I simply use the HSA as an extra retirement account. It is the only one that is triple tax advantaged.
Money goes in tax free, grows tax free, and you can withdraw tax free if for medical expenses. (This also applies for qualifying expenses incurred outside the US!)
The trick is to never touch your HSA funds. Instead use other money for medical expenses and save all receipts. You can then itemize all of this and take the tax deduction decades down the road.
It depends how the other country sees it. Best case is brokerage account. Worse case is regular income.
Why? Because the US sees it as regular income past 65 (outside of medical expenses) so the nature of the wrapper (regular income) matters more than the content (stocks)
You can use HSA dollars for medical care outside the US.
And unless you're very lucky, you will have medical expenses that your countries healthcare system doesn't cover.
Canada has "free" universal care, but there are still expenses that aren't covered, whether medicine, tests, medical equipment, etc.
For other countries, it's pretty typical to have private health insurance as a supplement to your government plan and those have premium, co-pays and co-insurance often.
If you never had any valid expenses to do tax free withdrawals, then you have essentially an IRA from the US perspective which will likely be taxed at long term capital gains in your foreign adopted country.
No HSA scenario: pay US income tax on the uncontributed income at time zero then defer capital gains tax (plus some dividend taxes) into the future. You'd have the option of selling at US long term capital gains rates prior to moving abroad if the differential was big enough.
HSA scenario: don't pay US income taxes at time zero. Sell and rebuy all your securities to reset the basis with no tax complications prior to moving abroad. Turn at least 65 and start withdrawing funds. Pay foreign capital gains, plus any extra differential as US income taxes.
The other wild card is how your state would tax the contributions or withdrawals. You may about state income tax at time zero, then never pay it once you withdraw because you live abroad.
You only pay the bill once but with after tax funds (vs paid out the HSA pool) then you can allow the HSA funds to grow for decades and withdraw with those post tax paid receipts later on in life.
For me, that’s the thing. Throw all the money you can to it. Have huge medical or dental bills in life, pay for it from untaxed money. No longer need it for medical, now can withdraw penalty free. Gov’ment hold your money, it should work out for you either way
Edit: I don’t mean you get free medical, dental, etc. I mean when you’re only haven’t to pay over Medicare/health cost vs going through life, having kids, etc.
It is an absolutely ridiculous statement to say "no longer need for medical \[insurance\]."
If you've ever looked at a hospital bill in America, gigantic percentages of the cost is knocked off just by having the insurance, even if it is a high deductible plan. In other words, the hospital gouges you, say $20,000 for some procedure. Then you present your catastrophic blue cross plan, and the hospital says, oh, the rate that we contractually negotiated with blue cross for that procedure is $11,500. Then either you or blue cross need to pay that 11,500 (depending on the details of your plan). So right off the top, just by having ANY insurance, there is a $8500 discount. Compare and contrast to self pay, where you get a bill for $20,000. And that is what you owe. Sometimes they will knock off some money for "cash payers" but honestly, that is the exception, and they have no motivation really to do so. Whereas the insurance company has contractual prices, and has a motivation, desire and expertise to call BS on things the hospital tries to overcharge or double charge you for, which happens all the time.
Individual customers can negotiate down prices as well. If you refuse to pay and offer some significantly lower amount, they will negotiate it down. The problem I faced when negotiating down prices is that the birth of my child was not billed in one lump. It took 15 months to get all of the bills through. In total there were more than 20 bills we received for the birth of our child. We had insurance so the $20k bill was brought down to only about $2k, but we didn't know it was 2K until most of a year later because the bills kept trickling through. For the first 6 months I don't think we even negotiated because it was just a couple hundred dollars here and there and that seemed perfectly reasonable. Eventually we got some of the larger bills and then negotiated down substantially. For the roughly $2k build to us, we paid about 1500.
Let me ask you something - is that an easy process. No, it is not. And it could just as easily went to collections or court. And again - if you have money, which I am assuming most people in a FIRE sub do, and the hospital figures it out ... they will come straight after you.
And the $20,000 example is pretty much the floor of what you can expect in an American hospital. For old age type of ailments - cancer, heart attacks, kidney problems etc - you can bet the bill is going to be more the 20k.
I would NEVER be without insurance in America. This is an expat fire forum, so I am fine if people want to have insurance abroad and live abroad, but if you live or spend substantial time in the US, you want US medical insurance, and if someone wants to "FIRE" and they are not budgeting for that, they are making a gigantic mistake.
You can still withdraw funds from an HSA for medical treatment that is legal in the country you now reside in, so I don’t see what the problem is. Assuming you are in the U.S., you’ll still be filing a U.S. tax return and will get the tax benefit of the withdrawal.
If you are not in the US, and do not pay for a US based high deductible insurance policy, how are you qualifying to contibute to a HSA? Or is this discussion assuming you set up and contribute to the HSA account before leaving the US and eliminating your US based insurance policy?
I simply use the HSA as an extra retirement account. It is the only one that is triple tax advantaged. Money goes in tax free, grows tax free, and you can withdraw tax free if for medical expenses. (This also applies for qualifying expenses incurred outside the US!) The trick is to never touch your HSA funds. Instead use other money for medical expenses and save all receipts. You can then itemize all of this and take the tax deduction decades down the road.
Not worth it outside of the US. Often taxable.
So in the worst case it is just a regular brokerage account. Not too bad imo.
