HSA Withdrawals

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  • #7584
    ReachELS
    Participant

    I have been enrolled in an HSA since 2009. My wife has been enrolled in her own HSA since 2016 (in order to maximize our contributions). We have accumulated a $125,000 balance in the account.

    My plan was to use the account for all medicare expenses when we hit age 65 (next year). I figured that we’d deplete the account within 15 years covering Part B premiums, Part B deductibles and Medi-Gap premiums (assuming the account generates a 5% annual return) .

    I just recently discovered that you cannot use HSA funds to cover Medi-Gap premiums – ouch. As a result, I now project that our estate will include a HSA balance basically unchanged from today (again assuming a 5% annual return).

    I see 3 ways to address this issue:

    1.) Upon our deaths, these funds would be distributed to our kids as taxable ordinary income.

    2.) We could take distributions for non-medical purposes after age 65…effectively treated as an IRA distribution. However, I believe that marginal tax rates will be increasing and ours will be quite high when SS kicks in @ age 70 and our IRAs @ age 72. It will certainly be higher than the kids marginal rates at that time. So, I like #1 more than #2.

    3.) A third solution relates to the existence of about $35k of medical expenses (excluding HDHP premiums) which I have funded from outside accounts since 2009. My research suggests that there is no statute of limitations on retro-actively claiming a medical reimbursement from an HSA.

    I believe, but would welcome confirmation, that even though the $35k was for expenses for both my wife and myself, I can withdraw this money today from my HSA even though my wife has her own account since 2016.

    I would appreciate any insights the board might have.

    • This topic was modified 1 week, 5 days ago by ReachELS.
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