Do You Know How to Answer These 5 Common HSA Questions?

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By Jennifer Bassett, QKA, CISP, CIP

Although health savings accounts (HSAs) have been available since 2004, there are still a lot of questions about these accounts. Whether you consider yourself a seasoned HSA expert or a novice, certain questions may take you by surprise. And while you don’t want to give tax advice, you can help your clients by knowing how to answer some common HSA questions that may not have the most obvious answers.

1.     Does the HSA-compatible high deductible health plan (HDHP) have to be in the HSA owner’s name?

No. An individual is generally eligible to make or receive an HSA contribution if she is 1) covered under an HDHP, 2) not covered by any health plan that is not an HDHP, 3) not enrolled in Medicare, and 4) not eligible to be claimed as a dependent on another person’s tax return.

It’s important to understand that “covered” does not mean that the HDHP has to be in the HSA owner’s name. The HSA owner can simply be covered under the HDHP.

Example: Jean and Phil are covered under Jean’s HDHP through Jean’s employer. Although the HDHP is in Jean’s name, her husband Phil can still establish and fund his own HSA because he is covered under an HDHP. Of course, their total contribution for the year must not exceed the applicable limit.

2.     What makes an HDHP HSA-compatible?

A health plan is an HSA-compatible HDHP only if it satisfies both a minimum annual deductible amount and a maximum out-of-pocket expense amount.

Only medical expenses covered by the HDHP are taken into account in determining whether the HDHP deductible has been satisfied. The rules that define HSA-compatible HDHPs can be complicated. Individuals should check with their health insurance providers to determine whether their health plan coverage is HSA-compatible.

3.     What is the catch-up contribution limit under a family HDHP?

Individuals are eligible to make a $1,000 catch-up contribution if they will be at least age 55 by the end of the calendar year for which the HSA contribution is made. The catch-up contribution is in addition to the annual limit.  For catch-up-eligible individuals who are married and have family coverage, both spouses may make a catch-up contribution to their own HSAs. They cannot make both catch-up contributions to one spouse’s HSA, nor can they split one spouse’s catch-up contribution between their HSAs; the catch-up contribution must be made to each eligible individual’s HSA.

Example: Pat and Jake are both 58 years old. Pat has an HSA, but Jake does not. Jake cannot deposit his $1,000 catch-up contribution into Pat’s HSA. If Jake wants to make a catch-up contribution, he must establish and fund his own HSA.

4.     Can an HSA owner transfer assets to her spouse’s HSA?

No. An HSA owner is not allowed to transfer assets to a spouse’s HSA. The only time a transfer may occur is when a divorce decree awards HSA assets to the former spouse, or when a spouse beneficiary inherits an HSA. (A spouse beneficiary automatically becomes the HSA owner as of the original HSA owner’s date of death.)

Keep in mind that the HSAs of a married couple are separate, individual HSAs; spouses may not move assets between the two accounts, even if they have family HDHP coverage. 

5.     What is the time limit for taking distributions?

An HSA owner (and her authorized users) may take an HSA distribution in the current year to pay or reimburse expenses incurred in any prior year, as long as the expenses were incurred after the HSA was established. This is true even if the HSA owner is no longer HSA-eligible.

State law determines when an HSA is established. In some states, an HSA is established when the HSA owner signs a completed HSA application. In other states, an HSA is not established until the first contribution is made to the HSA. An HSA that is established by rolling over amounts from an HSA (or an Archer medical savings account) is considered established on the date that the original account was established.

Because HSA owners are not subject to a time limit for taking distributions, HSA owners may choose to take fewer distributions (for example, annual or semiannual) to pay for medical expenses that they incurred throughout the year. By taking fewer distributions, HSA owners may accumulate larger account balances. Some individuals may choose not to take any HSA distributions for several years, or not to reimburse themselves at all.

Example: In 2019, Penny (age 21) began self-only coverage under an HDHP. That same year, she established and funded an HSA. Penny continues to make annual HSA contributions for the next 15 years without taking any HSA distributions. In 2034, Penny has her first child and begins taking out qualified distributions to pay for medical expense that occurred after she established her HSA in 2019.

These are just a few questions that you may often be asked when working with HSAs. To learn about other common HSA questions, consider attending Ascensus’ Top 10 HSA Issues webinar.