Pull from HSA now?

[Fermion]

I am sure this has been asked before, but maybe not for the same reasons.

Before our taxable cash got too low, I set up a 72t which also gave us the minimum income to stay above 138% of FPL. I have been trying to keep our MAGI right around there, and I supplement our income needs with after tax cash.

The cash pile grows smaller, even as our net worth has increased due to the glorious market that never ends (bonds helping too now).

I have been eyeing the future years between age 54 and 65, the ACA years remaining and my plan was to pull out Roth contributions for additional non MAGI income after we deplete our cash (projected to run out in about 5 years or so.)

I had not really considered our HSA, but when I think about the medical bills from the past decade plus, they add up. We were never re-imbursed for them. I probably have the receipts in a box, I keep everything, but it is likely in the barn under 200 other boxes.

Anyway the question. Should I go ahead and re-imburse myself now from the HSA, or just do it as a lump sum right before our cash pile runs out? Are you more likely to get an audit if you have a $15,000 re-imbursement rather than doing a little bit each year?

Would you take from the HSA reimbursement before you took out Roth contributions or 5+ year conversions?

 

[Aerides]

I typically add it up and take every year so I don't forget or miss expenses. I have no idea if there are amounts that have "audit triggers" but as long as you have your docs you should be fine.

 

[MichaelB]

I’m 70 and have been thinking about starting to withdraw from our HSA. Like a traditional IRA, it is not “inheritance friendly”, and the documented records requirement can make it burdensome for a spouse with little experience (or willingness) in managing finance details.

I’d definitely take from the HSA before a Roth. My tax advisor has strongly suggested withdrawing exact amounts and avoiding round number withdrawals. For example, $8142 vs $8000. While he hasn’t had a customer be audited, the round number is an unnecessary red flag for the IRS.

 

[Fermion]

That makes a lot of sense (using the actually figures instead of lumping everything together and making a low estimate).

I guess I will be crawling through the barn this year lol.

The fact that the ACA re-imbursements don't add to your federal income tax or your ACA MAGI is a nice little infusion I had not really considered. It makes a lot of sense to do it before we go off ACA at 65.

 

[audreyh1]

I would withdraw now for unreimbursed medical expenses to supplement your dwindling cash. If you’ve had HSAs for over 20 years you must have quite a bit saved. We didn’t have access to HSAs until 2013.

We waited until Medicare to use our HSAs to pay Medicare premiums because that was convenient to pay directly from the account, easy to document, and matched well the amount we had in our HSAs to bridge us to SS. We never qualified for ACA subsidies.

As in turns out DH will make it to 70 and not completely draw down his HSA, so after that he will reimburse himself for Medicare premiums taken out of SS payments. I’ve had another 4.5 years to contribute so my balance is much higher. Still we’re subject to IRMAA so some years Medicare premiums are quite high. I do try to keep us at the lowest IRMAA level if possible.

 

[PaunchyPirate]

This thread just prompted/reminded me to create an HSA tab in my Financial Accounts spreadsheet. I'm late to HSAs, but started this year and I hope to use it for a few more years before I start Medicare. I just went back to January 1st and created expense entries into the spreadsheet to track my spending. I also noted where the receipt is stored, even though most will be paper ones stored in a single folder each year. I don't think I'm going to go so far as to scan the receipts.

 

[Montecfo]

I think you want to pull the HSA dollars in bites. I think that limits risk of inquiries.

Of course you will make sure you have records.

I think the dollar figure is more important than doing dollars and cents. A low dollar figure would represent less potential recovery for IRS.

But who is to say? It is guesswork.

 

[RunningBum]

Take from HSA before a Roth for sure, as MichaelB said.

Taking odd amounts is an interesting idea. I've only withdrawn $1000 once, too small to draw attention, but I think I'll try that when I start withdrawing more. I don't worry about an audit or query since I have the receipts for everything, but who wants a letter from the IRS? Not me.

 

[tulak]

This thread just prompted/reminded me to create an HSA tab in my Financial Accounts spreadsheet. I'm late to HSAs, but started this year and I hope to use it for a few more years before I start Medicare. I just went back to January 1st and created expense entries into the spreadsheet to track my spending. I also noted where the receipt is stored, even though most will be paper ones stored in a single folder each year. I don't think I'm going to go so far as to scan the receipts.

This is exactly what I do, except I don't keep paper statements. I download all statements/receipts for each bill and store it digitally. I do this when I pay the bill, that way it doesn't accumulate.

Once I stop working, I'll drain the HSA to supplement my income along with the 401k/IRAs.

 

[pb4uski]

Until a few years ago we had never taken a HSA withdrawal and the balance had grown.

While I had good documentation for our qualified medical expenses since we started our HSAs, I was concerned that if I got run over by a beer truck that DW and DD might not remember to withdraw money from our HSAs within the requited timeframe, so I made a big withdrawal for our qualified medical expenses and have done annual withdrawals since then.

 

[Montecfo]

Pb4uski,

Was that initial draw large enough that you had concern about an inquiry ?

 

[joesxm3]

What is this "required timeframe"? Is that after death or is there an expiration date on what expenses can be reimbursed?

 

[RunningBum]

What is this "required timeframe"? Is that after death or is there an expiration date on what expenses can be reimbursed?

https://support.livelyme.com/hc/en-us/articles/360001689852-If-I-have-an-HSA-and-I-die-what-happens

Yes, one year, but I think it's only if inherited by someone other than your spouse. There's some disagreement on this board whether that person can use your old receipts to try to drain the account. The very first part of the footnote in the above article seems to say to me that you can't, they can only use it for expenses paid that year only. But I'm not 100% clear. Read it yourself and see if you can figure it out.

