Health Savings Account Flashcards
Health Savings Account
an IRC Section 223 Plan that provides tax benefits for amounts accumulated in it to pay health care expenses
What did it replace?
the Medical Savings Account
Who is it available to?
All US citizens under the age of 65
Do you have to be employed?
No
Who can provide it?
Employers for employees
Who can set it up?
self employed individuals, those not covered by employer plans, and those who are covered by employer plans
Where is it held?
At a 3rd party
Sometimes segmented as a separate account on what financial statement?
The company’s balance sheet
To contribute to an HSA, a person must be covered under a……
high-deductible health plan
He or she CANNOT be: (3)
- covered under a non high deductible plan
- 65 or older
- cannot be claimed as a dependent on another person’s tax return
He or she CAN be: (2)
- covered by certain types of “permitted insurance” that don’t have high deductibles (accidents, dental, vision, long term workers comp, hospitalization)
- In a health plan with low deductible or first dollar coverage for preventative care (HMO)
Minimum dollar amount of individual deductible
$1,200
Minimum dollar amount of family deductible
$2,400
What is the annual employer and/or individual, maximum pre-tax contribution to an IRA to pay medical expenses for an individual and for family?
individual - $3,000
family - $5,950
Catch up provision
$1,000 for those 55 and older
You have until _____ of the following year to make the maximum contribution
4/15
Employer or employee contributions to an HSA grow ______
tax-deferred
Before age 65, withdrawals that are not used to meet deductibles or pay for unreimbursed medical expenses are reflected as……
ordinary income plus a 10% penalty
After age 65, a person can make withdrawals from this account …..
for any reason and only has to recognize these withdrawals as ordinary income
When is it indicated?
When employers desire a way to save on insurance costs
Advantages of HSA (6)
- offers tax-saving opportunities to eligable individuals
- any unused funds are not forfeited at year end
- even if employee changes jobs, HSA still goes with him
- no requirements that HSA funds can only be used to pay medical expenses
- qualified plan participant can contribute regardless of income level
- no limits on amount that can be withdrawn per year
Disadvantages of HSA (5)
- No appropriate for tailored benefit plans
- not likely to extend converage to people currently without coverage
- lower income employees may see high deductibles
- taypayers in lower income bracket get less tax benefit
- structure may encourage adverse selection
How can contributions be made?
- directly by an individual
- through salary reductions under an employer’s cafeteria plan
- directly by employers
Do HSA have to be funded?
yes
Do you need IRS permission to set these up?
no
Contributions must be in what form?
cash only!
What kind of contracts can HSAs not invest in?
insurance contracts
What can the trustee/custodian of an HSA also sell?
health insurance
Assets in an HSA can accumulate _____ limits
without
Participants can use funds to pay for deductibles and qualified medicial expenses for who?
Themself, spouse, and dependents
Are distributions to pay deductibles and medical expenses taxable?
no
What is a “qualified” medical expense?
Any expense eligible for an itemized medical expense deduction
Employees cannot use HSA plan funds to pay their share of health insurance premiums except for: (4)
- long-term care insurance premiums
- Healthcare continuation coverage
- Healthcare coverage while receiving unemployment compensation under federal or state law
- Medicare and other healthcare coverage if you are 65 or older exepct for Medicare Supplemental Policy
Contributions made by an individual are _______ regardless of whether he itemizes deductions
“above the line”
An employer’s direct contributions under a cafeteria plan are: (3)
- deductible by employer
- not taxable to employee
- not subject to FICA and FUTA taxes
Can an individual make HSA contributions for eligible family members?
yes–son/daughter who needs financial support can take HSA deduction but CANNOT be claimed as a dependent on other person’s tax return
When are HSA distributions tax free?
When they are used to pay for qualified medical expenses
Distributions for something other than qualified medical expenses are taxable as ordinary income and subject to 10% penalty unless made after an account beneficiary’s……
death, disability, or attainment of age 65
Are HSA plans offered by employers subject to ERISA?
yes
Are HSA plans adopted by individuals subject to ERISA?
no
What are 3 alternatives to HSA?
grandfathered MSA, HRA, or FSA
