Reimbursing old medical bills under a "new" HSA

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4eaxfm
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Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Sat Aug 01, 2020 7:06 am

I retired earlier this year but before then provided family HDHP and HSA coverage through my job. My spouse is still working so we switched to HDHP and HSA coverage through her employment after I retired, and I have since transferred my company sponsored HSA to Fidelity where I would like to keep my funds untouched and fully invested for as long as possible.

Can old medical expenses from previous years (incurred after my HSA was started, but before my spouse's HSA) be submitted for reimbursement under my spouse's HSA? I would argue that her HSA is simply a continuation of the family HSA coverage I initiated under my employment and should be able to reimburse older medical expenses prior to its inception much in the same way my transferred Fidelity HSA can reimburse expenses prior to its inception. I tried calling the IRS, but they are no longer answering questions on HSA's.

BuddyJet
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Re: Reimbursing old medical bills under a "new" HSA

Post by BuddyJet » Sat Aug 01, 2020 9:23 am

I’m not an accountant but an interesting question. From a quick google search, the answer seems to be no. The link below talks about the irs considering even family hsa to be individually owned. Since the old plan was under you and the new under spouse, your spouse plan can’t pay expenses before start date.

https://americanfidelity.com/blog/reimb ... es-spouse/
People say nothing is impossible. I do nothing all day.

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4eaxfm
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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Sat Aug 01, 2020 3:51 pm

Not the response I was hoping for, but I appreciate the insight into how the IRS treats all HSA's as individually owned. Thanks!

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Re: Reimbursing old medical bills under a "new" HSA

Post by TropikThunder » Sat Aug 01, 2020 5:50 pm

4eaxfm wrote:
Sat Aug 01, 2020 7:06 am
I retired earlier this year but before then provided family HDHP and HSA coverage through my job. My spouse is still working so we switched to HDHP and HSA coverage through her employment after I retired, and I have since transferred my company sponsored HSA to Fidelity where I would like to keep my funds untouched and fully invested for as long as possible.

Can old medical expenses from previous years (incurred after my HSA was started, but before my spouse's HSA) be submitted for reimbursement under my spouse's HSA? I would argue that her HSA is simply a continuation of the family HSA coverage I initiated under my employment and should be able to reimburse older medical expenses prior to its inception much in the same way my transferred Fidelity HSA can reimburse expenses prior to its inception. I tried calling the IRS, but they are no longer answering questions on HSA's.
From IRS Publication 969:
For HSA purposes, expenses incurred before you establish your HSA aren’t 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.
So your Fidelity HSA account carries the establishment date of the company-sponsored one, meaning you can reimburse qualified expenses from your Fidelity HSA that were incurred after that original company-sponsored HSA was funded.

Not quite what you asked for though. I think this part is key (but I can't find an explicit reference one way or the other):
Can old medical expenses from previous years (incurred after my HSA was started, but before my spouse's HSA) be submitted for reimbursement under my spouse's HSA?
Note that an HSA (like an IRA) is always an individual account. There is no such thing as a "Joint HSA" so each spouse's HSA will have its own establishment date. The two of you were covered by your family HDHP plan, and eligible contributions were being made up to the family limit to your HSA. But none of that changes the establishment date of her HSA, and expenses incurred before her establishment date can't be reimbursed from her HSA. Reimbursing from your HSA and leaving hers invested is still an option though.

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Re: Reimbursing old medical bills under a "new" HSA

Post by RetiredAL » Sat Aug 01, 2020 6:45 pm

I see it as it does not matter to the family's combined wealth if say $1000 is taken from yours or $1000 from hers to pay a family medical bill.

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Sat Aug 01, 2020 7:09 pm

TropikThunder wrote:
Sat Aug 01, 2020 5:50 pm
From IRS Publication 969:
For HSA purposes, expenses incurred before you establish your HSA aren’t 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.
So your Fidelity HSA account carries the establishment date of the company-sponsored one, meaning you can reimburse qualified expenses from your Fidelity HSA that were incurred after that original company-sponsored HSA was funded.

