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Tom Schrette and Alan Cash

Tom Schrette and Alan Cash

Dear Tom and Alan:

I have some money left in my HSA account. I now have Medicare and a Medicare Supplement, so my medical expenses are pretty much paid for at 100 percent. I do have minimal copays for my prescriptions that my drug plan doesn’t pay for.

Anyway, I have been putting money into this HSA account for quite some time, maybe the last 10 or 12 years, so with the little bit of interest they paid me I have about $70,000 in it…not bad!

But now I don’t see myself using that money since my medical expenses that I have to pay have gone way down.

So my thought is I’ll start paying my Medicare premium, my Medicare Supplement premium, and my Part D drug plan premium with that. What do you think?

HSA Heavy

Tom: I think you have used your Health Savings Account (HSA) very wisely and now you are going to get additional benefits from it.

Along with deducting your HSA contributions from your gross income each year, the funds you amass in your account do not go away…they are yours to keep even in retirement. Plus, as long as what you take out is considered a legitimate medical expense, you are not taxed on it then, either!

The main point is that once you reach age 65 and get on Medicare, you can no longer contribute to your HSA, but…that $70K is all yours with no penalty for withdrawal. The answer to your question is that some of what you withdraw may be taxable at your regular level, while others may be tax free.

Al: The website, hsacenter.com refers to IRS Publication 502 where they list eligible and ineligible medical expenses. Ironically, the term “insurance premiums” is on both lists. So, in our humble opinion(s), your Medicare Part B and Part D premiums are “eligible” and you won’t be taxed on your withdrawals to pay for them; however, your Medicare Supplement is “ineligible” and while you can certainly use it, it is probably a taxable event.

Tom: Here are more of the eligible medical expenses that may help you whittle away some of that $70K without getting taxed: acupuncture, ambulance, chiropractor, Christian Science Practitioner, contact lenses, dental treatment, drugs, eye exam, eyeglasses, hearing aids, home improvements(!), lab fees, legal fees, lodging, long-term care, meals, optometrist, physical exam, psychiatric care, stop-smoking programs, telephone, television, transportation, weight-loss program, and, X-ray.

Notice that many of these are not covered by Medicare or by your supplement. Whether taxable or not, your HSA account becomes a source of possible emergency funds for expenses not covered elsewhere.

Al: The website always says “may include,” because if push comes to shove, it’s just you and the IRS. Here are some of the “ineligible” medical expenses: cosmetic surgery, dancing lessons (honest), hair transplant, health club dues, household help, nonprescription drugs and those from other countries, swimming lessons and teeth whitening.

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Submit questions to schrette@gmail.com or alancash@gmail.com.

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