What Can Hsa Money Be Used For

Q. Can I use an HSA reimbursement from the current year for outstanding bills from the previous year's expenses?

I had medical bills from last year that I could not cover with the funds in my HSA account. Can I use an HSA reimbursement from contributions I made to my HSA account this year to pay my outstanding bills?

A. Great question about an HSA reimbursement! In order for a medical expense to be eligible for reimbursement from a Health Savings Account (HSA), the expense must have been incurred after the opening of your HSA account. So, for example, suppose you opened an HSA account on 1/1/2018 and funded it with $100. Later in 2018, you incurred an eligible medical expense of $1,000, but you paid it with funds outside the HSA. In January 2019, you contributed $2,000 to your HSA account, bringing the account balance to $2,100. Then you request an HSA reimbursement for the $1,000 incurred in 2018. This would be allowed!

The date the HSA was opened matters!

Instead, assume that your first deposit into the HSA was in January 2019 for $2,000. The 2018 expense for $1,000 could not be reimbursed as it was incurred prior to the opening of the HSA.

It's a very common strategy – I do this myself – to save your eligible medical expense receipts for an HSA reimbursement some time in the future. In the meantime, my HSA is invested in low-cost index funds.

Tax Benefits of HSA's

Here's what's great about HSA's: The contribution to the HSA is deductible in the year of contribution. The growth within the HSA account (from the index funds) is not taxed as it grows. Then, when I finally reimburse myself 10, 20 or 30 years into the future, the withdrawal is 100% tax-free (assuming the withdrawal was reimbursement for qualified medical expenses, or for other approved items like Medicare premiums!). That makes HSA's triple tax preferenced……and it is the only type of account with all three!

The IRS has a publication (Publication 969) that has additional information about an HSA reimbursement or feel free to contact me with any additional questions.

Other related posts on 60 Minute Finance:

Financial Survival During COVID-19
Can I use my HSA account to pay long term care insurance premiums?
How can I reduce my taxable income?

John Madison is author of "The Steward Plan," a Certified Public Accountant, and founder of Dayspring Financial Ministry. He earned a Master's Degree in Personal Financial Planning (MSPFP), the MPAS (Master Planner Advanced Studies), CRPC (Chartered Retirement Planning Counselor) and AWMA (Accredited Wealth Management Advisor) designations. He has been featured in the New York Post, Forbes, Fox Business, Crosswalk, The Christian Post, Charisma Leader, Chicago Tribune, U.S. News and World Report, AARP.com, Bankrate.com, CNBC.com, among many other media outlets. For more information, visit http://www.dayspringfm.com .