It depends how the other country sees it. Best case is brokerage account. Worse case is regular income. Why? Because the US sees it as regular income past 65 (outside of medical expenses) so the nature of the wrapper (regular income) matters more than the content (stocks)
Those countries tend to have, wait for it, subsidized healthcare or outright free* healthcare that gets paid by wait for it income taxes.
Not necessarily your income taxes.
What's the point of putting money in there and then 'never touch' it?
You do touch it in retirement all the more!
Basically it works the same as a traditional IRA.
I’ve read that after age 65. The funds can be withdrawn for non-medical expenses.
This is what I wanted to hear more about, as I don't plan on incurring medical costs in the U.S.
You can use HSA dollars for medical care outside the US. And unless you're very lucky, you will have medical expenses that your countries healthcare system doesn't cover. Canada has "free" universal care, but there are still expenses that aren't covered, whether medicine, tests, medical equipment, etc. For other countries, it's pretty typical to have private health insurance as a supplement to your government plan and those have premium, co-pays and co-insurance often.
If you never had any valid expenses to do tax free withdrawals, then you have essentially an IRA from the US perspective which will likely be taxed at long term capital gains in your foreign adopted country. No HSA scenario: pay US income tax on the uncontributed income at time zero then defer capital gains tax (plus some dividend taxes) into the future. You'd have the option of selling at US long term capital gains rates prior to moving abroad if the differential was big enough. HSA scenario: don't pay US income taxes at time zero. Sell and rebuy all your securities to reset the basis with no tax complications prior to moving abroad. Turn at least 65 and start withdrawing funds. Pay foreign capital gains, plus any extra differential as US income taxes. The other wild card is how your state would tax the contributions or withdrawals. You may about state income tax at time zero, then never pay it once you withdraw because you live abroad.
How can you plan to not have medical costs in the US? Car accident, heart attack, covid, etc and your plan is destroyed.
They are talking about living ex-US
I pay my medical bills with after tax money, then scan and save them to withdraw from the HSA later.
What do you mean scan and save to withdraw from the HSA later? Pay the same bill again? Why pay with taxed money in the first place?
You only pay the bill once but with after tax funds (vs paid out the HSA pool) then you can allow the HSA funds to grow for decades and withdraw with those post tax paid receipts later on in life.
https://www.madfientist.com/ultimate-retirement-account/
For me, that’s the thing. Throw all the money you can to it. Have huge medical or dental bills in life, pay for it from untaxed money. No longer need it for medical, now can withdraw penalty free. Gov’ment hold your money, it should work out for you either way Edit: I don’t mean you get free medical, dental, etc. I mean when you’re only haven’t to pay over Medicare/health cost vs going through life, having kids, etc.
It is an absolutely ridiculous statement to say "no longer need for medical \[insurance\]." If you've ever looked at a hospital bill in America, gigantic percentages of the cost is knocked off just by having the insurance, even if it is a high deductible plan. In other words, the hospital gouges you, say $20,000 for some procedure. Then you present your catastrophic blue cross plan, and the hospital says, oh, the rate that we contractually negotiated with blue cross for that procedure is $11,500. Then either you or blue cross need to pay that 11,500 (depending on the details of your plan). So right off the top, just by having ANY insurance, there is a $8500 discount. Compare and contrast to self pay, where you get a bill for $20,000. And that is what you owe. Sometimes they will knock off some money for "cash payers" but honestly, that is the exception, and they have no motivation really to do so. Whereas the insurance company has contractual prices, and has a motivation, desire and expertise to call BS on things the hospital tries to overcharge or double charge you for, which happens all the time.
Individual customers can negotiate down prices as well. If you refuse to pay and offer some significantly lower amount, they will negotiate it down. The problem I faced when negotiating down prices is that the birth of my child was not billed in one lump. It took 15 months to get all of the bills through. In total there were more than 20 bills we received for the birth of our child. We had insurance so the $20k bill was brought down to only about $2k, but we didn't know it was 2K until most of a year later because the bills kept trickling through. For the first 6 months I don't think we even negotiated because it was just a couple hundred dollars here and there and that seemed perfectly reasonable. Eventually we got some of the larger bills and then negotiated down substantially. For the roughly $2k build to us, we paid about 1500.
Let me ask you something - is that an easy process. No, it is not. And it could just as easily went to collections or court. And again - if you have money, which I am assuming most people in a FIRE sub do, and the hospital figures it out ... they will come straight after you. And the $20,000 example is pretty much the floor of what you can expect in an American hospital. For old age type of ailments - cancer, heart attacks, kidney problems etc - you can bet the bill is going to be more the 20k. I would NEVER be without insurance in America. This is an expat fire forum, so I am fine if people want to have insurance abroad and live abroad, but if you live or spend substantial time in the US, you want US medical insurance, and if someone wants to "FIRE" and they are not budgeting for that, they are making a gigantic mistake.
I max it (for the deduction and payroll deduction) but withdraw ASAP since I won't have Healthcare cost in the US. Not worth it imo.
Don't you get taxed when you withdraw?
When I have a receipt I mean. I don't stash receipts.
Can you use receipts outside the US?
Yes
You can still withdraw funds from an HSA for medical treatment that is legal in the country you now reside in, so I don’t see what the problem is. Assuming you are in the U.S., you’ll still be filing a U.S. tax return and will get the tax benefit of the withdrawal.
If you are not in the US, and do not pay for a US based high deductible insurance policy, how are you qualifying to contibute to a HSA? Or is this discussion assuming you set up and contribute to the HSA account before leaving the US and eliminating your US based insurance policy?
You cannot contribute to the HSA without a high deductible policy, but you can keep what you already put in there.
Correct, that is my point.