Hacking the Health Savings Account (HSA) for College

using a health savings account to increase college financial aid

(GCC: Taxes and college tuition are 2 of the greatest expenses parents will face. But what if there was a tax hack that could reduce the cost of both? Today’s guest post shares the details… Read on!)

Hi Go Curry Cracker readers! I’m Kim from The Frugal Engineers. We are a family of three retiring in our thirties in Wyoming, and I’m here to talk tax hacking for college!

Over the last nine years of running our own engineering businesses, we’ve been tracking various tax optimization strategies. One of our favorite tax hacks is using our health savings account for college funds. By lowering our tax burden and maximizing our eligibility for college financial aid, we’re able to retire earlier and enjoy more time with our daughter. This post details part of our overall strategy for college planning in early retirement.

We max out our health savings account (HSA) each year that we’re eligible based on our health insurance. For a family of three in 2019 with a qualifying high deductible health insurance plan, that’s $7,000 a year. We pay cash for any medical, dental and vision expenses that we incur right now and save the receipts for reimbursement during the college years.

In fact, I refer to medical receipts as “future college tuition vouchers” in our house.


Our $75,000 Lifestyle Requires a $210,000+ Job Income

retirement tax strategy in action


A couple of years after leaving the workforce, an aggressive headhunter was trying to recruit me for a California based tech company.

Recruiter: “How much salary would you need to take on a role like this?”
Me: About $500k
Recruiter: “We were thinking more around $250k…”
Me: Oh, you were just looking for somebody part-time then…?

Obviously, I stopped receiving recruiting emails.

But, having the bizarre way of thinking about the world that I do, I invested a little time to calculate just how much income I really would need to fund our lifestyle via more traditional means.


Obamacare Advanced Premium Tax Credit Repayment Limitation

aptc repayment limitation

What if somebody gave you an interest-free loan for a year? Say, the government, maybe. And then instead of requiring you pay back all of the loan, they only wanted half?

This situation actually exists within the Affordable Care Act / Obamacare in some circumstances. Throughout the year, Premium Tax Credits are paid directly to the insurance company based on our estimated income for the year. Then come tax filing season, we reconcile any differences – if our actual income is greater than estimated, we repay the excess on the advanced credits.

For the self-employed, seasonal workers, and retirees living off variable investment income, estimating income accurately can be next to impossible. As such, to provide some protection against unexpectedly large tax bills, as long as total income is less than 400% of the Federal Poverty Level (FPL) the amount of repayment is limited.

And those limits can have profound implications.


Preparing for the Coming Recession

preparing for a recession

One anonymous GCC reader made an astute observation in a recent email:

“In your analysis of the 4% rule and the worst times to retire (1929, 1965, 2000) you repeatedly made a suggestion that early retirees spend less in the early years of retirement to minimize sequence of returns risk.

You also shared how you have been increasing spending every year as the stock market has grown. If the market crashed 50% tomorrow, what would you do? If you were to follow your own advice, wouldn’t you need to roll back all of your spending increases?”

Possibly, sure. Stranger things have happened.


Planning for a 60+ Year Retirement

retirement planning

One of the things I dislike about the 4% Rule / Trinity Study is the open-ended definition of success – if you have more than $0 after 30 years, great success!

Having $1 and $1 million both meet that criteria, but will have obviously different outcomes over the next 30 years.

Planning for a 60+ year retirement requires looking a little closer.


How are the 2000 and 2008 retirees doing?

4% Rule

Your typical Trinity Study / 4% Rule style portfolio longevity analysis requires a full 30+ year period to determine retirement success. If the portfolio value was still positive after 30 years of spending, you passed. If you ran out of money, you didn’t…amongst other things.

Since we don’t have a full 30 years’ worth of data for people retiring in 2000 or 2008, the most recent scary dates, these periods are left out of the pass/fail statistics of the most common retirement calculators. [The most recent possible start date is 1989 (1989 + 30 = 2019)]

This dearth of data is exacerbated for early retirees since we expect our retirements to be much longer than 30 years. [The most recent start date for a 50 year period is 1969 (1969 + 50 = 2019.)]

But let’s see how these retirees would be doing mid-stream, and compare to other difficult times in history.