HSAs are the most powerful tax-advantaged1 savings tools available. And now savvy health savers are taking advantage of an HSA “hack” that brings even more value and flexibility: Delayed reimbursement. The trick is that you don’t have to reimburse yourself right away. In fact, the IRS does not stipulate a required reimbursement timeframe. So, you can effectively “bank” your receipts and save them to pay yourself back down the road.
The advantage is that you can compound your potential investment3 and interest earnings, then take money from your HSA whenever you need it—even if you want to wait 20 or 30 years from now. In essence, you get the best of both worlds: The tax advantages and growth potential of an HSA combined with the flexibility of a traditional savings account.
As an illustration, let’s say you need to pay for a $1,000 doctor bill for an outpatient procedure. Here’s how this delayed reimbursement can strategy work.
step 1: pay for your healthcare out of pocket now
Importantly, don’t use your HealthEquity debit card4 to pay. Instead, use your personal credit card, debit card, cash, or check. Your HealthEquity debit card will initiate an automatic reimbursement, which you’ll want to avoid for this approach.
step 2: save your receipt
This is very important. Take a picture and then put the hard copy somewhere safe. You don’t want to lose it. You’ll need it one day.
step 3: let the money grow in your hsa
Don’t pay yourself back right away. Instead, take advantage of the tax-free growth potential your HSA offers. Many members choose to invest in low-cost mutual funds to capture potential returns. Or let it earn interest. The bottom line: You want to make that $1,000 work for you. If you take it out right away to pay your doctor bill, you lose out on that potential growth.
step 4: reimburse yourself whenever you want
Let’s say four years have passed. Your $1,000 maybe has grown a few percent each year (Note: investments carry risk, and growth is never never guaranteed). Now you’re thinking that you sure could use an extra $1,000 to buy a new dining room table. No problem! Just submit that $1,000 receipt using your HealthEquity Mobile app. And within a few days HealthEquity will transfer that $1,000 right from your HSA into your checking account as a reimbursement.
Even though this is a reimbursement, it usually doesn’t feel like a reimbursement. You paid the doctor bill years ago because you could cover the expense at the time. Wisely, you let the funds sit and grow and wait for a rainy day.
enjoy the savings
Now, imagine doing that for all your qualified medical expenses. Suppose your family spends on average $1,500 a year on out-of-pocket medical expenses. You can bank all those receipts each year for as long as you want. So, let’s say you do that for 15 years. That’s $22,500 (!) worth of receipts you can collect and save.5
Voila! Just like that you have cash available to take that dream vacation.
And this is how you turn your HSA into a general savings account with tax-free investment growth opportunity. There is nothing else like it.
1HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-deductible with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.
2After age 65, if you withdraw funds for any purpose other than qualified medical expenses, you will be subject to income taxes. Funds withdrawn for qualified medical expenses will remain tax-free.
3Investments are subject to risk, including the possible loss of the principal invested, and are not FDIC or NCUA insured, or guaranteed by HealthEquity, Inc. Investing through the HealthEquity investment platform is subject to the terms and conditions of the Health Savings Account Custodial Agreement and any applicable investment supplement. Investing may not be suitable for everyone and before making any investments, you should carefully consider the investment objectives, risks, charges and expenses of any mutual fund before investing. A prospectus and, if available, a summary prospectus containing this and other important information can be obtained by visiting the fund sponsor’s website. Please read the prospectus carefully before investing.
4Your Card can be used at participating merchants who sell eligible healthcare products or services everywhere Visa debit cards are accepted. Your HealthEquity Visa Healthcare Card is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. The Bancorp Bank; Member FDIC.
5Scenarios, results and calculations are for illustrative purposes only. Individual results may vary.
HealthEquity does not provide legal, tax or financial advice. Always consult a professional when making life-changing decisions.