HSA Investors Face 20% IRS Penalties Over Decades-Old Receipts as Assets Reach $174 Billion
Updated
Updated · Benzinga · May 15
HSA Investors Face 20% IRS Penalties Over Decades-Old Receipts as Assets Reach $174 Billion
1 articles · Updated · Benzinga · May 15
Financial planners say the popular HSA tactic of paying medical bills out of pocket and reimbursing yourself years later can backfire if investors cannot produce old receipts during an IRS audit.
A missing or illegible receipt can cause the withdrawal to be reclassified as taxable income and hit with a 20% penalty, while the IRS audit clock starts when reimbursement is taken—not when the expense occurred.
A 30-year-old who waits until age 60 to reimburse an expense may need to keep the original documentation for at least 33 years; suspected substantial errors or fraud can extend audits to six years or indefinitely.
More than 4 million people held HSA balances above $10,000 in 2025, and total HSA assets climbed to $174 billion from $30 billion a decade earlier, with about $85 billion invested in markets.
Advisers recommend scanning bills, receipts and insurance statements into backed-up digital files; for investors unwilling to maintain records for decades, some planners say it is safer to use HSA funds as expenses arise.
Is your HSA's tax-free growth worth the risk of a decades-long IRS paper trail and steep penalties?
Financial planners warn of an HSA 'paperwork nightmare.' Can new technology defuse this ticking time bomb before the IRS investigates?