HSA Non Spouse Beneficiary One Year Rule Pub 969

[James217]

Situation: My parent’s died in Dec 2023 and I am the beneficiary of my parents HSA (I am a non-spouse beneficiary). Pub 969 page 10, death of HSA holder states: “The amount taxable to a beneficiary (me) is reduced by any qualified medical expenses for the decedent that ae paid by the beneficiary within 1 year after the date of death. My parents left a shoe box full of qualified medical expenses from 2012 to 2023 (I reviewed and confirmed they meet the medical expense requirements) and a instructions on how to proceed upon their death. In their lifetime they filed zero request for reimbursement from their HSA per review of their tax returns. Their instructions to me are as follows: “The law allows me to withdraw funds tax free up to one year after their death for qualified medical expenses that weren’t reimbursed during their lifetime”. 

Question: Are my parents correct, i.e., Can I withdraw the funds tax free if I submit a reimbursement request before Dec 2024 (before the 1 year time limit)? Or as I read Pub 969: “I” the beneficiary did not pay the expense, therefore the shoebox of receipts do not qualify as a tax free distribution to me.

Your thoughts? There is over 50K in qualified medical expense. 

[dev145]

Hi,

Your parent's were correct. Generally FMV of HSA becomes taxable income to non spouse beneficiary. But it can be reduce by medical expenses paid within one year.  Please remember that only expenses that were incurred after HSA account was open can be claimed. 

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[James217]

Thanks. Yes my parent's medical expense were incurred after they opened the HSA in 2013 and meet all the IRS requirements for Medical Expense related to HSA per my review of the documentation. 

[dev145]

Thanks for additional info. You should be able to exclude payments and any remaining amount will be added as income on your return. 

Thanks for participating in TurboTax's Ask the Expert event today. I hope this information was helpful!