Consider an employee enrolled in an HDHP with an HSA, and an employer that makes pre-tax contributions. In addition, in later years, while still enrolled in an HDHP, the employee makes personal, post-tax contributions, and takes a deduction on his personal tax return.

Years later, while no longer enrolled in an HDHP but still owning the HSA, the employee makes post-tax contributions to the HSA but does not take a tax deduction for the contributions. Say the employee continues to make these HSA contributions, while not enrolled in an HDHP, until they reach age 65.

At age 65, they choose to take distributions from the HSA for medical or non-medical spending. At that time, how does the IRS know that contributions were made to the HSA in the past while not being enrolled in an HDHP?

  • You better hope you're never audited as that would be tax fraud/evasion but I'm not a tax pro. Perhaps there is some loophole if you don't take the deduction? – topshot Jun 5 '19 at 13:22
  • Definitely not according to the rules! But my question is how the overall system tracks this for us. – ybakos Jun 6 '19 at 15:31
  • I don't believe there is any tracking of HDHP. Form 1095B just lists the insurer and whether you were covered for the ACA. That brings up an interesting point though for those using an HSA for retirement. You might have to prove you were covered by HDHP for potentially several decades, and some insurers may not even exist anymore so better keep your policy info. – topshot Jun 6 '19 at 17:26

You are not allowed to make contributions to an HSA above your limit, whether or not you are claiming a deduction. And your contribution limit is $0 when you are not enrolled in an HDHP.

The HSA custodian (bank) reports to the IRS each year how much you have contributed to your HSA. They will certainly know that you have not claimed this (and declared your HDHP eligibility) on your tax return, so ultimately there will be large penalties for contributing to your HSA over your limits.

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