There are no tax penalties for closing an HSA. However, if you use HSA funds for other than qualified medical expenses, those distributions will be subject to ordinary income tax, and in some cases, a 20 percent penalty.

• Your HSA funds can be used tax-free to pay for out-of-pocket qualified medical expenses, even if the expenses are not covered by your HDHP. This includes expenses incurred by your family.
• There are hundreds of qualified medical expenses, including many you might not expect: over-the-counter medications; dental visits; orthodontics; glasses; long-term care insurance premiums; cost of COBRA coverage; medical insurance premiums while receiving federal or state unemployment compensation and post age-65 premiums for coverage other than Medigap or Medicare supplemental plans.
• In addition, HSA funds may be used to pay your Medicare Parts A and B premiums and for employer-sponsored retiree plans.
• All of these expenses may be paid for with your HSA funds, free from federal taxes or state tax (for most states). Refer to IRS Publication 502 for a more complete list of qualified medical expenses.

You may withdraw the excess amount and any earnings on the excess amount prior to April 15th of the following year. However, you must pay income tax on your excess contributions and income tax on any earnings of the excess contribution. If you believe you have exceeded your allowable contribution amount, you should contact us at 855-890-7239 to help you correct the over contribution.

Once you are no longer enrolled in a qualified HDHP, you will stop being able to contribute additonal funds to your HSA. The maximum contribution to your HSA for that tax yeart would be determined by the number of months you were enrolled in the qualfied HDHP.

• To determine your pro-rated contribution amount, you would divide the full annual individual or family maximum contribution amount allowed for that tax year by 12 months You would then multiply the number of months you were enrolled in the qualified HDHP by the montly pro-rated maximum to determine you allowed maximum contribution for that tax year.
• For example: 2017 individual max $3,400 ÷ 12 months = $283.33 montly pro-rated maximum contribution. If you were enrolled in a qualified HDHP for 5 months your maximum contribution for that tax year would be 5 x $283.33 = $1,416.66.

REMEMBER: You can continue to use any remaining funds in your HSA to pay for qualified medical, dental or vision expenses tax-free even if you are not enrolled in a qualified HDHP.