Two HSAs - reimbursement question

Forum|Forum|7 years ago
July 27, 2019
11 replies
91 views

I have an HSA (HSA #1) established and funded starting in 2015. It has $5,000 in it that has accumulated from 2015 to 2018. I lost HDHP coverage through employer in 2018 and did not have HDHP insurance for 9 months. So no HSA contributions. No reimbursements made since January 2018.

I gained another HDHP coverage through employer recently and established another HSA (HSA #2). There have been a few months worth of payroll deductions and it now has $800. Expected to be $2,000 at year end. Residency state is NC, if that matters.

I have some Qualified Medical Expenses (QME) from January 2018 through today worth $2,000, of which $600 were incurred after HSA #2 was established and funded.

HSA #1 is great (stock investment, no fees, etc.); HSA #2 is not good (monthly fees, no interest, no investment options). I will close HSA #2 as soon as I switch to non-HDHP plan next year. This will incur transfer fees unless I zero out the balance and close the account.

Question: Can I reimburse from HSA #2 all of the $2,000 of QME without having to pay a penalty on my taxes? (HSA established/funded issue.)

Best answer by dmertz

Yes, you can reimburse your qualified medical expenses incurred in 2018 (if fact, any incurred after the establishment of HSA #1) from either of the HSA accounts without doing any rollovers or transfers. Since you had an nonzero HSA balance at some point in the 18-month period prior to opening HSA #2 (you apparently never had a nonzero balance in HSA #1), your HSA establishment date of HSA #1 carries over to HSA #2. See IRS Notice 2008-29 Q&A-41:

https://www.irs.gov/pub/irs-drop/n-08-59.pdf

Critter

Level 15

This doesn't seem possible unless you roll the funds from the first HSA to the new one ...

From the IRS :
For HSA purposes, expenses incurred before you establish your HSA aren’t 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.

https://www.irs.gov/pub/irs-pdf/p969.pdf

TaxNewbie3Author

Level 2

Thank you! This is very helpful!

Would my HSA established date for HSA #2 be considered as 2015, if I roll over $1 from HSA #1 to HSA #2? (There is no charge on HSA #1 to rollover -- full or partial rollover.)

Current residency is NC, although HSA #1 was established and last funded in KY, before moving to NC.