I have the following scenario. I am reading through the IRS publication on HSA's.

  1. Have an HSA that was funded while I had an eligible plan and let's say it has $1000 dollars in it
  2. Change to a non HSA Health insurance plan
  3. Incur $5000 of medical expenses
  4. Keep my HSA account open
  5. Switch back to an HSA plan and fund it
  6. Use funds to pay bills from previous year

Everything I can find seems to say that as long as HSA funds are used for expenses incurred after the HSA account was initially funded it is OK. This seems too good to be true and I think I have to be missing something. Congress and the IRS generally don't leave loop holes like this.

1 Answer 1


My understanding is that it works as you describe.

Is this really a loophole? You could call it that if you want, but let's look at what really is happening. You get the tax deduction when you put money into the HSA, not when you take money out. And you can only put money in when you have the HSA-eligible High Deductible Health Plan (HDHP) in place.

While you had the non-HSA eligible plan in place (presumably a more expensive low deductible health plan), you somehow incurred $5000 of out-of-pocket expenses. This is real money that you had to pay out.

Finally, you went back to the HDHP and began contributing to the HSA again, taking the tax deduction as you put money in, subject to the contribution limits. The money that is in the HSA is yours, and you had legitimate out-of-pocket medical expenses. Are you really cheating anybody out of anything if you choose to take that money back out? I don't think so.

  • +1 Great explanation. I agree with your thought of "somehow incurred $5K" with the low deductible plan, however, just a reminder that it's possible to get stuck in the unfortunate situation where the HDHP max deductible isn't synced up with the ACA eligible plans: money.stackexchange.com/questions/67521/…
    – TTT
    Commented Feb 10, 2017 at 16:00

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