Can You Withdraw Money From an HRA?
Can you withdraw cash from an HRA? Understand how these employer-funded accounts work for medical expense reimbursement, not direct payouts.
Health Reimbursement Arrangements (HRAs) are employer-sponsored health benefits that help employees manage qualified medical expenses. Employers use HRAs to reimburse employees for healthcare costs, distinguishing them from other options like Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs).
Understanding How HRAs Work
An HRA is funded solely by an employer, not through employee salary reductions. The employer owns the HRA, and funds are not pre-funded into individual employee accounts. Instead, the employer reimburses employees from its general assets when a qualified claim is submitted. The employee does not own these funds. Employers set rules for contributions and eligible expenses, which must adhere to Internal Revenue Service (IRS) guidelines.
Can You Take Cash From Your HRA
You cannot directly withdraw cash from a Health Reimbursement Arrangement. HRAs are employer-owned and established solely for the reimbursement of qualified medical expenses. They are not a source of spendable income or a personal savings vehicle. Attempting to “cash out” an HRA would trigger taxation of all distributions, even if used for medical expenses.
This structure differs from Health Savings Accounts (HSAs), which allow account holders to withdraw funds for non-medical purposes, with potential taxes and penalties if under age 65. An HRA operates strictly on a reimbursement model; funds are paid back to the employee after out-of-pocket medical expenses have been incurred and documented.
Using Your HRA Funds for Reimbursement
HRA funds are used for reimbursement of eligible medical expenses. The IRS defines qualified medical expenses, which typically include deductibles, co-payments, prescription drugs, dental care, vision care, and certain medical equipment. Employers determine the specific list of eligible expenses within their HRA plan document, which must align with IRS regulations. Consult your employer’s plan details to understand what is covered.
To receive reimbursement, submit a claim with required documentation. This documentation includes an itemized receipt, an invoice, or an Explanation of Benefits (EOB) from your insurance carrier. Required details include the patient’s name, date of service, type of service, provider’s name, and the amount paid. Claims can be submitted through an online portal, mobile application, or traditional paper forms. The plan administrator reviews the claim for eligibility and completeness; upon approval, reimbursement is issued to the employee, typically via direct deposit or check within a few business days to weeks.
What Happens to HRA Funds
The fate of unused HRA funds varies depending on the employer’s plan design. Many HRA plans allow funds to roll over from one plan year to the next, either fully or partially. Some plans may have a “use-it-or-lose-it” policy, forfeiting any unused balance at year-end. Employees should consult their plan documents or benefits administrator to confirm rollover rules.
If an employee leaves their job, HRA funds typically revert to the employer as they are not portable. Employers are generally not permitted to “cash out” the HRA balance to the employee upon termination. While funds are often forfeited, some plans may offer a limited “spend-down” period for expenses incurred before termination, or COBRA-like continuation options. Reviewing the specific HRA plan document is essential to understand these rules.