Withdrawing from an HSA

[GreenER]

I have an HSA with Fidelity. We've been paying all medical expenses out of pocket for the last five years but we are making a large purchase this year and rather than taking the extra needed funds from our Roths I'd like to first take what I can from the HSA since it's less versatile. I have the saved receipts for each year's medical expenses.Is it best to draw out the money in a series of hunks that match each year's expenses or is it acceptable to make one withdrawal for the total of the five year's worth of expenses? I'm not wanting to stir up any undue attention that might initiate an audit. I'm also a little unclear how I get the cash. Do I just go to a bank and use as a debit card to withdraw?

 

[Done]

Since you are just reimbursing yourself for qualified medical expenses, the easiest way is a single transfer online from your HSA to another (non-retirement) account. Here are other ways. Your total distributions for the year will be reported on Form 1099-SA, and then you will file Form 8889 with your tax return. I can’t comment on your chances for being audited, but if it happens, you’ll need to produce receipts for all of those expenses.

 

[Done]

If you happen to live in NJ or CA, note that those states don’t recognize HSA’s. In CA, an HSA is treated as a taxable account so any gains on sales are taxable.

 

[pb4uski]

In 2020 I did a withdrawal for all of our eligible medical expenses from 2010-2019 as a single lump sum withdrawal. I have a bound file of the withdrawal, a spreadsheet printout of the expenses (dates, payee, descripition, amounts, etc.) and receipts (chronoogical) in case the IRS ever asks about it. So far they haven't said boo.

Now that we are Medicare age, I plan to do annual withdrawals for eligible expenses for the prior year.... in March 2021 I did a withdrawal for our eligible expenses in 2020. I'm doing this because I was concerned that DW and DD might not know to do it so at most only a year of tax-free withdrawals would be forfeited.

 

[captain3d]

In CA, an HSA is treated as a taxable account so any gains on sales are taxable.

Never knew that. Another thing on the ‘reasons to leave CA’ list. Actually the list is mostly full of tax annoyances

 

[jebmke]

In 2020 I did a withdrawal for all of our eligible medical expenses from 2010-2019 as a single lump sum withdrawal. I have a bound file of the withdrawal, a spreadsheet printout of the expenses (dates, payee, descripition, amounts, etc.) and receipts (chronoogical) in case the IRS ever asks about it. So far they haven't said boo.

Now that we are Medicare age, I plan to do annual withdrawals for eligible expenses for the prior year.... in March 2021 I did a withdrawal for our eligible expenses in 2020. I'm doing this because I was concerned that DW and DD might not know to do it so at most only a year of tax-free withdrawals would be forfeited.

Might be a while (or never) before you hear from them. I had CP letters two years in a row for Form 8889. I had the same info which I submitted in reply to their inquiry. They cleared these without incident.

 

[Aerides]

I have my bank account hooked up to my HSA for ACH withdrawals, but most will send a check if you don't have that. I keep receipts, but withdraw in whatever amount I feel/need as long as I know I can support it.

 

[Sue J]

I have an HSA with Fidelity. We've been paying all medical expenses out of pocket for the last five years but we are making a large purchase this year and rather than taking the extra needed funds from our Roths I'd like to first take what I can from the HSA since it's less versatile. I have the saved receipts for each year's medical expenses.Is it best to draw out the money in a series of hunks that match each year's expenses or is it acceptable to make one withdrawal for the total of the five year's worth of expenses? I'm not wanting to stir up any undue attention that might initiate an audit. I'm also a little unclear how I get the cash. Do I just go to a bank and use as a debit card to withdraw?

I moved our HSAs from another administrator to Fidelity earlier this year. I have not made any withdrawls so I thought I'd check out the process at Fidelity.

It looks like you can only withdraw from the Cash account in your HSA. Mine only has $.01 in it, everything else is in mutual funds. So it looks like the first thing to do is sell something and the proceeds go to the cash account. After that, you need to ask for a withdrawl. Have an external bank account set up in advance. I set one up and it was instantly available.

