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HSA eligibility for contributions and withdrawals
Old 11-22-2014, 10:12 AM   #1
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HSA eligibility for contributions and withdrawals

This is the first year I have HSA eligible health insurance, but next year my current plan is no longer HSA eligible. With HI options changing so much, over the years I might be popping in and out of HSA eligible plans.

Is my understanding of the correct in that:
  1. I can set up a HSA now because this is the 1st year I am eligble
  2. I can contribute the max $3,300 this year
  3. In future years, if I'm not in a HSA eligible plan, I can't contribute to the HSA but the account remains out there. In years that I'm in HSA eligible plans, I can contribute.
  4. Someday when I decide to spend some HSA money on qualified health expenses, I can do that, whether or not I am currently in a HSA eligible plan. (This is my biggest uncertainty).
  5. I can only spend HSA money (without penalty) on qualified expenses that occurred only in the years that I did have a HSA eligible plan.
Is this right?
If so, I'll have to be very careful with my record keeping, since I may not want to spend any of the HSA money until I'm 65, 12 years from now.
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Old 11-22-2014, 10:25 AM   #2
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My understanding is that the HSA funds can be used for any qualified funds whether you are currently enrolled in an HSA plan or not.

I could be wrong - but the key is it has to be a qualified medical expense, and funds from previous years can be used for current (or future) expenses.

Heck - you can pull it out for non-medical purposes if you're willing to a) pay income tax on it, and b) pay a 20% penalty.... (Granted that would suck to do that.)
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Old 11-22-2014, 10:31 AM   #3
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You can spend HSA funds on any qualified medical expense without penalty, regardless of whether you are currently in a plan. I pay all of my medical expenses out of my HSA accounts even though I've retired and am no longer enrolled in a plan (but I might be able to add to it next year by switching Obamacare plans).
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Old 11-22-2014, 10:37 AM   #4
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1. ok
2. Yes, and $4300 if you are 55 or older
3. yes
4. Yes. www.irs.gov/publications/p969/ says
Quote:
If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses.
5. Better than that. The same pub only says
Quote:
For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses.
and also says
Quote:
Insurance premiums. You cannot treat insurance premiums as qualified medical expenses unless the premiums are for:
...
4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
since it talks about medicare premiums, which clearly will happen when you don't have an HSA plan, and doesn't say anything else about not counting eligible expenses once you have an HSA account, it seems very reasonable to infer that once you have an HSA account you can pay any eligible expense incurred from then on with that money, penalty and tax free. Other sites I've found, such as https://www.hsaresources.com/faq/ state this (HSA faq #4). While only the IRS publication should be viewed as official, this seems like a valid interpretation.
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Old 11-22-2014, 04:38 PM   #5
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Yes, keep very good records having a HSA sometimes seems like the honor system. Of course, if IRS comes asking you'd have to be able to furnish the records.
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Old 11-22-2014, 05:49 PM   #6
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Originally Posted by easysurfer View Post
Yes, keep very good records having a HSA sometimes seems like the honor system. Of course, if IRS comes asking you'd have to be able to furnish the records.
My first HSA provider wanted to be a nanny and I had to submit every expenditure to them for approval. They would deny me for the stupidest reasons - like I had to prove that I had paid a bill, even though I submitted the receipt. "Not good enough, you need to get it stamped paid."

I dropped those orifices and just toss all my bills in a folder. Someday if the IRS wants proof, all I have to do is pull out receipts until I meet the withdrawal amount.
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Old 11-22-2014, 06:22 PM   #7
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As far as I know, expenses incurred this year, can even be paid 10 years from now as a reimbursement. I do not think there is a time limit on the distributions.
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Old 11-22-2014, 07:27 PM   #8
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Originally Posted by Senator View Post
As far as I know, expenses incurred this year, can even be paid 10 years from now as a reimbursement. I do not think there is a time limit on the distributions.

I hope the ink don't fade on mine as I'm planning on waiting 20 years!


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Old 11-22-2014, 09:30 PM   #9
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I hope the ink don't fade on mine as I'm planning on waiting 20 years!


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Old 11-22-2014, 10:21 PM   #10
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Quote:
Originally Posted by JoeDreaming View Post
This is the first year I have HSA eligible health insurance, but next year my current plan is no longer HSA eligible. With HI options changing so much, over the years I might be popping in and out of HSA eligible plans.

Is my understanding of the correct in that:
  1. I can set up a HSA now because this is the 1st year I am eligble
  2. I can contribute the max $3,300 this year
  3. In future years, if I'm not in a HSA eligible plan, I can't contribute to the HSA but the account remains out there. In years that I'm in HSA eligible plans, I can contribute.
  4. Someday when I decide to spend some HSA money on qualified health expenses, I can do that, whether or not I am currently in a HSA eligible plan. (This is my biggest uncertainty).
  5. I can only spend HSA money (without penalty) on qualified expenses that occurred only in the years that I did have a HSA eligible plan.
Is this right?
If so, I'll have to be very careful with my record keeping, since I may not want to spend any of the HSA money until I'm 65, 12 years from now.
If you were HSA eligible for all months of this year, yes you can contribute the max for this year. If you started your HSA-eligible insurance sometime during this year, you are eligible for a pro-rated contribution. However, if you are eligible on 12/1/2014 and eligible for all of 2015 then you can make the full maximum contribution for this year. So, if you switch on January 1 each time you're in good shape. Otherwise, your HSA status during the next year might be important.
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Old 11-23-2014, 08:26 AM   #11
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Thanks for the answers, everyone. RunningBum, that link (https://www.hsaresources.com/faq/) was very helpful!

I'm pretty sure my current plan is HSA eligible, and I will verify that, although I'm having a hard time finding this info anywhere in the plan literature or website! As for next year, Horizon BCBS in NJ doesn't seem to be offering much that's HSA eligible - I could be wrong but that seems to have changed a lot since last year.
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Old 11-23-2014, 08:44 AM   #12
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Also don't forget that you have a one time in a lifetime ability to fund your HSA from your IRA. This must be a trustee to trustee transfer, and the funds will NOT be tax deductible to you for the year you do this.

ALso, you must be in a HSA for 12 months following that funding from the traditional IRA, or else it's counted as income from the IRA subject to tax, like any withdrawal from a traditional IRA. So you need to make sure you'll be in a HSA plan for 12 months after your funding from IRA.

See IRS Pub 969 for details on this alternate way to fund your HSA one time in your lifetime!
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