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I have lived in US for 5 years, and I (still) have an HSA account with BoA. Now I am living in Europe, and there's a fat chance I'll ever go back to live in US, so I would like to withdraw the money from my HSA, pay the due taxes, of course, and just be able to use them. How exactly I go about that?

Thanks in advance.

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As a non-resident, you need to file a form 1040NR in any year that you have a distribution (withdrawal) from your HSA.

From the Instructions for Form 1040NR, Who Must File:

You also must file a return if you received HSA, Archer MSA, or Medicare Advantage MSA distributions.

You file a form 8889 with your 1040NR, and on that form you report how much money you took out of the HSA and how much of that was used for qualified medical expenses. If these distributions are used for qualified medical expenses, even in your home country, they are tax free. Any part of the distribution that is not used for medical expenses is taxable, and you would need to send in a tax payment with your 1040NR.

If you just cash out your HSA with no medical expenses, you will pay tax on the amount plus a 20% penalty. If you have no other U.S. connected income, your tax rate will be based solely on the amount of your distribution (probably 10-15%), so you are looking at a total tax of 30-35%.

It may be worth your while to leave the HSA in place and just withdraw it as you have medical expenses. You'll need to file a tax return each year you take money out until the HSA is gone, but you won't pay any tax.

  • The 20% penalty is for the early withdrawal right? Is it possible to remain a non-US resident and non-US citizen, and withdraw the amount upon retirement with no penalty and just the tax? – sbhatla Mar 1 '17 at 16:09
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    @sbhatla The 20% penalty is if you withdraw money from your HSA before age 65 without a medical expense. Yes, you can leave the money in the HSA until retirement, and then you just pay tax on it, just like an IRA. It works the same whether or not you are a US resident, and if you are a US non-resident and non-citizen, you will only need to file a 1040NR in the years that you withdraw money from your HSA. And if you have any medical expenses before retirement, you don't need to wait until retirement; you can withdraw from the HSA tax-free, even if you are not a US resident. – Ben Miller Mar 2 '17 at 4:09
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There's no reason you can't just spend the money on qualified medical expenses in your new locale without the penalty.

If you are determined to take the money and the penalty, you can close the account and have a check sent to you by contacting the financial institution.

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