Health Savings Accounts (HSAs) - Triple Tax Free Retirement Savings

Health Savings Accounts (HSAs) - Triple Tax Free Retirement Savings


I’ve traded options (not naked) in my IRA accounts before.


I’m pretty sure your custodian will treat the HSA like the other retirement style accounts (IRA, ESA, etc). If so, they won’t let you short anything, nor write uncovered options. In principle this could be allowed (it’s not forbidden by the IRS), but it gets complicated very fast on the tax front and the custodians generally want no part of this so don’t allow it.


That’s my understanding as well. You need to have a HDHP plan to be able to contribute to the HSA. That same year, you can only contribute to a limited-FSA in addition to the HSA.

But after that, any year you do not contribute to a HSA (including no employer contributions to it), you can have a medical FSA with no limitations (well except annual limit of $2600). And in that case, you should pay for medical expenses from the FSA first since it’s use it or lose it before tapping the HSA.

As far as premiums, there are actually more cases where you can use HSA to pay for them. You can pay Medicare part A, B, and D with HSA. As well as insurance premium while collecting unemployment benefits and under COBRA continuation. Also long-term care insurance premium qualify as HSA expenses. So it’s a bit limited until you get into retirement age but the unemployment case can be very useful.


I think the Dec 1 rule needs to get some play in this thread seeing as how the end of the year is coming up and open enrollment for many as well.

As far as I know the rule basically says that if you are eligible Dec 1 of a calendar year AND the entire following year you can put up to the max in the HSA for the year that Dec 1 falls on. Without this rule you would only be able to put a percentage of the yearly max = to the % of months you had HDHP/HSA eligible coverage.

In theory if you KNOW you’re going to have a HSA next year, for the entire year, you could switch to a HDHP with HSA now and as long as you have that plan Dec 1 2017 you can drop the max in the HSA this year. There are penalties on the 2017 contribution if you don’t keep the HDHP all next year.

Or…if you’ve started a job mid year and your benefits just kicked in you could use the Dec 1 rule to drop the max in the HSA this year as well, again making sure you keep HDHP coverage through next year.

There’s been talk that HSA accounts should be allowed to pay for premiums since employer sponsored premiums are pre-tax. Whether Congress can actually make that happen is yet to be seen.


Not sure about HSAs, but at least with IRAs, you cannot have unlimited liability on a trade - i.e. the custodian can’t force you to contribute additional funds if you lose a certain amount. It would be hard to find a custodian willing to take the risk for you on a trade where someone has unlimited liability. Additionally, most brokers require margin accounts for these types of trades. Since margin accounts are disallowed, you wouldn’t be able to make those trades.


I’ve never had an HDHP so I’ve never really paid attention to this.
If you have 5k in qualifying medical expenses a year, then you can essentially backdoor contributions into a ROTH IRA using tax free income by utilizing an HSA right? (put $$ in HSA, request reimbursement because of expenses, put reimbursement into Roth IRA)?

Assuming you are not already maxing out Roth IRA and HSA.


Why wouldn’t you just contribute to a Roth IRA in that scenario? No reason to go through an HSA. And you don’t necessarily know when you’re going to have that $5k in medical expenses so if you want to do it all in one year, you wouldn’t get the FICA benefit because you wouldn’t have it deducted from your wages.


Roth IRA contributions are after tax monies.
If you filter through HSA, it’s essentially pre-tax money going into the Roth (you get an extra tax break on the contribution/front end). It would also make it so you wouldn’t have to keep receipts in perpetuity (prove 20 years from now you’ve had eligible expenses for the last 20 years in order to make a withdrawal). Prove next year that you had expenses from this year and move the money to a Roth next year

Also, keep in mind, the individual max HSA contribution is less than Roth IRA, so if you don’t spend that much in health care in one year, you might be able to make up for it in another year.


Upthread the idea of HSA->ROTH IRA was squashed, and it was discussed that the flow is reversed, ROTH->HSA.

Which is it?


Sorry, I was thinking about it as two separate decisions. But yes, you can do that. Basically, you’re making the Roth IRA contribution. The HSA aspect, in my opinion, should be considered separately. Just consider it a straight above-the-line deduction for medical costs. Remember, if you’re paying the medical costs, you don’t have that cash from the HSA - it’s an expense for medical (obviously cash is fungible, but you have that much less of it). So the net effect is a deduction for medical costs. So yes, it would be good to use an HSA to get that deduction.

However, as an individual, if you’re spending $5k per year in medical costs not including premiums you may be better off with a lower deductible plan.


