HSA establishment date

[Paul der Krake]

I've had an HSA in one shape or another since July 2014. Over the years and across multiple employers and custodians, but today consolidated into HSA account #1. As far as I can tell this means that even though largely consolidated and rolled over a bunch of times, I can consider HSA account #1 to be established in July 2014.
During those years I've kept track of my expenses (while covered by a HDHP, which hasn't been every single year), and delayed reimbursing myself. The account balance in HSA #1 is about 50k, and I have about ~15k of eligible past expenses that I would now like to withdraw and move to taxable.

This week on the first payroll date of the year my employer will establish another HSA account #2, and over the next 12 months I or they will contribute the annual maximum of $7,750.

Problem: I am currently a California taxpayer and the state doesn't recognize the tax-free nature of the HSA envelope. I would prefer to avoid selling anything in HSA #1 as I would have to pay CA tax on any gains.

Question: can I withdraw an eligible expense from HSA account #2 (as 2023 contributions slowly roll in in cash) if the expense was occurred prior to the establishment of that account? In other words, can I consider my two accounts to be one and the same for the purpose of withdrawing older expenses?

[MDM]

I've had an HSA in one shape or another since July 2014. Over the years and across multiple employers and custodians, but today consolidated into HSA account #1. As far as I can tell this means that even though largely consolidated and rolled over a bunch of times, I can consider HSA account #1 to be established in July 2014.

Correct.  There may be some obscure rule about the clock restarting if the balance goes to zero for some amount of time, but that doesn't seem to apply to you.

During those years I've kept track of my expenses (while covered by a HDHP, which hasn't been every single year)

You can reimburse yourself for any post-tax medical expense, even those incurred when not covered by an HDHP, as long as the expense occurred after the HSA was originally established and you haven't been reimbursed nor used the expense for an itemized deduction.

Question: can I withdraw an eligible expense from HSA account #2 (as 2023 contributions slowly roll in in cash) if the expense was occurred prior to the establishment of that account? In other words, can I consider my two accounts to be one and the same for the purpose of withdrawing older expenses?

Yes.

[Paul der Krake]

Question: can I withdraw an eligible expense from HSA account #2 (as 2023 contributions slowly roll in in cash) if the expense was occurred prior to the establishment of that account? In other words, can I consider my two accounts to be one and the same for the purpose of withdrawing older expenses?

Yes.

Nice! Is there a general principle at play here?

I read publication 969 pretty closely and cannot find anything to disprove it, but if you have some sort of conclusive source I could document that'd be even better.

[MDM]

Nice! Is there a general principle at play here?

I read publication 969 pretty closely and cannot find anything to disprove it, but if you have some sort of conclusive source I could document that'd be even better.

See Q&A 41 in https://www.irs.gov/pub/irs-drop/n-08-59.pdf.  That's as conclusive as I could find....

[secondcor521]

Also, from a common sense perspective (dangerous, I know), you could always roll the current HSA #2 into the old existing HSA #1 and then a distribution from that for those expenses would obviously be qualified.  So it would seem reasonable to be able to skip the intervening rollover step and just pay for those same expenses from HSA#2.

[Paul der Krake]

Nice! Is there a general principle at play here?

I read publication 969 pretty closely and cannot find anything to disprove it, but if you have some sort of conclusive source I could document that'd be even better.

See Q&A 41 in https://www.irs.gov/pub/irs-drop/n-08-59.pdf.  That's as conclusive as I could find....

That is very conclusive! Thanks for the find, bookmarking.

Also, from a common sense perspective (dangerous, I know), you could always roll the current HSA #2 into the old existing HSA #1 and then a distribution from that for those expenses would obviously be qualified.  So it would seem reasonable to be able to skip the intervening rollover step and just pay for those same expenses from HSA#2.

That's how I rationalized it too, but as you pointed out, common sense can be dangerous.