HSA Cash Out

[Joe P]

I have an HSA (Health Savings Account) that I grew years ago when I was married. My ex, or "wife at the time", was considering getting some disks in her back fused. She had the pads removed while we were dating. Our company would only pay 20% of that surgery, so I dumped the maximum amount I could into the HSA.

It got up to 15 grand, well covering the surgery cost to us of 10 grand.

I got laid off, and transferred that HSA to a bank that offered it.

Now I work at another company, and I have transferred that HSA over here so that I do not pay annual maintenance fees. It is also invested in a slow moving fund. It is at 20 grand, the last time I looked.

I have been talking to a new company about starting with them, but they do not offer the HSA option. I rarely get sick, so I'm thinking about cashing it out.

I know there are penalties for doing this, but I do not know how much.

I also know that this will likely add 20 grand to my Gross Income, as reported to the IRS, which will likely put me into a higher tax bracket.

What I would like to know is how can I get this HSA cashed out with the lowest fees and without going into a higher tax bracket?

 

[Senorman]

What I would like to know is how can I get this HSA cashed out with the lowest fees and without going into a higher tax bracket?

Not possible.

The $20k will be added to your adjusted gross income and therefore place you in a higher tax bracket. In addition, you will incur a 20% penalty on the $20k distribution. This will turn your $20k into around $10k (more or less, dependent on your tax bracket).

Hesre's what I'd do: Keep the HSA in place. Take distributions each year that equal your qualified medical expenses. These distributions will not be taxable.

 

[Joe P]

My last medical expense was in 1999 when I had a hernia surgery.

I never get sick (knock on wood).

 

[Senorman]

My last medical expense was in 1999 when I had a hernia surgery.

I never get sick (knock on wood).

Don’t worry, you’ll have surgeries sooner or later if you are a lifter and/or athlete.

 

[legendary]

Sit on it. Your not getting any younger. You'll eventually need it.

 

[Dr JIM]

Not possible.

The $20k will be added to your adjusted gross income and therefore place you in a higher tax bracket. In addition, you will incur a 20% penalty on the $20k distribution. This will turn your $20k into around $10k (more or less, dependent on your tax bracket).

Hesre's what I'd do: Keep the HSA in place. Take distributions each year that equal your qualified medical expenses. These distributions will not be taxable.

Agreed there’s no tax on HSA distributions when they involve
HEALTH CARE.

However since HSA
funds are transferable with few limitations these funds (exclusive of the premium) can be removed “tax free” for prior OOP Heath Care expenses.

So whatever amount you previously paid OOP forwards the deductible, prescription drugs, labs, out patient services, office visits etc can now be removed TAX FREE.

At least that’s my understanding and is one of several reasons why I have an HSA. To that end it’s best you contact your accountant to ensure you or “your HSA meets qualifying criteria”.

 

[legendary]

Agreed there’s no tax on HSA distributions when they involve
HEALTH CARE.

However since HSA
funds are transferable with few limitations these funds (exclusive of the premium) can be removed “tax free” for prior OOP Heath Care expenses.

So whatever amount you paid OOP forwards the deductible, prescription drugs, labs, out patient services, office visits can now be removed TAX FREE.

You can even use it at HRT clinics.

 

[Dr JIM]

FYI

Bc HSAs legislation was primarily intended for those with a high deductible HMO affiliate plans,
it’s quite likely the penalty and tax will far exceed the “benefit”
if you now have a PPO plan.

Oh and when our politicians scribed HIGH deductible they we’re not joking bc at present the minimal deductible requirement sits at around $2500.00 per person annually.

Once again in spite of the fact almost all HMO PREMIUMS equal or exceed that of deductibles, the former are specifically excluded as an HSA expenditure.

If you know have an employer funded PPO plan, from a financial perspective it’s best to leave it be and await a time when your OOP HCC are higher
or remove it in a more incremental basis.

Either way you will likely have to pay a penalty if the funds are not used for “health care”.

The latter penalty depends upon what your HSA institution required as “proof” the funds are being removed for qualified health care expenditures.

AND the letter can vary widely from one institution to the next, less we forget those institutions
are profiting from YOUR money remaining in their vault!

Oh I know the IRS, has better things to do than verify whether a few thousand dollars as an annual disbursement qualifies IMO.

Jim

 

[Senorman]

Either way you will likely have to pay a penalty if the funds are not used for “health care”.

The latter penalty depends upon what your HSA institution required as “proof” the funds are being removed for qualified health care expenditures.

AND the letter can vary widely from one institution to the next, less we forget those institutions
are profiting from YOUR money remaining in their vault!

Oh I know the IRS, has better things to do than verify whether a few thousand dollars as an annual disbursement qualifies IMO.

Jim

The 3rd party that administers your HSA does not typically (never in my experience nor of any of my clients) request proof that you have sufficient qualified medical expenses to cover the HSA distributions. Under audit (highly unlikely) the IRS would request proof of qualified medical expenses to the extent of the HSA distributions.

 

[Joe P]

Back in August, I had blood work done at my annual physical to check my Testosterone levels. That was not covered by my medical plan, so I tried paying for it with my HSA. My plan told me it was not a covered cost. Kind of pissed me off that I could not take my own damn money and pay for something. I really didn't give a fook that it wasn't covered under their policy. It was my HSA.

 

[ickyrica]

Oh and when our politicians scribed HIGH deductible they we’re not joking bc at present the minimal deductible requirement sits at around $2500.00 per person annually

BCBS of Mass has my deductible at 3500 single/6500 Family. HSA contributions are awesome, especially with an employer that pays into it.

 

[legendary]

Back in August, I had blood work done at my annual physical to check my Testosterone levels. That was not covered by my medical plan, so I tried paying for it with my HSA. My plan told me it was not a covered cost. Kind of pissed me off that I could not take my own damn money and pay for something. I really didn't give a fook that it wasn't covered under their policy. It was my HSA.

I have a debit card linked to my account. I use it for bloods at webmd,hrt, script,otc meds, ect anything medical related