At a Plan Sponsor University (TPSU) program conducted at New York University recently a group of 20 plan sponsors gathered to talk about issues they face in managing their company retirement plans. One of the hottest topics continues to be Health Savings Accounts (HSA). Health Savings Accounts have been capturing the attention of retirement professionals, especially since the Trump Administration has indicated its desire to overhaul healthcare insurance and has clearly stated its intention to focus on HSA’s.
HSA’s have many tax advantages and are gaining in popularity among plan sponsors and plan advisors. But it was striking that little is known about the HSA features. Here is a primer on the characteristics of a Health Savings Account:
Top 10 Things to Know About A Health Savings Account?
- An HSA is a tax-deferred/tax-exempt savings account that can be used for paying medical expenses (usually, but not exclusively with a high-deductible insurance plan),
- Contributions reduce taxable income.
- Earnings on the account build up tax free.
- Distributions for qualified expenses from the account are not subject to taxation.
- The account must be established with a qualified provider and health plan, an you may not have another “first-dollar” insurance coverage,
- It is similar to an Individual Retirement Account (IRA),
- You can use it to pay for a wide variety of qualified medical expenses without being taxed, it’s like a flexible-spending account without the “USE-IT-OR-LOSE-IT” clause,
- Unused balances at the end of the year stay in the account and are invested to continue to grow tax-deferred,
- You can take an HSA from job-to-job without penalty,
- Money in an HSA belongs to the account holder,
- In many cases you can use an HSA to pay for preventative care, even if your deductible is not met,
- When participants turn 65, any remaining funds can be used — without tax penalties — for general retirement expenses, but are subject to income tax,
- Employer can match funds which are also tax-deferred.
[also read article: The Rise of the Retirement Hybrid Model, Why HSA’s Are Among the Best Ways to Save]
Frequently asked questions about HSA’s
Q: What happens to my Health Savings Account when I die?
A: If your spouse becomes the owner of the account, your spouse can use it as if it were their own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).
Q: If both spouses have coverage under separate HSA-compatible health plans, how is the contribution limit determined?
In a situation where each spouse has individual or family coverage under separate HSA-compatible high deductible health plans, the combined contribution for each cannot exceed $6,550.
However, if in this scenario one or both spouses are 55 or older, the additional catch-up contribution may be made on behalf of each eligible spouse.
Q: Can I use the funds in my HSA even if I am no longer enrolled in an HSA-compatible health plan?
Yes, provided the funds are used exclusively for qualified medical expenses as defined by the Internal Revenue Service, the distributions will not be taxed.
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