred and tax free growth.  HSA’s are an amazing resource to fully utilize.  Not only do you get to deduct the contributions like a deductible traditional IRA but you also earn tax free growth like a Roth IRA.  In other words, it is money that you are never taxed.  I like your strategy and it is perfectly within the guidelines stipulated by the IRS that there isn’t a required time frame to seek reimbursement.  You can save those receipts for as long as you like and still be eligible to be reimbursed for them.  The longer you wait—the better for the reasons you mentioned.

According to 2012 Fidelity research, out of pocket medical expenses during the average couple’s retirement will cost about $240,000.  The best way to save for these anticipated expenses are with an HSA.  By deferring reimbursement for expenses already incurred, you enable the HSA account to grow faster.

One last point is to make sure you make electronic copies of these receipts and back them up.   Paper receipts may fade, get lost, burn in a fire, etc.  With proper electronic storage, you should be able to minimize the likelihood of loss.  These receipts are worth real, tax exempt money—the best kind.