Hsa

[Bill Tubbs]

Client has been self-employed and has a high-deductible health plan; so he qualified and funded an HSA with a current balance near $5,000. Taxpayer started a W-2 job so will be getting medical insurance from employer (a non-HDHP), making him ineligible to further fund the HSA. What happens to his HSA? Is he still able to maintain the account and get withdrawls from it (as he occurs unreimbursed medical expense) -- just that he cannot add more money into it?

Bill

[newbie]

That is correct, he can maintain the account and pay for unreimbursed medical expenses, which includes dental, optical, chiropractic or any other medical that he might not have insurance for. Or he can wait until after 59 1/2 he can withdraw without penalty. He might want to check with the plan administrator to see if there are any fees for holding the account without making contributions or holding a minimum balance. He may want to check at a local bank and have the funds direct transferred into something that will not "eat" up his money.

[Bees Knees]

That is correct, he can maintain the account and pay for unreimbursed medical expenses, which includes dental, optical, chiropractic or any other medical that he might not have insurance for. Or he can wait until after 59 1/2 he can withdraw without penalty.

TTB, page 13-30:

Distributions. The following rules apply to distributions from
HSAs:
• Distributions used to pay for or be reimbursed for qualified
medical expenses not covered by insurance are tax-free. Distributions
for any other purpose are taxable and subject to an additional
10% penalty. Exception: The 10% penalty does not apply
to distributions after reaching age 65, or death.
• Distributions used to pay for medical expenses that were incurred
prior to establishing the HSA are taxable.
• Qualified medical expenses are those that would otherwise
be deductible as itemized deductions, plus non-prescription
drugs.
• Qualified medical expenses do not include the insurance premiums
for the high deductible health plan. However, insurance
premiums for long-term care (subject to limits) and health
coverage while unemployed qualify. Also, if over age 65, health
insurance premiums (other than Medicare and Medigap) are
qualified medical expenses for HSA purposes.

[newbie]

My bad! Thanks for pointing this out. I was thinking IRA rules.