Additionally, an HSA offers the following advantages:
- Contributions are free of income tax
- Earnings grow tax-free
- Qualifying distributions are tax-free
Despite these obvious perks, an HSA is not for everyone. For example, if a person has a chronic health condition, takes regular medications or is already well into their later years, such an account is unlikely to make good financial sense.
What happens if you move out of the US?
The tax treatment of HSA distributions depends not on the account holder’s country of residence or non-resident alien status, but on how the money is spent—i.e. whether the HSA distributions meet the criteria for “qualified medical expenses”. That said, using HSA funds for qualified medical expenses while outside of the United States can be a complex process and few account holders choose this path.
A greater proportion of expatriates may be tempted to withdraw their HSA as a cash lump sum when they move abroad. In such cases, the account is added to the owner’s taxable income and a penalty tax incurred at the time of distribution; in short it is taxed as if the owner is a non-resident alien, even if they are a citizen.
Furthermore, it is worth bearing in mind that although the original contribution will be treated as US-sourced income, in a minority of cases, some investment returns may be treated as non-US-sourced income and taxed accordingly.
Lastly, expatriates are unlikely to be able to make further contributions to their HSA while they are outside of the United States, because unless they maintain a US health insurance plan they will not meet the qualifying criteria.
Blacktower (US) LLC
Blacktower in the US marries a British approach with in-depth technical and practical understanding of financial and retirement planning in the US.
Whatever your nationality, if you have cross-border financial concerns, we can help you protect and grow your wealth while all the time keeping an eye on your long-term retirement and inheritance planning goals.
For more information about how we may be able to help you make important financial decisions, including what you might be able to do with your HSA on expatriation, contact us today.
* https://www.ebri.org/health/hsa-database/content/health-savings-account-balances-contributions-distributions-and-other-vital-statistics-2017-statistics-from-the-ebri-hsa-database Accessed 14/06/19
Disclaimer: Blacktower (US) LLC is not a tax adviser and independent tax advice should be sought. The above does not constitute advice.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.