jdilla1107 wrote:The idea is that I am going to keep 20+ years of receipts to draw later tax free, right? Is this 100% legit or is it some goofy unintended side effect thing? Where could I find the source material for this process? (I have been searching quite a bit) The process seems pretty odd, so I want to double check all of this.
jdilla1107 wrote:My question was only specifically regarding where I can read in more detail about what I need to do for the next 20 years. Like, I wanted to read the IRS publication which would state that this is a valid strategy. (I must not be searching in the right places)
texasdiver wrote:I don't think you will find any specific IRS document affirmatively saying that it is OK to do this.
The authority for this strategy is in IRS Notice 2004-50 (http://www.irs.gov/irb/2004-33_IRB/ar08.html
Q-39. When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year?
A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur. However, to be excludable from the account beneficiary's gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year. See Notice 2004-2, Q&A 31 and also Notice 2004-25, for transition relief in calendar year 2004 for reimbursement of medical expenses incurred before opening an HSA.
Example. An eligible individual contributes $1,000 to an HSA in 2004. On December 1, 2004, the individual incurs a $1,500 qualified medical expense and has a balance in his HSA of $1,025. On January 3, 2005, the individual contributes another $1,000 to the HSA, bringing the balance in the HSA to $2,025. In June, 2005, the individual receives a distribution of $1,500 to reimburse him for the $1,500 medical expense incurred in 2004. The individual can show that the $1,500 HSA distribution in 2005 is a reimbursement for a qualified medical expense that has not been previously paid or otherwise reimbursed and has not been taken as an itemized deduction. The distribution is excludable from the account beneficiary's gross income.