The threshold question is whether you qualify. The IRS in Publication 969 on HSAs says that to qualify for tax benefits you must set up a tax-exempt trust or custodial account with an HSA trustee, such as bank, insurer, or other qualified trustee. You
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you
must meet the following requirements.
- You must be covered under a high deductible health
plan (HDHP), described later, on the first day of the
month.
- You have no other health coverage except what is
permitted under Other health coverage, later.
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone
else's 2013 tax return.
Nothing in Pub 969 suggests a problem with living abroad or being foreign. As long as you have an HSA through your insurer or other trustee, and meet the other requirements, living abroad does not appear to present a problem.
There is no problem with withdrawing the money as cash versus swiping it directly, provided it goes to qualified medical expenses. I would endeavor to retain full and accurate receipts and account for all withdrawals, since a foreign address may raise some flags. In the event you do not receive receipts, notes and records you created yourself may be sufficient (particularly if you retain both hand-written contemporaneous notes and something like a spreadsheet .xlsx).
Your contributions to an HSA are deductible "above the line" on your Form 1040 at line 25 (with Form 8889). The accumulations and interest on the HSA are excluded from your gross income. Your employer's contributions to an HSA are excluded from your gross income (see I.R.C. ยง 106(d)). Remember that your calculation of medical expenses on Schedule A is reduced by the amount of your HSA withdrawals, which is equivalent to saying you can get a full deduction today at the expense of a very limited possible deduction later.
