Every penny of what I took out is in a vault, and I am honest about using it for medical expenses, it's truly set aside and the only way I take out any of if is if I exchange a receipt for the medical expense. However, I do not bow to Dictator Obama and his trainwreck of a reformed healthcare system.

That being said, I started redeeming lawful money for the last 3 months of 2014, so I've got a 1040 that's "normal" for 9 months and then I add the "other" lines for reduction in lawful money 12usc411 12usc95a2. This will all be more awesome when filing 2015 since it's all lawful money this year…

Questions is: I received a 1099-SA for the amount I cashed out of my HSA which has been fully redeemed as lawful money. How do I avoid this penalty for withdrawing this? The money that was placed in here was tax diverted and employer matched. Any insight what I'd need to do on a 1040 or 1099-SA to indicate that I have demanded lawful money and want a dollar-for-dollar reduction for this? Has anyone else tried this?

In the future and already for 2015, I am avoiding tax deferred deductions so that I can do them myself.