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Strategizing HSA versus itemized medical expenses
Here is the scenario. We have always maxed out our HSA contributions (now, including catch-up) and will continue to do so until Medicare. We rarely have actually used the HSA card, etc. to pay for medical expenses, instead paying by credit card (points, baby!) and then using the HSA to reimburse ourselves (we keep very detailed accounting of it).
I know these facts:
- HSA distributions can pay for expenses in previous years, not just the year of the distribution (yes, expenses incurred after HSA created).
- It is the contribution that is deductible each year.
- Reimbursements are not taxed, as long as they are used for medical expenses, no matter when the expense was incurred.
- In some years we used standard deduction, other years we itemized. If we claimed itemized medical expenses in those years, it was net of any HSA reimbursements and the 7.5% limit. We never "double dipped" those expenses.
In 2024, we made the full HSA contribution and had distributions that covered some previous year expenses as well as some 2024. It happened to be a fairly high medical expense year and would potentially push us into itemizing. That having been said, 2025, and for the next few years (knock on wood), we anticipate lower medical expenses as our child will no longer be covered under our plan/expenses.
So here is the question: Do we itemize the additional medical expenses from 2024 or do we take the standard deduction and just use future HSA disbursements to cover them? We do not anticipate having expenses in 2025 that exceed the contribution maximum. I know we can leave funds in the HSA to earn tax free for future expenses, but frankly there are better tax-advantaged options.
Thanks in advance!