is HSA distribution of 11k going to raise flag at IRS

[perrytime]

Been contributing to HSA for years with no withdraw, now i choose to add up years of medical expenses and get reimbursed. No question it is legal , but don't want to draw an audit and have to defend. Has anyone else done large distribution and did IRS flag it?

 

[HadEnuff]

So you paid medical expenses out of pocket, accumulated them over several years, and want to reimburse yourself for those back years all in one year?

 

[perrytime]

yes that is correct

 

[RobbieB]

Did you itemize deductions on those expenses in previous years?

 

[mn54]

as long as you have the records to show you are being reimbursed for medical bills I don't see why it would be a problem.

 

[audreyh1]

Should work fine if you have those expenses documented. The only thing - you probably don't have to do a separate reimbursable to match each expense, I hope.

 

[MBSC]

You may be interested in the following Boglehead's post:

How Severe is an HSA Audit?

I had an "audit" of my HSA (and Schedule A) one year. They asked for all documents supporting all entries on Form 8889 and Schedule A. It was a letter request, not an in-person audit.

I sent them copies of forms 5498-SA, 1099-SA and W-2 (code W, Box 12), a spreadsheet reconciling the distributions and copies of the receipts that agreed to the spreadsheet. A few of our providers provide an annual statement (at request). Most pharmacies will produce an annual statement (I get mine from CVS online). The rest, I used the invoice. When I sent it all in, a couple of months or so later I received a letter closing out the audit saying no issues found.

Reference: https://www.bogleheads.org/forum/viewtopic.php?t=207770#p3187806

 

[perrytime]

i have not itemized the expenses before, i don't itemize period. The dozens and dozens of receipts for prescriptions and other items would make documentation somewhat painful, xeroxing and spread sheet entries. I would rather spread the distribution over a couple years if that would be the difference in getting an audit or not. Guess its a gamble any way you look at it. Maybe i will just limit myself to the first 30 or 40 biggest expenses and see how it goes this first time. I don't need the $, I just wanted to use it to help fund Solo 401K contribution, get the tax deduction, and to hopefully get better return, My HSA is at a bank and collects 1% dividend, no fees.

 

[audreyh1]

We have collected our receipts, etc. But I envision using the HSA for reimbursing Medicare Part B (and maybe Part D) when we get there. Mainly because these are more easy to document, plus that will give time for our HSA accounts to grow (hopefully!!!!)

 

[HadEnuff]

yes that is correct

Is there an advantage to doing it that way, rather than just paying as you go from the HSA account?

 

[Accidental Retiree]

Is there an advantage to doing it that way, rather than just paying as you go from the HSA account?

I'm thinking the advantage is that the HSA funds get more time to grow.

 

[Animorph]

I was going to take an "accumulated receipts" amount out as soon as we would normally be making Roth withdrawals. Just because HSA is more restricted than a Roth. Maybe I'll moderate that a bit.

 

[bingybear]

filling or not filling your taxes can create an audit. If all your expenses came after you opened your HSA and as you've already stated, you did not itemize the expenses. You should be fine. I'm not sure about this... but I think you have to be covered with a HDHP when you use these, or be on medicare.

 

[easysurfer]

I've racked up over 4K (mostly dental work) in a year and taken the HSA distribution. No audit, at least not yet .

 

[sengsational]

I think I'm going to insist on an in-person audit if they make me prove my HSA withdrawals.

I'll open a huge box filled with receipts and start... "Ok, here's one from 2013 for $3.29. Here's one for $17.32 from 2015...." See how long they last. I'm retired. I've got all day.

 

[zinger1457]

filling or not filling your taxes can create an audit. If all your expenses came after you opened your HSA and as you've already stated, you did not itemize the expenses. You should be fine. I'm not sure about this... but I think you have to be covered with a HDHP when you use these, or be on medicare.

As long as the medical expenses occurred after the HSA was opened and funded then you're OK, it doesn't matter if the medical expense occurred at a later time when you weren't covered by a HSA eligible plan.

 

[CardsFan]

I only had an HSA the last year I worked. I am just using it to pay for all medical related costs. If I had it for many years, and invested like an IRA, then I would also hang on for medicare payments.

 

[bingybear]

I had mine for a couple years. Now RE, I'm still funding the hsa to be there for LTC if needed. Can fund an hsa up to 65 when one transitions to medicare. -- not sure how this works for those who don't move to medicare.

