Health Savings Account – Contributions vs. Distributions
Health Savings Account (HSAs) provide a way for employees to set money aside and pay for qualified medical expenses. HSAs have specific eligibility requirements for those who would like to open and contribute to the account. To be eligible to contribute, the account holder must be enrolled in a qualified high deductible health plan (HDHP), cannot be covered under any additional non-qualified coverage (including coverage through a spouse’s plan), not on Medicare and not claimed as anyone’s tax dependent. So, if these are the rules to be able to contribute to the HSA, what happens when these conditions are no longer met and the account holder has funds in their HSA? Here are some common scenarios and how the account holder can access their funds.
No longer covered by a qualified HDHP
When someone is no longer covered by a qualified HDHP, they are no longer eligible to contribute to the HSA. As long as the funds already contributed to the account are used for eligible expenses, the account holder can continue to spend their money.
No longer with the employer that sponsored the HSA
HSAs are portable and stay with the account holder, even if they change jobs. An employee who chose to set funds aside pre-tax through payroll deductions with their former employer can still access those funds in their account. They can also contribute outside of payroll deductions and enjoy the tax savings at tax time by taking an above the line deduction on the amount contributed post-tax.
The account holder has the insurance plan, but their spouse or dependents are not on the same plan
As long as the account holder meets the eligibility requirements to contribute to the HSA, their spouse and tax dependents do not have to be covered by the same insurance plan. The account holder can contribute to the HSA and use those funds to pay for the expenses of their spouse and tax dependents.
People using HSAs should take the time to understand how the account works, both for contributions and using those contributions, to ensure they make the most of their account.
BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.