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Common HSA mistakes cost savers

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2 years ago

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Clients eager to use the benefits of health savings accounts must steer clear of all-too-common mistakes that could bring large tax payments or big penalties, according to experts.

Financial advisors and tax professionals can help clients avoid pitfalls by reminding them that the HSA advantages of duty-free saving, investment growth and withdrawals come with some strict guidelines, planner Kevin Thompson of Fort Worth, Texas-based 9i Capital Group and Health and Welfare Sales Consultant Cat Torres of Wakefield, Massachusetts-based Sentinel Group told Financial Planning. Potential mishaps include the most typical blunder around HSAs — distributing money toward costs that don’t fit the IRS definition of “qualified medical expenses” — and planning for a tax hit if a non-spouse beneficiary inherits an account.

HSA holders who spend money from their account for a nonqualified expense will pay up to 20% of the withdrawal amount as a penalty, Torres noted in an interview. And, if the IRS begins to review the HSA outlays, its auditors are more likely to begin probing other areas of a tax return in a way that “could be very time-consuming and expensive” for the client, she said.

“All of this is going to be included in your tax return. You don’t necessarily have to submit receipts or proof of the expense when you file your tax return,” she said. “They could go back and say, ‘OK, you withdrew $10,000 from your HSA last year. Can you show us the qualified expenses that this was used for?'”

READ MORE: HSAs come with pitfalls — here’s how to avoid them

Thompson counts himself “a huge proponent of HSAs,” but he counsels clients about the tax impact to any non-spouse heirs who may be in line to receive the assets, he noted. They could avert a potential tax bill to the beneficiaries by draining the accounts of assets to pay medical bills, assigning their HSA to a spouse in their estate plan or considering the use of trusts or charitable gifts, Thompson said.

“It’s 100% taxable. It basically becomes an IRA, but it’s an IRA that’s just immediately distributable to the person who inherits it,” he said. “That’s one of the few downsides.”

Another cautionary area revolves around Medicare, which is an allowable use of the assets for premiums but a potential snag for any clients expecting to work when they’re 65 or older. Customers at that age will have to pay taxes on any outlays that aren’t for a medical expense, but they aren’t subject to the penalties. 

In addition, experts recommend that HSA holders cut off any contributions from themselves and their employers for at least six months before applying for Medicare, according to an article in the Journal of Accountancy by personal financial coach Kelley Long.

“When taxpayers opt to continue working past age 65 and wish to continue funding an HSA, they need to be very clear on the Medicare rules of application and enrollment to avoid either penalties for excess HSA contributions or late-enrollment penalties for Medicare Part B and Part D,” Long wrote.

READ MORE: HSAs should be promoted as way to supplement retirement savings

Every year, the IRS keeps up with inflation by updating its definition of “high-deductible health plan” that enables participants to open HSAs and the total maximum contributions into the accounts. Sometimes, savers lose track of their contributions or don’t realize they have to restrict them under a prorated ceiling if they switch jobs, Torres noted.

“Not everybody is considering their employer contribution plus their payroll contribution — they all go toward that maximum,” she said. “We see that when people leave an employer midyear and they have that HSA from that prior employer and they want to try to maximize the triple-tax advantage of having that HSA. So they max out.”

HSA savers may also run into penalties if they, for example, expect to pay medical bills of $5,000 that only end up costing $4,200 and then forget to return the remaining money to the account, Torres said. 

“Everything can be fixed, and as long as you do it in that same tax year, you’re going to be OK,” she said. “There are remedies, so you want to stay on top of it. You can always put the money back and document that you’re putting it back because it’s a mistake.”

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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8 hours ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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6 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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