Timing of funding HSA

[spncity]

Hello there

This year is the first time we'll have HSAs.

Do we need to put money into the HSAs prior to any medical event in order to be able to reimburse ourselves?

Or, is putting the money into the HSA during the same calendar year sufficient?

Thanks in advance.

 

[gauss]

Do we need to put money into the HSAs prior to any medical event in order to be able to reimburse ourselves?

In general, Yes (edit: the HSA needs to be established, but not necessarily fully funded before the expense occurs)

Or, is putting the money into the HSA during the same calendar year sufficient?

[-]In general, No[/-]


See IRS Publication 969 for details.

For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. State law determines when an HSA is established. An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established.

-gauss

 

[rodi]

As long as you're sure you will be on a HDHP HSA qualified plan for the full year, you can fund it, in full, at the beginning of the year. You can't reimburse yourself if you haven't funded it - but you *can* pay the bills, save receipts, then fund the HSA and reimburse yourself after the fact.

We're treating the HSA account kind of like a ROTH. We're paying medical expenses as they come up - but saving the records of them. We're fully funding the HSA. And at some time in the future, we can withdraw whatever we have receipts for. Since we had an expensive medical year - 100% of last years contributions are available for withdrawal at a future date - based on the unreimbursed receipts. It's a little more paperwork - but a great way to invest tax free and withdraw tax free.

 

[Lcountz]

Have you seen IRS Pub 969?

Since you can contribute to your HSA up to April 15th of the following year for the current year ( IE: You are eligible for HSA in 2015...you have til April 15, 2016 to contribute for 2015..similar to funding an IRA)...just save your receipts til you have enough in there to cover them.

For that matter, I think you can accumulate all your receipts and submit them YEARS later ( providing you still are in the HSA)....you don't have to submit them the year you actually incur them. If you had enough receipts, you could get a nice tax free dispersal from your HSA that way. Remember you don't pay taxes on HSA funds withdrawn to pay qualified medical expenses.

Also note that, for one time in your lifetime, you can fund your HSA from your IRA, via a trustee to trustee transfer of funds. You can't deduct this from your income, and you must be eligible to be in the HSA for 12 months following the funding from your IRA or you'd have to claim the funds as income and pay an additional 10% tax


It's all in Pub 969......Hope this helps.

 

[rodi]

Clarification on something I posted above.

The HSA account has to be open at the time the medical expenses are accrued.
https://www.nerdwallet.com/blog/credit-cards/pay-medical-expenses-credit-card-hsafsa/

 

[gauss]

As long as you're sure you will be on a HDHP HSA qualified plan for the full year, you can fund it, in full, at the beginning of the year. You can't reimburse yourself if you haven't funded it - but you *can* pay the bills, save receipts, then fund the HSA and reimburse yourself after the fact.

My understanding is that theses distributions (ie the reimbursements from the hSA) would be disallowed if audited and tax/penalty would apply since they are not being used for Qualified Medical Expenses.

-gauss

 

[rodi]

My understanding is that theses distributions (ie the reimbursements from the hSA) would be disallowed if audited and tax/penalty would apply since they are not being used for Qualified Medical Expenses.

-gauss

See my clarification.
If you pay as you go (via cash/credit/whatever) for your MEDICAL expenses, and save the receipts. As long as these expenses accrued while you had an HSA account open, you can reimburse yourself after the fact - the receipts are what you need to show it's a Qualified Medical expense.

For example - I funded our the max HSA contributions for my sons and myself this year. (DH had his own since he's on different insurance and can do catchup contributions since he's over 55). We accrued over $9k in medical bills - which we paid out of non HSA funds. (Yes - it was an expensive year). We can reimburse ourselves ANYTIME in the future because we have the receipts to show we had qualified medical expenses for the full contributions.

 

[gauss]

rodi - I think that our posts "crossed in the mail".

Agreed that expenses can be reimbursed in later years and are not restricted to the year the expense occurred.

 

[Lcountz]

You must file form 8889 as well when you become eligible for the HSA!!!!

Gauss...please see page 8 of pub 969 where it seems to indicate the HSA will reimburse you for qualified medical expenses.......I've done it .....I hope I'm correct!!! (Paid out of pocket, then requested HSA to reimburse me......I think as long as you have the reciept and can prove what the HSA funds were used for, you'd be ok, no?)