Not quite what you asked for though. I think this part is key (but I can't find an explicit reference one way or the other):
Thank you for digging up that Pub 969 sound bite. I agree it's not an explicit reference to my situation, but it reinforces the family vs. individual ownership article BuddyJet found and convinces me that my idea is not sound.
RetiredAL wrote:
Sat Aug 01, 2020 6:45 pm
I see it as it does not matter to the family's combined wealth if say $1000 is taken from yours or $1000 from hers to pay a family medical bill.
I agree wholeheartedly, but it wouldn't be the first time rules and regulations butted heads with what makes sense to me. :)

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Re: Reimbursing old medical bills under a "new" HSA

Post by Spirit Rider » Sat Aug 01, 2020 8:28 pm

4eaxfm wrote:
Sat Aug 01, 2020 7:09 pm
TropikThunder wrote:
Sat Aug 01, 2020 5:50 pm
From IRS Publication 969:
For HSA purposes, expenses incurred before you establish your HSA aren’t qualified medical expenses. State law determines when an HSA is established.
Thank you for digging up that Pub 969 sound bite. I agree it's not an explicit reference to my situation, but it reinforces the family vs. individual ownership article BuddyJet found and convinces me that my idea is not sound.
Sure it does.

It explicitly applies to your question of whether your spouse can take tax-free distributions for expenses with dates of service prior to the establishment date of your spouse's HSA. The answer is an explicit no.

This comes from IRS notice 2004-2 Q&A 26
Q-26. What are the “qualified medical expenses” that are eligible for tax-free distributions?
A-26. The term “qualified medical expenses” are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in section 213(d)... The qualified medical expenses must be incurred only after the HSA has been established.

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Re: Reimbursing old medical bills under a "new" HSA

Post by MandyT » Mon Aug 03, 2020 8:33 pm

4eaxfm wrote:
Sat Aug 01, 2020 7:06 am
Can old medical expenses from previous years (incurred after my HSA was started, but before my spouse's HSA) be submitted for reimbursement under my spouse's HSA?
I think it has been established that the answer to this question is "no", but there might be a work-around.

My understanding is that the annual limit before catch-up contributions may be distributed between the two HSA's any way you want (though catch-up contributions must go into the HSA of the 55-or-over individual)*. Would it be useful in your situation if you paid the previous years' bills from your HSA and made the annual deposits (e.g., $7100 for 2020) into your spouse's HSA?

*Citation: IRS Publication 969 (2019), Contributions to an HSA, Rules for married people

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Mon Aug 03, 2020 9:08 pm

MandyT wrote:
Mon Aug 03, 2020 8:33 pm
I think it has been established that the answer to this question is "no", but there might be a work-around.

My understanding is that the annual limit before catch-up contributions may be distributed between the two HSA's any way you want (though catch-up contributions must go into the HSA of the 55-or-over individual)*. Would it be useful in your situation if you paid the previous years' bills from your HSA and made the annual deposits (e.g., $7100 for 2020) into your spouse's HSA?

*Citation: IRS Publication 969 (2019), Contributions to an HSA, Rules for married people
For my purposes, not so much. DW's HSA isn't great with limited investment options and monthly fees if investments are made. For that reason, I was hoping to leave my HSA fully invested with Fidelity while utilizing her HSA for reimbursements and delaying the need to cross that crappy investment bridge. What I think we'll end up doing is swallowing the trustee-to-trustee transfer fee (probably once a year) to move her funds into a Fidelity HSA of her own, then I won't care anymore about using my HSA to make reimbursements on prior year expenses.

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Re: Reimbursing old medical bills under a "new" HSA

Post by Spirit Rider » Mon Aug 03, 2020 9:21 pm

4eaxfm wrote:
Mon Aug 03, 2020 9:08 pm
What I think we'll end up doing is swallowing the trustee-to-trustee transfer fee (probably once a year) to move her funds into a Fidelity HSA of her own, then I won't care anymore about using my HSA to make reimbursements on prior year expenses.
You can do one fee-free indirect HSA rollover every twelve (12) months. Trustee -> Trustee transfers are really only necessary if you are doing more than one every twelve months.

