Direct answer. After a participant retires, qualifying §213(d) medical expenses for the retiree, spouse, or dependents are submitted to the plan trustee with supporting documentation. The trustee verifies eligibility under the plan document, confirms the expense was not reimbursed elsewhere, and pays the claim from the 401(h) sub-account. Properly substantiated reimbursements are generally received tax-free.
Overview
Retirement Actuarial Services LLC is an actuarial firm specializing in Defined Benefit and Cash Balance plan design for closely held businesses, professional practices, and high-income owners — and one of the few firms that routinely integrates the IRC §401(h) retiree medical benefit account into those plans.
A 401(h) account is not a debit-card style spending account. It is a pension-plan sub-account administered by the trustee. The mechanics are simple in concept but disciplined in practice — the substantiation discipline is what keeps reimbursements tax-free.
Who Can Receive Reimbursements
- Retired employees who have satisfied the plan's eligibility requirements.
- Spouses of retired employees.
- Dependents as defined by the plan document and IRC §152.
The Reimbursement Process (Step-by-Step HowTo)
- Incur a §213(d) qualifying medical expense. Pay the provider directly or have insurance pay first.
- Gather substantiation. Itemized bill, EOB, or receipt showing date of service, provider, patient, service description, and amount.
- Confirm no double reimbursement. The expense must not have been reimbursed by insurance, an HSA, an FSA, or any other source.
- Submit the claim. File a claim form with the plan trustee (or TPA acting for the trustee).
- Trustee review. The trustee or TPA verifies eligibility, §213(d) qualification, and absence of duplicate reimbursement.
- Payment. The trustee pays the claim from the 401(h) sub-account, either to the retiree (reimbursement) or directly to the provider, as the plan permits.
- Record retention. Both the plan and the retiree retain documentation supporting the §213(d) qualification.
What Documentation Is Required
| Expense Type | Typical Documentation |
|---|---|
| Medical / dental / vision care | Itemized invoice or EOB showing provider, date, patient, service, amount |
| Prescription drugs | Pharmacy receipt showing drug, date, prescriber, amount |
| Medicare premiums | SSA-1099 / Medicare premium notice |
| Long-term care insurance premiums | Carrier premium statement; verify qualified LTC contract and §213(d)(10) age limit |
| Medical travel | Mileage log, parking and toll receipts; documentation of medical purpose |
| Medical equipment | Receipt + provider letter or prescription where applicable |
Tax Treatment of Reimbursements
When the process above is followed, reimbursements paid from a properly administered 401(h) account for §213(d) qualifying medical care are generally excludable from the recipient's gross income. Reimbursements that fall outside §213(d), or that are not properly substantiated, lose this favorable treatment.
Note: an expense reimbursed by the 401(h) account cannot also be claimed as a Schedule A medical deduction by the recipient — the dollar can only be tax-favored once.
Timing and Frequency
Plans typically allow ongoing reimbursement after the participant has retired. Some plans set claim windows (e.g. quarterly batches), others process continuously. The plan document governs.
What Happens at Death
Plan terms govern. Typically the 401(h) sub-account continues to be available to reimburse qualifying expenses of the surviving spouse and dependents. Any forfeitures must be applied to reduce employer contributions for medical benefits under Treas. Reg. §1.401-14.
Frequently Asked Questions
Who submits a 401(h) claim?
The retiree (or spouse or dependent) submits the claim to the plan trustee or TPA, with itemized documentation of the §213(d) qualifying medical expense.
Are 401(h) reimbursements tax-free?
Properly substantiated reimbursements for §213(d) qualifying medical care, paid from a properly administered 401(h) account, are generally excludable from the recipient's gross income.
Can I be reimbursed for an expense already paid by insurance?
No. Double reimbursement is not permitted. The 401(h) reimburses only the unreimbursed §213(d) portion.
Can the 401(h) reimburse my Medicare Part B premium?
Generally yes — Medicare premiums are §213(d) medical care and may be reimbursable, subject to plan terms and substantiation.
Can it reimburse qualified long-term care insurance premiums?
Yes, up to the §213(d)(10) age-based annual limits for qualified LTC contracts.
Can the trustee pay the provider directly?
Some plans permit direct payment to providers; others reimburse the retiree. The plan document controls.
Do I need to keep my own records?
Yes. The retiree should keep copies of receipts and EOBs to support both the claim and the §213(d) characterization.
Can I deduct the same expense on Schedule A?
No. An expense reimbursed by the 401(h) cannot also be claimed as a Schedule A medical deduction.
Next Step for CPAs, Advisors, and Business Owners
If you would like a qualified actuary to evaluate whether a 401(h) arrangement may be appropriate alongside a Defined Benefit or Cash Balance plan for your business, request an introductory consultation. Retirement Actuarial Services LLC has specialized in advanced Defined Benefit plan design and 401(h) integration for closely held businesses and professional practices for decades.
Important Disclosure
This material is provided for educational and informational purposes only and should not be construed as tax, legal, actuarial, investment, accounting, or fiduciary advice. The availability, suitability, contribution limits, deductibility, tax treatment, and reimbursement treatment of any 401(h) arrangement depend on the specific facts and circumstances of the employer, plan sponsor, participant population, plan design, actuarial assumptions, regulatory limits, and applicable IRS and Department of Labor requirements. No strategy described herein is a guarantee of tax savings, contribution levels, reimbursement amounts, investment results, or plan approval. Business owners and advisors should consult qualified tax, legal, actuarial, TPA, and financial professionals before establishing or modifying any qualified retirement plan or retiree medical benefit arrangement. Results vary.
