HSA withdrawal question

[Omy]

An old HSA account of mine was surrendered to the state late last year (just received the unclaimed property notice this week). Is there any way to avoid the withdrawal penalty since I don't have enough medical expenses to justify the withdrawal?

[bacchi]

Tricky. Is it worth it to ask a CPA?

[erutio]

Do you have a current HSA?  You can roll it over without incurring expense.  Unless you've changed states, then you may have to pay state tax in the old state and get to use it as a state tax deduction for the new state.

[bacchi]

Yeah, I'd probably treat it as a rollover. You can do 1 a year.

[Omy]

I will look into rolling it over. I just read that COBRA premiums count as a reimbursable medical expense and I paid plenty in 2020, so that might allow me to avoid paying tax and penalty....

[terran]

Do you have a current HSA?  You can roll it over without incurring expense.  Unless you've changed states, then you may have to pay state tax in the old state and get to use it as a state tax deduction for the new state.

You'd need to do that with 60 days of distribution unless there's some special rule for surrendered property, which seems unlikely.

I will look into rolling it over. I just read that COBRA premiums count as a reimbursable medical expense and I paid plenty in 2020, so that might allow me to avoid paying tax and penalty....

This is probably your best shot at no paying tax/penalty. Any other medical expenses you can dig up documentation/receipts for since you opened the account that you haven't already reimbursed yourself for would also work.

[Omy]

Thanks everyone. I think the COBRA thing makes the most sense. I mistakenly thought it could only be used to reimburse medical expenses incurred in 2020 (and I had no idea COBRA payments were eligible expenses). Going forward it's great to know it could be used for ANY eligible medical expenses since I opened the HSA. I have always just left the HSA alone to have around for some future health issue. Which is probably why the account was surrendered...

[Omy]

Quick follow up question:

Assuming I use the HSA distribution for an eligible medical expense such as COBRA, will this HSA distribution count towards my MAGI which is used to determine my ACA subsidy? I'm pretty sure the answer is no, but I'd love to hear from peeps who understand this better than I do. Thanks!

[MDM]

Quick follow up question:

Assuming I use the HSA distribution for an eligible medical expense such as COBRA, will this HSA distribution count towards my MAGI which is used to determine my ACA subsidy?

No.

See MAGI for Affordable Care Act purposes.

[Omy]

Thanks!