Note: Technically, it is a twelve month elapsed period, so it is twelve months and a day. So you can't do it on the same day every year. This is the same elapsed period as IRA rollovers and long-term capital gains. Sometimes, I think the IRS just likes to mess with us for the fun of it.

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Tue Aug 04, 2020 12:30 pm

Spirit Rider wrote:
Mon Aug 03, 2020 9:21 pm
You can do one fee-free indirect HSA rollover every twelve (12) months. Trustee -> Trustee transfers are really only necessary if you are doing more than one every twelve months.

Note: Technically, it is a twelve month elapsed period, so it is twelve months and a day. So you can't do it on the same day every year. This is the same elapsed period as IRA rollovers and long-term capital gains. Sometimes, I think the IRS just likes to mess with us for the fun of it.
So this is something I've not looked into much because it seemed more complicated. What are the tax filing implications? Will indirect rollovers necessitate filing a Schedule 1?

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Re: Reimbursing old medical bills under a "new" HSA

Post by Spirit Rider » Tue Aug 04, 2020 8:51 pm

4eaxfm wrote:
Tue Aug 04, 2020 12:30 pm
What are the tax filing implications? Will indirect rollovers necessitate filing a Schedule 1?
No, HSA rollovers are reported on Form 8889 line 14b

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Re: Reimbursing old medical bills under a "new" HSA

Post by mcraepat9 » Tue Aug 04, 2020 9:37 pm

Following.
Amateur investors are not cool-headed logicians.

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Wed Aug 05, 2020 8:55 am

Spirit Rider wrote:
Tue Aug 04, 2020 8:51 pm
No, HSA rollovers are reported on Form 8889 line 14b
After doing some more research (much of it with your fingerprints on it, thank you for sharing your expertise Spirit Rider), it looks like a rollover is a viable way for us to go. Below are the steps I believe are required:
  • Establish HSA at Fidelity for DW without contributing any funds at opening
  • Withdraw funds from DW's work-sponsored HSA, same as taking a "Pay Me" reimbursement
    • With the option to receive funds either via EFT or paper check, is there a preferred method? A paper check will be slower to arrive, but maybe is more obviously for a rollover?
  • Write/Endorse check (depending on EFT vs. paper check choice above) to Fidelity and mail it in with a deposit slip (or perhaps deliver in person at local Fidelity office)
    • Check the "60-Day Rollover" box on the deposit slip, and no other boxes. It doesn't seem to specify it's for an HSA, but I suppose the account you identify for deposit makes that obvious?
    • Just to confirm, there appears to be no way to electronically deposit indirect rollover funds into a Fidelity HSA, so this must be done by paper check. Is that correct?
  • Wash, rinse, repeat every 366 days

I can't believe I'm spending this much time figuring out how to save $25 a year. Oh who am I kidding... yes I can. :)
Last edited by 4eaxfm on Wed Aug 05, 2020 9:42 am, edited 1 time in total.

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Re: Reimbursing old medical bills under a "new" HSA

Post by Spirit Rider » Wed Aug 05, 2020 9:39 am

You could call Fidelity to see if there is a way for them to do an EFT debit from another HSA account* to a Fidelity HSA account and code it as a rollover. You would want to followup and insure it was co-coded and verify.

Optionally, Fidelity will (at least they did) "pull" a "direct" rollover from another HSA account when you open an HSA account with them.
  • Some HSA custodians are far better at this than others. You might want to search the very large [Fidelity Health Savings Account Mega-Thread] on Fidelity offering retail HSA accounts for HSA custodian. They are most likely there with anecdotal reports of any problems, delays and or successes.
  • You may want to leave a certain amount in the employer's custodian HSA account. Sometimes there are fees for amounts below a certain level, a minimum amount such as $25 and there have been reports that some HSA custodians will close your account if the rollover drops the balance to $0. They don't seem to be smart enough to realize you have regular deposits going in each paycheck.
  • Another advantage to initially do it this way. It will be coded as a direct rollover, leaving the one rollover per 12 month period for an emergency or mistake.
One additional thought. You can open the Fidelity HSA ASAP and fund it with $1 to initiate the "establishment date". Then do the rollover(s) at any later time. You can then reduce the contribution to the HSA thru the employer by $1 to not exceed the contribution limit.