How do you guys keep a record of medical expenses, do you take photos and date them? I’ve kept receipts since 2009 or so but a lot of them have faded.

For pharmacy co-pays, can we request the annual expense report at the end of the year or would we need individual receipts from every drug we ever picked up?


Just scan them, take a picture with google drive, save emails, etc. You could probably even check with the insurer-they probably have some online system you can download receipts from.

Saving paper receipts isn’t a great idea because you’re going to want to track the amount of accrued expenses.


It’s not true, that’s just how it’s usually implemented. Some brokers are willing to let you trade futures in your IRA for example, long and short, and with some leverage. Presumably they can just close you out if you get too close to the edge of your margin/equity. For example, TDA is supposed to be good for futures IRA trading:

I have actually had a “limited margin IRA”, which several brokers offer. Basically it lets you avoid the settlement delays of a cash account, but not actually use margin aside from facilitating trades during settlement (which got shorter now that we’re on T+2).

Lastly, there was a case were a guy managed to get his IRA negative by holding some apparently worthless long options that got auto-exercised at the last minute when the stock ticked up so they were ITM. This cost lots more than he had in the account, and, together with an adverse gap on the stock over the weekend, left the account massively negative. They closed him out that morning from the big cash deficit, but the IRA was underwater due to the losses on the stock move. Then, and this was the bad part, they pulled cash out of his taxable account at the same broker into the IRA to cover the deficit (per the account agreement and rights of offset). This made for an excess contribution and potentially lots of tax penalties, but that was the individual’s problem and not the broker’s.


Just because the bank allows something or requires it though doesn’t mean IRA rules don’t prohibit it. I wouldn’t want to risk it unless you had a PLR. The consequences of disqualifying an IRA are just too great.

That sucks for that guy in that thread. But people in that thread who know about the dynamics of option trades were debating whose fault it was. I don’t know anything about that law, so maybe that’s allowed of the brokerage, maybe its not. We don’t know because it wasn’t challenged.

I should rephrase though. If you have unlimited liability on a trade your IRA account is no longer an IRA account. Additionally, IRA accounts are disqualified if any part of them is pledged as a security.


[quote=“Full_Disclosure, post:55, topic:1251”]
I should rephrase though. If you have unlimited liability on a trade your IRA account is no longer an IRA account.
[/quote]What’s your source for this? The prohibited transaction rules don’t talk about what kind of investments you can’t make (there is a very short list - collectibles and insurance primarily), and mostly are about how you personally can’t borrow from, use as security, or transact directly with the IRA.


[quote=“xerty, post:56, topic:1251, full:true”]

I don’t think I said you can’t make certain types of trades, but if I did or I implied that that was a mistake and I retract that. What I meant to indicate was that if you have unlimited liability for a trade in an IRA, it would be disqualified as an IRA. IRC s 4975©(1)(B); see also Peek v. Commissioner, 140 T.C. 216 (2013) (holding that an individual who personally guaranteed a loan to his business which was owned by his IRA accounts engaged in a prohibited transaction with his IRA account and they were deemed to not be IRAs in the year of personal guarantee).

But regardless of whether you actually win a challenge, there’s reason to believe it may be prohibited. Why take the risk with your IRA accounts?


I agree with your interpretation. An open-ended trade in an IRA in which you are personally liable for potential losses (beyond the IRA assets) is substantively the same as personally guaranteeing your IRA’s loan. It would seem to fit within “lending of money or other extension of credit between a plan and a disqualified person.”


Ah, I understand your position now - that’s interesting. I guess it comes down to whether you, the taxable individual, are actually guaranteeing the liability of the IRA in such a situation. If so, you’re right about it being a prohibited transaction.

The guy with the options problem certainly did not think he guaranteed it, but in practice they had cross collateralization terms and because he held personal funds at the broker so they could take them. Could the broker have successfully sued him personally for non-IRA assets to cover the deficit without that? Maybe not, I don’t know. My understanding was that your IRA was a separate entity from you the individual so maybe this would not succeed. It’s a very good question.


I wish he would have obtained legal advice and followed up on that aspect of the issue. Not because I think he shouldn’t be responsible for his stupidity – play stupid games, win stupid prizes – but because it’s an interesting legal question and would make for interesting case law (if it got that far).


I have HSA account at HSA Bank with balance above $5K invested through TDAmeritrade into Commission free Vanguard ETFs. Received email today morning that they are adding additional ETFs to the list but removed all Vanguard ones :frowning: new added as of today, old removed effective November 20 :rolling_eyes:

NEW list of commission-free ETFs