I did for a few years after 2012, which is when the contributions happened. Then I did not. I stopped making contributions, but kept tracking expenses (though generally did not make withdrawals).
I think itâs account specific at least in the reporting. The specific HSA provider will send a 1099-SA to the IRS for the distributions made from their account. If taking a distribution from HSA2 for a 2022 medical expense, I donât think itâll be considered a qualified medical expense in an audit, at least not unless you rollover HSA1 into HSA2.
IRS pub 969 states: âFor HSA purposes, expenses incurred before you establish your HSA arenât 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.â
So if you rolled over HSA1 to HSA2, thatâd mean HSA2 would be considered established when HSA1 was (2012) and distribution would be for a qualified expense.
Itâs not very clear to me from the IRS language what would happen if you rolled over a more recent HSA (HSA2-2024) to an older one (HSA1-2012) but I hope it would not mean HSA1 would afterwards be considered established in 2024 instead of 2012.
Plus, if youâre still contributing to HSA2, Iâm also not sure you can do the rollover from HSA2 to HSA1. Typically a HSA provider you tell to rollover from expects you to close the account, not do a sort of in-service rollover. So Iâd verify with them whether that option is at all available first.
Personally, Iâd not invite an audit. Iâd first reimburse the expense from HSA1, then do a rollover from HSA2 if needed/possible (and if I was sure that was not changing the established date of HSA1 to 2024). That way thereâd be no doubt the 2022 expense was reimbursed with 2012-2014 contributions (and gains), and not 2024 contributions.
2 Likes
But it also kind of implies that only the funds rolled over can be used to cover the older expenses, not the ânew moneyâ.
1 Like
Thank you for the insight. I decided it was worth the time to research further. I found this: https://www.irs.gov/pub/irs-drop/n-08-59.pdf
Q41:
Q-41. On what date is an HSA established if the account beneficiary had
previously established an HSA?
A-41. If an account beneficiary establishes an HSA, and later establishes
another HSA, any later HSA is deemed to be established when the first HSA was
established if the account beneficiary has an HSA with a balance greater than zero at
any time during the 18-month period ending on the date the later HSA is established.
Example 1. An account beneficiary established an HSA on March 1, 2007. On
June 15, 2007, he withdrew all the funds from the HSA, resulting in a zero balance. On
November 21, 2008, he established a second HSA.
Because the second HSA was established within 18 months of June 15, 2007,
the second HSA is deemed to be established on March 1, 2007.
Seems pretty straightforward based on that guidance. Since there is still money in HSA1, then the establishment date for HSA2 gets backdated to when I opened HSA1.
3 Likes
Great job tracking that down. Itâs interesting that the answer to established date for rollovers was included in the publication itself but not the answer to Q41 that you quoted. Pretty important nuance.
I could even see an interesting career strategy. Establish an HSA balance early and never zero it (can roll it over if needed to get it to a better provider). Then it doesnât matter what healthcare plan you have for years, all non-reimbursed expenses from the date you establish the first HSA are qualified expenses, even if the balance at the time was insufficient to cover them.
A decade or two later, you could sign up again for HDHP+HSA and youâd know how much qualified expenses youâve essentially âbankedâ ready to be reimbursed and can make contributions accordingly.
3 Likes
What got me thinking about this strategy of contributing to an HSA and keeping its balance low is because we cover one of our adult children under our family HDHP and they can also contribute the full $8300 to their own HSA. Now they may not have the earnings to invest the full amount but your 18-yr old in college kid covered by your HDHP can still put a minimal amount of money towards their first HSA.
Then theyâre basically covered for their entire career as long as they donât zero that first HSA. Seemed very advantageous for our situation.
1 Like
It does seem so. If you have confidence in that interpretation, you can open a Fidelity HSA and move HSA1 to Fidelity, and periodically (at least once per year) move the balance of HSA2 to your Fidelity account. Thus, you will always have an HSA account that 's funded.
Isnt a big part of the HSA benefit letting the account balance grow while delaying reimbursement?
1 Like
Thatâs the idea for me too. Very similar in my planning to a Roth IRA.
But that doesnât preclude giving myself the option to withdraw any qualified medical expenses (even those during years I wasnât contributing to an HSA). That could help later on accelerating distributions if I need to.
One case would be if youâre terminally-ill say. You have 6-month to live and you have a large HSA balance (larger than youâll go through in your last months). At that point, youâre looking at the HSA balance being distributed to the estate as ordinary income.
Or, in retirement, say I want to fund $73k of annual expenses including $10k of medical expenses, but at the same time accelerate Roth conversions to avoid RMDs/IRMAA. I can take $10k of HSA distributions, plus $63k of Trad IRA distributions (for the rest of my expenses), and convert $60k extra to my Roth to stay in the 12% tax bracket. Or I may want to distribute $73k from my HSA using all the qualified expenses I can claim, then and do the full $123k of Roth conversion while staying in the 12% tax bracket.
I understand that. I was referring to setting up a token account with a minimal contribution when young, so that when old, you can make contributions to match reimbursable expenses from when you were young. Maximizing contributions when young is where most of the HSA benefit comes from. You should maximize contributions when young, whenever you are eligible.
1 Like
Agree with that unless you have very low tax liability. Contribute to HSA up to tax liability, then Roth IRA contributions are better. Then, if able, finish maxing out HSA contributions.
1 Like
HSA and IRA contributions are separate buckets, so I consider them independent choices. Choosing between Roth and Traditional IRA contributions would be more applicable, since both are filled from the same bucket.
Having the funds to be able to fill both the HSA and IRA buckets is different question entirely, unrelated to if you should make the contribution.
Just sayinâ, when I comment about HSA contributions, itâs with the premise of either making the contribution or not. 
I donât know if thatâs totally unrelated for me. Because, in my financial plan, HSAs and IRAs serve the same general purpose of being tax-advantaged retirement savings, if I were not maxing both, Iâd probably not consider the choice of investing in one or the other as independent choices.
Say, if I had only $6k available for saving (which is less than what itâd take to max out both account types), then I would ask myself where it is best to invest the $6k in.
Or flipping that situation around, if the maximum contributions to HSAs and IRAs were $1M/yr each, would you still consider them independent choices?
1 Like
Is there a separate thread for hsa apys? Sorry for replying but I cannot find where to post new.
Yes, each one is either worth contributing to, or it isnt. What your talking about isnt the merits of each account type, youâre talking about how those merits relate to your individual circumstances. This, itâs a different question than why youâd contribute to a certain type of account.
Probably posting them here would be best.
1 Like