A surviving spouse can take over the HSA as their own. Can they use your receipts? I haven't really looked into that as it doesn't apply to me.

It's a balancing game. Do you let it grow tax free as long as you can, risking (especially for a single like me) that your heir will be taxed on the balance as regular income if you die before using all of it? Even if they can use your old receipts will they be able to figure it all out? Or do you drain it over a reasonable time period to try not to leave an HSA behind? No guarantee you will have time to do this though.

 

[Montecfo]

Reading the IRS publications can result in ambiguous conclusions and there is little specific IRS guidance I have seen.

But here is an article by an attorney which is on point with quite a few examples with regard to non-spouse beneficiaries.

It suggests the owner must withdraw reimbursements for qualified medical expenses prior to death to achieve tax-free treatment.

https://greenleaftrust.com/missives/too-successful-health-savings-accounts/

 

[pb4uski]

Pb4uski,

Was that initial draw large enough that you had concern about an inquiry ?

No, and it was large but I had good documentation so I wasn't concerned. They've never asked.

One thing to remember though is that even though the HSA withdrawal is tax-free that you still need to report it and fill out a form and tick the box on the form that the withdrawal was used for qualified medical expenses.

 

[pb4uski]

What is this "required timeframe"? Is that after death or is there an expiration date on what expenses can be reimbursed?

It's a little confusing and unclear which is another reason why I made that big withdrawal for 10 years worth and do it annually now. Not worth the risk.

 

[audreyh1]

No, and it was large but I had good documentation so I wasn't concerned. They've never asked.

One thing to rememberr though is that even though the HSA withdrawal is tax-free that you still need to report it and fill out a form and tick the box on the form that the withdrawal was used for qualified medical expenses.

Details: The HSA reports distributions to the IRS and you will receive a 1099-SA form in Jan. And you must file form 8889. That’s where you say whether the distributions were qualified or not - how much of each.

 

[jollystomper]

We were not eligible for a HSA until 2017. I have tracked our HSA-eligible expenses since then. Our current HSA is now over twice our lifetime-to-date reimbursable expenses. In addition, or Medicare Advantage PPO plan gave us an additional HSA. Now is probably a good time to start drawing it down.

So far we have been drawing down the PPO plan HSA to pay our healthcare and my part B premiums, that will take almost 2 more years to exhaust it. I took a withdrawal 3 years from our primary HSA for or 2017 expenses, but nothing since then. I will withdraw at least our 2018 expenses, and maybe our 2019 expenses, this year. I will pull exact numbers that match the receipts, and the amounts will be in the low to mid 4 figures, so that should not raise a flag. It probably makes sense for us at this point to make annual withdrawals of our past expenses.

 

[thefist]

I probably have the receipts in a box, I keep everything, but it is likely in the barn under 200 other boxes.

@Fermion, perhaps it’s time to clean the barn!

 

[Phroig]

I have a related question. I understand the rule is you can get reimbursed years later for an expense that was incurred and paid when the HSA was open. What happens when you transfer or do a rollover from one HSA to another?
Say you have HSA1, pay for a medical expense, and save the receipt. Years later, you transfer your money to HSA2 (many of us moved to Fidelity). Can you reimburse yourself from HSA2 even though it wasn’t open when the expense was paid?

 

[Fermion]

I have a related question. I understand the rule is you can get reimbursed years later for an expense that was incurred and paid when the HSA was open. What happens when you transfer or do a rollover from one HSA to another?
Say you have HSA1, pay for a medical expense, and save the receipt. Years later, you transfer your money to HSA2 (many of us moved to Fidelity). Can you reimburse yourself from HSA2 even though it wasn’t open when the expense was paid?

I hope so! I moved my HSA to Fidelity last year, after over a decade at ripoff corp.

 

[audreyh1]

First HSA opening date is what starts the clock.

 

[sengsational]

I've kept totals by year since I had the HDHP, but didn't pull any money out of the HSA for many years. Then, when I wanted tax-free cash, I pulled an amount equal to the oldest year's total. I could have pulled any amount, but figured I'd move that oldest year receipts fold out of the HSA cabinet into the tax history cabinet and mark it "used". That starts the 7 year clock, so I also wrote a "destroy on" date, after which I'm not obligated to defend the total.

I've got enough expenditures to eat up my entire HSA balance, so as long as I'm around to do my taxes, I should get this money out with tax free gains. I've also tried to make it obvious that there's documentation to support tax free withdrawal of the rest. Quite a PITA, but I guess it's kind of worth the trouble. Kind of.

 

[audreyh1]

That’s why we decided to use it for Medicare premiums which are easy to document. Plus we are paying for them directly from the HSA. We simply save a payments history from Medicare every year that shows the prior year premium payments. Once we start getting a SSA-1099 it will also be easy to show the amounts paid for Medicare premiums per year for reimbursement.

 

[MichaelB]

Reading the IRS publications can result in ambiguous conclusions and there is little specific IRS guidance I have seen.

But here is an article by an attorney which is on point with quite a few examples with regard to non-spouse beneficiaries.

It suggests the owner must withdraw reimbursements for qualified medical expenses prior to death to achieve tax-free treatment.

https://greenleaftrust.com/missives/too-successful-health-savings-accounts/

Excellent link, thanks. Probably the most informative I have seen to date and addresses some of the questions raised by RunningBum.