At https://www.fidelity.com/go/hsa/faqs I found -

• How do I withdraw or spend money from my HSA? When you or your authorized spouse or dependents have qualified medical expenses that aren't covered by your health plan, you can pay for those tax-free from your HSA using a Fidelity HSA debit card, Fidelity BillPay®, or by writing a check. You could choose to pay for your qualified medical expense out-of-pocket and reimburse yourself from your HSA. You also have the option of making an HSA withdrawal using online money movement or by filling out a one-time withdrawal formLog In Required.
• How do I reimburse myself using my HSA money? You can reimburse yourself for qualified medical expenses you paid out-of-pocket using Fidelity BillPay® and adding yourself as a payee, you can move money directly using electronic funds transfer (EFT), or you can write yourself a check.

 

[RunningBum]

The IRS has no idea how much you had in medical expenses each year so withdrawing in chunks to match yearly expenses doesn't help in not attracting attention. They are probably as likely to flag an account with multiple medium sized withdrawals. It might make the audit go easier, on the other hand coming in with a shoe box full of receipts and a spreadsheet with hundreds of rows might just make an auditor think it's not worth their time to go through them all.

I've linked my bank with my Fidelity HSA so when I want to make withdrawals I'll just transfer money to my bank.

 

[Sue J]

Has anyone here ever had an inquiry for the IRS about their HSA withdrawls?

I keep yearly spreadsheets for all our medical/dental/vision etc expenses to support our HSA withdrawls. I also keep the medical bill and proof of payment method.

We've had HSAs since 2014 and were able to make contributions in only four of those years. A couple of years our insurance was not HSA compatible. I've done lump sum withdrawls only 3 times. Never had the debit card.

Now that we are both on Medicare the HSAs are a nice investment growing tax free. We don't need to withdraw for anything right now. In the future if Medicare Part B gets too expensive I may start using it to reimburse for that.

 

[jebmke]

Has anyone here ever had an inquiry for the IRS about their HSA withdrawls?

I keep yearly spreadsheets for all our medical/dental/vision etc expenses to support our HSA withdrawls. I also keep the medical bill and proof of payment method.

We've had HSAs since 2014 and were able to make contributions in only four of those years. A couple of years our insurance was not HSA compatible. I've done lump sum withdrawls only 3 times. Never had the debit card.

Now that we are both on Medicare the HSAs are a nice investment growing tax free. We don't need to withdraw for anything right now. In the future if Medicare Part B gets too expensive I may start using it to reimburse for that.

I had two CP letters (two years in a row). They asked for documentation of all entries on Form 8889. They also sweep up Schedule A at the same time.

 

[Time2]

I have $20,400 worth of health care receipts saved from 2015 to 2021.
I plan on making the withdrawal in December as part of my income generating for spending in 2022. This will be the first time I will do a lump sum withdrawal from my HSA. Thanks for the info about selling to get funds before making the withdrawal, makes sense, but had not crossed my mind.

 

[RetiredAndLovingIt]

Never knew that. Another thing on the ‘reasons to leave CA’ list. Actually the list is mostly full of tax annoyances

My DD went to Texas for Thanksgiving to visit family on her husbands side. They spent the day with a cousin who sold their 1000 sq ft home somewhere in Los Angeles earlier this year for 1.2 million dollars and moved to the Woodlands neighborhood to a magnificent 3500 sq ft home for right around half a mill. I looked it up on Zillow, absolutely gorgeous. So if you want to leave Cali and have a house for sale, now is the time.
She said they did drive into Houston and they have the same issues with homeless people everywhere but the area that they were staying was very Hoity Toity as the kids call it.

 

[sengsational]

I had two CP letters (two years in a row). They asked for documentation of all entries on Form 8889. They also sweep up Schedule A at the same time.

So what kind of documentation did they require? I could easily generate a report out of my accounting system with date, amount, payee, method of payment. The receipts are quite a heap, though. Lining those up would be more trouble to assemble. I might find that I'd need to pull a credit card statement for a missing receipt. Quite a PITA. Did you send a report, or copies of receipts or what? Also, do you think the letters might have been triggered by Schedule A activity?

 

[jebmke]

So what kind of documentation did they require? I could easily generate a report out of my accounting system with date, amount, payee, method of payment. The receipts are quite a heap, though. Lining those up would be more trouble to assemble. I might find that I'd need to pull a credit card statement for a missing receipt. Quite a PITA. Did you send a report, or copies of receipts or what? Also, do you think the letters might have been triggered by Schedule A activity?

