HSA Investment Account transfers

Question

Hi - I have Quicken Premiere for Windows, latest version as of 3/9/2024. I created a savings account for my HSA and a companion investment account for my HSA investment portion. HERE'S MY PROBLEM: I noticed that when the account automatically sells shares and transfers the cash the to the savings acct to maintain the $1000 cash balance whenever I make medical expenditures, Quicken displays this transfer as income in my Income/Expense by Category report… I don't think this is correct, as this is just a transfer of cash between my accounts. Do I need to set up something extra to offset this of is this a bug in Quicken? To clarify, the amount reported in the report is not a capital gain/loss, it is for the total amount of the transfer, so this report is incorrectly inflating my income.

Mark1104 · Answer

@criskolo - not following how you are doing the accounting, but I would do it this way:

you want to record the medical expense as an expenditure (which would be reflected as an expense) and then you sell some of the HSA investments which is recorded as "income".  The net effect is zero.   Let's say the medical expenditure is $250 and that gets recorded as an exepnse.  Then, $250 of the HSA investment is sold and then DISTRIBUTED.  That distribution is recorded as "income".  (the HSA should be set up as a pre-tax account and sales within that vehicle is not reported income - similar to an IRA. )

Alternatively, record the medical expenditure within the HSA account which would be an expense and then when you sell the HSA investment, the "category" is that same HSA account.  You are reducing the HSA balance by the amount of the medical expenditure so that there is an expense but no income.

Criskolo · Answer

I JUST learned that this week!! That is why I am paying so much attention to it in quicken!! Thanks for that!

regarding your answer, I think that’s not correct, because, I do want my medical expenditure to record as such, it should not be zero. If went to the dentist, it want the report to say I spent x on dentist, and when I pay for that dentist from the investment acct, it should not be income, it’s money saved that came from my paycheck in the past and was income back then.

Mark1104 · Answer

if you are recording the medical expenditure as an expense, then it would be correct to report the money from the investment as income - so everything nets to zero.

if you are not recording the medical expenditure, that is the flaw.

and by the way…..one of the 'wonders' of the HSA is that it is NOT a 'use it and lose it' account.  if you can swing the cash flow, best NOT to tap the HSA until you retire and THEN use all that appreciation to fund medical expenses (including Medicare premiums) late in life.  HSAs are very different and more effective tax tools than an FSA.

Alternatively, you can just put the medical expenditures in a shoe box and wait years and years to withdraw money from the HSA using those medical receipts from prior years to tap the account.  There is no rule that 2024 medical expenditures have to be withdrawn from an HSA in 2024.  Those 2024 medical expenditures from 2024 can be used in 2040 (or beyond!) to withdraw money from the HSA tax free!