*The base HSA account is a checking account with an ACH routing and account number. You would have to make sure all investments are sold and in such an account for an ACH transfer.

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Wed Aug 05, 2020 9:55 am

Spirit Rider wrote:
Wed Aug 05, 2020 9:39 am
You could call Fidelity to see if there is a way for them to do an EFT debit from another HSA account* to a Fidelity HSA account and code it as a rollover. You would want to followup and insure it was co-coded and verify.

Optionally, Fidelity will (at least they did) "pull" a "direct" rollover from another HSA account when you open an HSA account with them.
Are you saying the initial moving of funds from work HSA to Fidelity HSA upon opening a Fidelity HSA is not a transfer but rather a direct rollover that does not trigger the typical transfer fee from the work HSA administrator? I wish I paid closer attention when I closed out my work HSA and established my Fidelity HSA to see if I was dinged a transfer fee. Is this standard operating procedure when establishing (and initially funding) a Fidelity HSA online, or is this a "call Fidelity" kind of thing?
  • Some HSA custodians are far better at this than others. You might want to search the very large [Fidelity Health Savings Account Mega-Thread] on Fidelity offering retail HSA accounts for HSA custodian. They are most likely there with anecdotal reports of any problems, delays and or successes.
  • You may want to leave a certain amount in the employer's custodian HSA account. Sometimes there are fees for amounts below a certain level, a minimum amount such as $25 and there have been reports that some HSA custodians will close your account if the rollover drops the balance to $0. They don't seem to be smart enough to realize you have regular deposits going in each paycheck.
  • Another advantage to initially do it this way. It will be coded as a direct rollover, leaving the one rollover per 12 month period for an emergency or mistake.
One additional thought. You can open the Fidelity HSA ASAP and fund it with $1 to initiate the "establishment date". Then do the rollover(s) at any later time. You can then reduce the contribution to the HSA thru the employer by $1 to not exceed the contribution limit.

*The base HSA account is a checking account with an ACH routing and account number. You would have to make sure all investments are sold and in such an account for an ACH transfer.
I will do some homework in the mega thread, thank you for linking.

I plan on having DW leave nominal funds in her work HSA account, for the very reasons you cited.

The $1 stake in the ground is an interesting idea, but I'm guessing that is in lieu of a direct rollover upon establishing the Fidelity HSA?

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Re: Reimbursing old medical bills under a "new" HSA

Post by Spirit Rider » Wed Aug 05, 2020 1:19 pm

While there may be other HSA custodians initiating direct rollovers upon account opening, Fidelity was the first and only custodian I am aware of. I have not done this myself. My reference is only from that MegaThread.

Even if you initiate the direct rollover by Fidelity, I would probably still put the; "$1 stake in the ground" as you called it. There have been varying reports in how long the rollovers took. With most of the delays being the fault of the source custodian.

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Re: Reimbursing old medical bills under a "new" HSA

Post by 4eaxfm » Thu Aug 06, 2020 8:14 am

I finally got through the mega thread (whew!!) and have settled on a game plan...

DW's Fidelity HSA was created yesterday with a $0.50 seed. Rather than trying to get a freebie transfer or direct rollover (in addition to the once-a-year 60-day indirect rollovers), I'm going to dive right into indirect rollovers from the get go to make sure I get things right for future tax years. A rollover-bound reimbursement from DW's work HSA was requested this morning, will mail a check and deposit slip to Fidelity after the funds hit our checking account. It would be nice if Fidelity just offered a "60 day rollover" check box for EFTs. I wonder why that isn't a thing?

This is going to be much better than what I was initially hoping to do. Relegating DW's HSA to a reimbursement account would have incentivized us to pull out the funds as soon as possible, whether we really needed the cash flow or not. I now look forward to seeing her Fidelity HSA balance eclipse mine in the future.

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