Reimbursing old medical bills under a "new" HSA

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Topic Author
4eaxfm
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Joined: Tue Jul 14, 2020 8:20 am

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.

Topic Author
4eaxfm
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Joined: Tue Jul 14, 2020 8:20 am

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!

TropikThunder
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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.

RetiredAL
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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.

Topic Author
4eaxfm
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Joined: Tue Jul 14, 2020 8:20 am

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. :)

Spirit Rider
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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.

MandyT
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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

Topic Author
4eaxfm
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Joined: Tue Jul 14, 2020 8:20 am

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.

Spirit Rider
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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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