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You woudl need to report sale proceeds to Medicaid.
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax.
That is regardless of your disability - but the key in determination is - if funds were used for qualified medical expenses.
Your assessments are correct.However - the administrator of that life insurance policy is not in the position to determine disability - so they are OK.
Regarding distribution code I woudl expect to see "2" as the person is above 59 1/2 - but that woudl not affect your filing - just do not calculate any penalty.
Because of age - there will not be any issues.
Regarding taxable amount - you are correct.
See page 22
Surrender of policy for cash. If you surrendera life insurance policy for cash, you must includein income any proceeds that are morethan the cost of the life insurance policy. In mostcases, your cost (or investment in the contract)is the total of premiums that you paid for the lifeinsurance policy, less any refunded premiums,rebates, dividends, or unrepaid loans that werenot included in your income.You should receive a Form 1099-R showingthe total proceeds and the taxable part. Reportthese amounts on lines 16a and 16b of Form1040 or on lines 12a and 12b of Form 1040A.
So you would need to determine the taxable amount on your own OR you woudl need to contact the sender asking for corrections.
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