HSA

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Are there any tax benefits to keeping an HSA active after its funds are depleted?

Opus 17Answer

Level 15

Since this is a special retirement forum, I should add that the only point in keeping an HSA open with no funds is if you expect that sometime in the future, you will be enrolled in an eligible HDHP and be able to make new contributions. If you are covered by Medicare, you will never again be eligible to make new contributions, so you might as well close the account once it's spent out.

Opus 17

Level 15

Yes. You can reimburse medical expenses from the HSA that were incurred after the account was open. Suppose you opened the account in 2019, and you have no funds as of 2021. You deposit new funds in 2022. If you had medical expenses in 2021, you could take that 2022 money right back out tax-free to reimburse yourself. If you closed the account and opened it again in 2022, you could not do that.

Of course, your HSA bank may not want to keep an account open with no funds. You may need to leave a small balance. (After I quit my first employer, the HSA charged me $3 a month to keep the account open. Since I am not eligible to make new tax deductible contributions, I would need to leave a couple hundred dollars in the account to pay the fee, if I wanted to keep it open.)