I have reflected on this for several days, as I am concerned that such devices would just appear to be a way to avoid taxes in California (which it is, of course). But then I see this in the CA instructions: "Health Savings Account (HSA) Distributions – If you received a tax-free HSA distribution for qualified medical expenses, enter the qualified expenses paid that exceed 7.5% of federal AGI on line 4, column C."
Clearly, the rules for an HSA allow for you to reimburse yourself for medical expenses from years before, so either the author of these instructions does not know this or does not care.
If you take this course, I would suggest that you document why you are taking a large HSA distribution to pay for prior year medical expenses, for example, to minimize service fees by the HSA custodian or because you have had a lot of expenses pile up.
Alternatively, there may be a court case on this subject, but I don't have the means to research this.
You might try sending this question to the CA Franchise Tax Board, I would do it by email, if possible, because no one is going to have the answer off the top of their head.
Good luck!
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