By Whitney
Richard Johnson, Esq & BenefitsPRO editors | November 18, 2019 at
09:30 AM
Yes. To be eligible for an HSA, individuals must
meet the following requirements:
·
be covered by a High
Deductible Health Plan (HDHP);
·
NOT be covered by
another health plan that is not an HDHP;
·
not be eligible to be
claimed as a dependent on another person’s tax return; and
·
not be entitled to
Medicare benefits (enrolled in Medicare).
No, but they stand to lose some tax benefits if
they are eligible for an HSA and do not open one.
Nationwide statistics reveal that many (up to
one-half of those eligible) Americans that are eligible for an HSA do not open
one. A likely reason many eligible individuals fail to open an HSA is that they
cannot afford to do so.
HSA owners that do not have sufficient funds to
fully fund an HSA should consider opening an HSA with just a minimum amount to
set the “establishment date.” Individuals cannot use an HSA for any expenses
incurred prior to their “establishment date.”
Eligibility is determined on a monthly basis and
an individual must be eligible on the first day of the month to be considered
eligible for that month.
The key point of the establishment date is that
HSA owners can use the HSA to pay for all medical expenses incurred after (but
not before) that date.
The "establishment date" rule allows
HSA owners to maximize HSA tax benefits by paying for most qualified medical
expenses tax-free through their HSA, even in years when the HSA owners’ medical
expenses exceed the HSA limits.
Pursuant to many state laws, the HSA must be
funded to be considered “established.”
Without researching state laws, a conservative
approach is for HSA owners to fund the HSA with a small amount to get it
“established.”
Yes. Any person may make an HSA contribution for
any other person including family members, employers, even neighbors and
strangers. Whether or not the contributor or the HSA owner gets the tax break
depends on the relationship.
Employers generally do get a deduction for HSA
contributions and spouses that file joint return get the benefit of each
other’s contributions.
If someone other than an employer or spouse
makes an HSA contribution on behalf of the HSA owner, the HSA owner gets the
HSA deduction, not the person who contributed.
Yes. HSA owners may fully fund an HSA up to the
contribution limit. If an employer only partially funds the HSA, the employee
can contribute the difference up to the limit.
The law allows individuals a one-time transfer
of IRA assets to fund an HSA provided:
·
They are eligible for an
HSA,
·
and have a permitted IRA
with sufficient funds,
·
and have not already
completed an IRA to HSA funding distribution,
·
and the names and Social
Security numbers are the same on the IRA and HSA.
The amount transferred may not exceed the amount
of one year’s HSA contribution limit. The technical term for this transaction
is a “qualified HSA funding distribution,” not “transfer.”
A rollover or transfer is a method to move money
that is already in an HSA to a different HSA custodian or trustee.
Rollover: A rollover occurs when an HSA owner takes a
distribution from an HSA and contributes it to a new HSA custodian within 60
days of the date of that distribution.
The current HSA custodian reports the HSA
distribution as a normal distribution on the IRS Form 1099-SA, meaning the HSA
owner will owe taxes plus a 20 percent penalty on the amount unless rolled into
a new HSA custodian or trustee within 60 days (or the amount distributed is
used for qualified medical expenses).
Transfer: A transfer occurs when an HSA owner moves money from a current
HSA custodian or trustee to a new HSA custodian or trustee without taking a
distribution of the funds. The money moves directly in a “trustee-to-trustee
transfer.”
Plus, because the HSA owner never gains direct
access to the funds, the two HSA custodians are not required to do any extra
IRS reporting on the transaction.
HSA fees vary and the list below is only
representative of some of the more common fees:
·
Set-up fee;
·
Annual/monthly
administration fee;
·
Check printing fee;
·
Online-banking fee;
·
Account closing fee;
·
Investment fees;
·
Debit card/other
transaction fee;
·
Fees for administrative
work to correct or replace IRS reporting documents;
·
And more.
HSA fees are more prevalent than fees for other
types of accounts because HSAs require additional IRS reporting and can be
complex, leading to additional support needs. Support in answering questions is
especially needed.
Unlike IRAs, HSAs generally do not enjoy as
large balances. HSA balances, however, have grown dramatically over the years
and are beginning to reach the levels where fee waiver is making sense and HSA
fees have been decreasing.
HSA custodians are allowed to offer a wide range
of investments including checking accounts, savings accounts, Certificates of
Deposit, money market accounts, stocks, bonds, mutual funds as well as even
more exotic choices.
Health savings
accounts are considered a smart financial move for employees who want
to–and are able to–put aside money for health care expenses or save and invest
money to pay for future health care costs in retirement. And the broker,
advisor, or employer who hasn’t at least looked into HSAs is missing out on
opportunity.
Recently there’s
been some decline in employer excitement over high deductible health plans
(HDHPs), which are currently required to have an HSA. Some say HDHPs
haven’t fulfilled their promise of making employees savvy consumers of
health care while saving employers money. And yet that doesn’t detract from the
benefits an HSA can offer an employee, including portability from employer to
employer, and the oft-mentioned “triple tax advantage” of HSAs.
We have excerpted
the 11 FAQs on the slides above from the book 2019 Health Savings Accounts Facts, by National
Underwriter, our colleagues at ALM Media.
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