"You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you
incur after you establish the HSA. If you receive distribu-
tions for other reasons, the amount you withdraw will be
subject to income tax and may be subject to an additional
20% tax. You do not have to make distributions from your
HSA"

 

[Senator]

Agreed that expenses can be reimbursed in later years and are not restricted to the year the expense occurred.

If that is the case, and it is, as long as you have the HSA account opened, you can incur medical expenses to be reimbursed at a later date.

Assuming you had a HSA account opened on 1/1/16, you could put the max in on 4/15/2017. And refund an amount that occurred on 1/2/2016.

HSA are pretty good, too bad the limits are low.

 

[bingybear]

As long as you're sure you will be on a HDHP HSA qualified plan for the full year, you can fund it, in full, at the beginning of the year. You can't reimburse yourself if you haven't funded it - but you *can* pay the bills, save receipts, then fund the HSA and reimburse yourself after the fact.

We're treating the HSA account kind of like a ROTH. We're paying medical expenses as they come up - but saving the records of them. We're fully funding the HSA. And at some time in the future, we can withdraw whatever we have receipts for. Since we had an expensive medical year - 100% of last years contributions are available for withdrawal at a future date - based on the unreimbursed receipts. It's a little more paperwork - but a great way to invest tax free and withdraw tax free.

I have seen this "saving the receipts" and using the HSA to get paid back later. Not that it is an issue in itself, but I wonder how many would pay themselves and keep the receipts. But how may would get an itemized deduction on federal or state taxes. Then a bit later use the receipts for HSA reimbursement. I don't think this is legal or ethical.

I'm not saying you were proposing it... but just caught me reading this thread that some may try this either deliberately of forgetting they has already used the tax benefit for these expenses.

But I too use the HSA as an extra tax advantaged account... not immediate paying for medical, but maybe later in life.

 

[spncity]

Okay, so if I establish the account early (now), and then have qualified medical expenses, these are reimbursable as soon as I put money in the HSA, or lots later if preferred, even if the bulk of the contribution is deposited late in the year or the following year by April 15.

Am I good?

 

[gauss]

Okay, so if I establish the account early (now), and then have qualified medical expenses, these are reimbursable as soon as I put money in the HSA, or lots later if preferred, even if the bulk of the contribution is deposited late in the year or the following year by April 15.

Am I good?

Yes. I would also save a statement showing that you have a balance in your HSA (ie that it is established) on a date that exists before your first expense.

-gauss

 

[gauss]

I have seen this "saving the receipts" and using the HSA to get paid back later. Not that it is an issue in itself, but I wonder how many would pay themselves and keep the receipts. But how may would get an itemized deduction on federal or state taxes. Then a bit later use the receipts for HSA reimbursement. I don't think this is legal or ethical.

This is correct. There is no double-dipping.

Recall that for medical expenses to be deductible via Schedule A, there is a minimum floor that must be met first. Said differently, the only medical expenses that are deductible are those that exceed 10% of your AGI (7.5% if 65 or over)

https://www.irs.gov/uac/Claiming-a-Tax-Deduction-for-Medical-and-Dental-Expenses

 

[gauss]

You must file form 8889 as well when you become eligible for the HSA!!!!

Gauss...please see page 8 of pub 969 where it seems to indicate the HSA will reimburse you for qualified medical expenses.......I've done it .....I hope I'm correct!!! (Paid out of pocket, then requested HSA to reimburse me......I think as long as you have the reciept and can prove what the HSA funds were used for, you'd be ok, no?)

"You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you
incur after you establish the HSA. If you receive distribu-
tions for other reasons, the amount you withdraw will be
subject to income tax and may be subject to an additional
20% tax. You do not have to make distributions from your
HSA"

Agreed - You should be good as long as the HSA was established before you incurred the expenses.

 

[rodi]

I have seen this "saving the receipts" and using the HSA to get paid back later. Not that it is an issue in itself, but I wonder how many would pay themselves and keep the receipts. But how may would get an itemized deduction on federal or state taxes. Then a bit later use the receipts for HSA reimbursement. I don't think this is legal or ethical.

I'm not saying you were proposing it... but just caught me reading this thread that some may try this either deliberately of forgetting they has already used the tax benefit for these expenses.

But I too use the HSA as an extra tax advantaged account... not immediate paying for medical, but maybe later in life.

I was not proposing that. The link posted above to the IRS notice is clear about this. You cannot claim medical expenses that your were reimbursed for via HSA. (And the reverse.) That would be tax fraud.