 

[Lakewood90712]

Take all that you are entitled to. Audit or the real term is " Examination of your return " is nothing to fear. Had a item the IRS had issue with about 10 years ago , I had failed to supply correct basis , so on it's face it looked like I owed additional tax and penalty.......When the smoke cleared, I received money back and interest on an amended return.

Oh, and demanding an in person audit doesn't work, the IRS does things by phone or mail. They DON'T WANT TO SEE ANGRY TAXPAYERS IN PERSON. if you and the IRS can't agree, you have to sue the Commissioner of the IRS in tax court...Which is also a by mail thing unless it's a big case. I SPEAK FROM EXPERIENCE ON THIS. It's not that difficult , you just need to have proof.

 

[bingybear]

Take all that you are entitled to. Audit or the real term is " Examination of your return " is nothing to fear. Had a item the IRS had issue with about 10 years ago , I had failed to supply correct basis , so on it's face it looked like I owed additional tax and penalty.......When the smoke cleared, I received money back and interest on an amended return.

Oh, and demanding an in person audit doesn't work, the IRS does things by phone or mail. They DON'T WANT TO SEE ANGRY TAXPAYERS IN PERSON. if you and the IRS can't agree, you have to sue the Commissioner of the IRS in tax court...Which is also a by mail thing unless it's a big case. I SPEAK FROM EXPERIENCE ON THIS. It's not that difficult , you just need to have proof.

+1
I think much of the IRS does inquiries (not sure if this is the right term) than full audits. Excepting the few years were I had a major accounting firm do my taxes due to an expat assignment (company requirement for the assignment) I have had one inquiry. It was a nice letter telling me I owed about 13k. I had 2 nearly identical investments (only difference being in different accounts) and by the time I filed only one was in the taxes. I did an amended return and sent them a nice note explaining what happened... I got $80 additional returned to me.
If you're not doing questionable things, an inquiry is not a big deal. And it really is not hard to run $11k in health care expenses.

 

[MBSC]

Can fund an hsa up to 65 when one transitions to medicare. -- not sure how this works for those who don't move to medicare.

You can continue to fund an HSA past age 65 if you are still working for a large employer (where Medicare is secondary), have an HSA eligible HDHP group plan, and do not sign up for Medicare Part A. It is the Part A enrollment that disqualifies the person from making HSA contributions.

Most people should enroll in Medicare Part A when they turn 65, even if they have health insurance from an employer. This is because most people paid Medicare taxes while they worked and therefore do not pay a monthly premium for Part A. However, some people may want to consider delaying Medicare Part A until a later date, such as people who contribute to a Health Savings Account (HSA) or those who have to pay a premium for Part A.

Reference: https://www.cms.gov/Outreach-and-Ed...ers-and-Unions/FS3-Enroll-in-Part-A-and-B.pdf

 

[pb4uski]

While I have not done what the OP describes, $11k is not a huge medical bill these days so I wouldn't think it would trigger and audit... but you never know.. just keep your documentation.

 

[perrytime]

thanks for replies, i feel better about taking distribution

 

[stargazer08]

I'm happy to see this thread. We had 2 HSA accounts. We closed out one this past December to the tune of 18G. We never used either HSA and paid for our medical expenses out of our own pocket with the thought we would treat these accounts somewhat like a ROTH IRA.
To make things less confusing, we decided to close out the oldest account. I had no idea that we could use the account for expenses incurred while we were on traditional insurance. Good to know in case we get audited and they don't like some of our receipts.
I'm thinking we only need to save the receipts for 7 years.

 

[sengsational]

I think I'm going to insist on an in-person audit if they make me prove my HSA withdrawals.

I'll open a huge box filled with receipts and start... "Ok, here's one from 2013 for $3.29. Here's one for $17.32 from 2015...." See how long they last. I'm retired. I've got all day.

Oh, and demanding an in person audit doesn't work, the IRS does things by phone or mail. They DON'T WANT TO SEE ANGRY TAXPAYERS IN PERSON. if you and the IRS can't agree, you have to sue the Commissioner of the IRS in tax court...Which is also a by mail thing unless it's a big case. I SPEAK FROM EXPERIENCE ON THIS. It's not that difficult , you just need to have proof.

Thanks for that bit of wisdom.

Plan B then:

Open that huge box of receipts, paste each one up on the wall and take a high-res photo of the receipts, making sure that if one zooms-in, every detail of every receipt is visible. Deliver the image digitally, or on a CD or whatever, along with a note that says "Here are my $11,134.24 of 2015 HSA receipts."