Rules on using HSA funds for legitimate medical expenses

Hi, I just want to make sure I am doing things according to IRS rules.
Have a baby on the way, and have been paying all OBGYN bills via personal credit card. Can I do that, and then at the end of the year just write a check from my HSA account to myself? (For the same amount as my bills, of course). Or should I be paying all medical bills directly from my HSA?
Thanks
Reply to
martin lynch
In fact, there is not any time limit on when the HSA distribution can be made. You could save 30 years of paid medical expenses receipts and then take a tax-free HSA distribution to cover them all at once.
Probably an unintended loophole, and not one I would necessarily recommend taking advantage of.
Reply to
Mark Bole

I wait, perhaps more than 12 months, until I have a meaningful number to transfer.
It should be noted that funds remaining in your HSA on your death are part of your estate, and taxed accordingly. So, for those with estate taxes to pay, do not think this is like an IRA which passes free of your estate.
Reply to
taxed and spent
If memory serves me, this is not a loophole. It was always congressional intent to operate in this manner. That's why there are rules for allowing tax-free distributions for prior qualified expenses when the individual becomes an ineligible person. There are even rules for allowing tax-free distributions for past expenses after the death of the owner.
Reply to
Alan

Just to be clear, an IRA does not pass free of your estate with regard to estate taxes. It passes free of probate (assuming you have appropriate beneficiaries designated), but the value of your retirement accounts are included in your estate for estate tax purposes.
Ira Smilovitz
Reply to
ira smilovitz
IRAs are included in the gross estate. I don't know why you would think that you get a free ride on this. The IRA passes outside of probate when there is a named beneficiary but not outside of the estate.
Reply to
Alan
So IRAs get taxed as part of the estate, and then it is ALSO subject to tax as it is distributed from the IRA to the named heirs? That doesn't seem right (although this is taxes we are talking about).
========================================= MODERATOR'S COMMENT: Yes, and IRA would be subject to both income and estate tax.
Reply to
taxed and spent
I just checked this out, and you guys are right. Dying with an IRA, if you are subject to estate taxes, is a total gyp. No "stepped up basis". It never ends.
Reply to
taxed and spent
The R in IRA is for Retirement. It's intended to pay for your expenses after you retire, not to be yet another loophole to pass assets to one's heirs.
Given that the estate tax is $0 on estates under $5 million, or $10 million if you're married and do minimal estate planning, some of us have limited sympathy for multimillionaires complaining that their estates will have to pay tax after they die. If you don't want your IRA to be taxed in your estate, spend it down while you and your spouse are alive.
Reply to
John Levine
....but... the beneficiary of the IRA might be allowed an IRD income tax deduction in the year that there is a taxable IRA distribution if estate taxes were paid.
Reply to
Alan
IRAs are included in the gross estate. I don't know why you would think that you get a free ride on this. The IRA passes outside of probate when there is a named beneficiary but not outside of the estate. =============== Note: I seem to remember some [repealed] pre-1987 rule that indicated that $100k of an IRA was exempt from estate tax. (Repealed by Pub. L. 98?369 from former 26 U.S.C. 2039(g))
The HSA may be fully estate-taxable, but isn't there a reduction for income tax? All expenses that can be reimbursed (and for 1 year following death) lower the amount of the distribution that is recognized as income by non-spouse beneficiaries (other than the estate itself, which gets no reduction).
Reply to
D. Stussy
So IRAs get taxed as part of the estate, and then it is ALSO subject to tax as it is distributed from the IRA to the named heirs? That doesn't seem right (although this is taxes we are talking about).
============= MODERATOR'S COMMENT: Yes, and IRA would be subject to both income and estate tax. ============ ...And will also yield an estate tax deduction for income with respect to a decedent.
"Fair" is a 4-letter word starting with an F. ;-)
Reply to
D. Stussy
If you are inclined to make post-death contributions to charity, you may want to make the charity a beneficiary of the IRA. That way both Income and Estate taxes are avoided.
Reply to
BignTall
This is a nice explanation:
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Citations: IRC Section 691(c); Reg. Sec. 1.691(c)-1 and IRC 67(b)(7) where it states that the deduction is not subject to the 2% AGI limitation on Schedule A.
Reply to
Alan
This from;
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Q-39. When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year?
A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur...snip
The idea of using an HSA as an super investment account is getting heralded on several investing forums. Max out your HSA every year, invest it in the total stock market index, pay all healthcare related costs from regular income and save all RECEIPTS. During retirement, pull out $20k of income and pull out a corresponding $20K of receipts from two decades ago to match. All the deposits and growth are tax free. Mikek
Reply to
amdx
Also keep in mind that once you attain age 65 premiums for Medicare Part A or B or D, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses.
Reply to
Alan

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