Withdrawing qualified HSA expenses many years later, to earn interest?

Question

Say I have $2000 in my HSA account and have a $1000 medical bill in 2012. If I were to pay the $1000 bill out of pocket and let that $1k left earn interest in my HSA for a significant amount of time (say 10 or 20 years), would I then be able to withdraw the original $1000? Or does a medical expense have to be reimbursed in the year the expense occurred? If I can do it years later, what proof would I need to show?

It seems I could be getting tax-free interest by leaving the $1k in the HSA. However, I'm having a hard time getting a specific answer to this. If anyone knows where to point me to something concrete, I would really appreciate it.

Answer 1

An article at HSA Benefit Consulting suggests no time limit for withdrawals.

Answer 2

I realize this is an old question, but it is a great question, as many people don't realize the hidden benefits of the HSA. If you are eligible for an HSA, it is important to open an account before you have any medical expenses (including dental). Once the account is open every valid medical expense you incur after that (not premiums though) is eligible to be reimbursed, and at any time. The HSA is theoretically like taking the best of the Traditional and Roth IRAs and combining them: you get pre-tax contributions like a Traditional IRA, but also tax free growth and distributions like a Roth IRA. (But only if you use the distributions for qualified medical and dental expenses.) And if somehow you manage to make it to age 65 and have much more money in your HSA than you have qualified expenses for, you can take out the excess in distributions and only pay tax on the earnings the same way you would with a traditional IRA. Really the only downside is having to save decades of receipts!

Update: Here is the IRS confirmation of allowed "delayed distributions":

Q-39. When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year?

A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur. However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year. See Notice 2004-2, Q&A 31 and also Notice 2004-25, for transition relief in calendar year 2004 for reimbursement of medical expenses incurred before opening an HSA.

Answer 3

Form 8889 is used to document HSA distributions. It boils down to, "1) How much did you withdraw? 2) What were your medical expenses? 3) If (1) > (2), give us money."

HSA distributions must be for "qualified medical expenses", defined as "unreimbursed medical expenses that could otherwise be deducted on Schedule A (Form 1040)". From here (PDF). You certainly couldn't deduct 2014 medical expenses on your Schedule A in 2033, so I doubt you could count them as 'qualified' for HSA purposes either.