They didn't say. Only requested documentation to support all the entries.



I sent them reconciliations and copies of receipts for all withdrawals on Form 8889, a copy of the deposit receipt for the contribution to the HSA as well as a copy of the confirmation I received from my former company when I did the open enrollment that showed that I was eligible for an HSA deduction that year. That along with documents supporting all the lines on Schedule A.



All I got back was a letter saying that the inquiry was closed without adjustment.

 

[ProGolferWannabe]

If you happen to live in NJ or CA, note that those states don’t recognize HSA’s. In CA, an HSA is treated as a taxable account so any gains on sales are taxable.

That’s interesting, and unfortunate.

 

[cat4ever]

Has anyone here ever had an inquiry for the IRS about their HSA withdrawls?

I did one year. I don't keep receipts but I always pay with a debit card directly from the HSA to the provider, so I just gave them the debit card transactions list available from my HSA account. I figured everyone did it that way but I guess not. Am I in the minority?

 

[RunningBum]

I did one year. I don't keep receipts but I always pay with a debit card directly from the HSA to the provider, so I just gave them the debit card transactions list available from my HSA account. I figured everyone did it that way but I guess not. Am I in the minority?

On here you might be. I have been saving expenses since 2009 and will eventually use them to reimburse myself, so I can't use a debit card for that.

 

[bobandsherry]

I did one year. I don't keep receipts but I always pay with a debit card directly from the HSA to the provider, so I just gave them the debit card transactions list available from my HSA account. I figured everyone did it that way but I guess not. Am I in the minority?

My first year with HSA, but my plan is to keep money invested so it grows tax free and then pop the cork on that money when I really need it. I figure I'll pay a little extra in tax for my ACA premium (or lose a little subsidy more correctly) but keep invested for a few years and end up ahead of the game. Or market collapses and then I'm wondering why I did that. Lol

 

[meleana]

I pay most all our medical out of pocket expenses as incurred with our HSA card. Also at the end of the year I reimburse ourselves for the total Medicare Part B premiums we paid. And anything like eye drops or eye glasses and other eligible over the counter medicine I also reimburse ourselves in a lump sum. Have the money transferred right to our checking account.


I figure I might as well since we are already in our mid to late sixties and for the money to be withdrawn tax free it has to be for medical expenses. So why would I want to pay out of the money we are living on right now?

 

[Doingitwrong]

Has anyone here ever had an inquiry for the IRS about their HSA withdrawls?

I keep yearly spreadsheets for all our medical/dental/vision etc expenses to support our HSA withdrawls. I also keep the medical bill and proof of payment method.

We've had HSAs since 2014 and were able to make contributions in only four of those years. A couple of years our insurance was not HSA compatible. I've done lump sum withdrawls only 3 times. Never had the debit card.

Now that we are both on Medicare the HSAs are a nice investment growing tax free. We don't need to withdraw for anything right now. In the future if Medicare Part B gets too expensive I may start using it to reimburse for that.

Once. Zeroed out my HSA (five figures) and also deducted a much larger five figure number on Sch A.
Sent records/receipts; no problem.

 

[Doingitwrong]

On here you might be. I have been saving expenses since 2009 and will eventually use them to reimburse myself, so I can't use a debit card for that.

That was always my plan. But DWs medical bills frequently out ran our after tax monies before ACA.
The $30k we have in it now is just gravy that we won’t touch for 20 years..

 

[teejayevans]

If you happen to live in NJ or CA, note that those states don’t recognize HSA’s. In CA, an HSA is treated as a taxable account so any gains on sales are taxable.

They can override federal law?

 

[swakyaby]

I don't keep receipts but I always pay with a debit card directly from the HSA to the provider, so I just gave them the debit card transactions list available from my HSA account. I figured everyone did it that way but I guess not. Am I in the minority?

I do it this way as well. Seems easier to keep documentation if requested. It was convenient using my HSA debit card to pay for those expensive dental crowns.

 

[Montecfo]

I've never withdrawn any. Just kept records and receipts. We are no longer on a HDHP.

I'm sure we do not have enough receipts to drain it. It's a couple hundred thou but all the stats say we figure to spend that much and more on future medical. So I'm letting it ride.

"Tried, tried, tried, let it ride..."