Last month we kicked-off the first installment of our series on "Top HSA Questions." For the second part in our series, I'll tackle three unrelated, but often asked, health savings account questions spanning from joint accounts, to employer contributions and Medicare, and finally, account establishment.
Question: I've read that spouses aren't allowed to have joint HSA accounts. Why?
Answer: Indeed, this is true, and is something we get asked about regularly. There is actually no such thing as a joint HSA account. HSAs can be owned only by one person — the accountholder. This is often confusing to people because while the accountholder can allow the funds to be accessed by, and used to pay for the expenses of, more than one person (including their spouse), they are still owned by only one person — the accountholder.
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This issue comes up most often with married couples 55 and older that both want to make catch-up contributions. It's important to remember that they need to have an account for each spouse because a person cannot make their catch-up contribution into someone else's account. According to 2013 IRS guidelines, the annual contribution maximum for an individual is $3,250 and $6,450 for a family. For those 55 and older, the annual catch-up contribution maximum is $1,000. This is a common issue employers need to be mindful of when communicating catch- up information to employees.
Question: Does an employer making contributions still need to make those contributions for employees that enroll in Medicare?
Answer: Once a person enrolls in Medicare, he or she immediately ceases to be eligible to make or receive contributions to an HSA. Therefore an employer does not have to make contributions to these employees and this has no effect on comparability or non-discrimination. Now, some employers may ultimately choose to make a taxable cash payment to the employee instead – the equivalent of a taxable payroll bonus, but they are under no obligation to do so.
Question: If a person has completed their HSA enrollment and the account has technically been opened by the administrator, does that mean that the account is established and thereby able to make qualified distributions?
Answer: IRS guidance has been clear that the state trust law in the state that the HSA is governed by determines when an HSA is established. Most state trust laws require a nominal amount to be in the trust, even if it's just a penny, for it to be 'established.'
At UMB, we address this issue by depositing a penny into the account when it opens in order to fulfill the trust law requirements. However, not all administrators do this. We recommend that, unless your administrator has a process to establish the account when it opens, that the employer or employee make a contribution into the account as soon as possible. If they don't, the account will not be established and any distributions would be subject to normal income tax and a 20 percent penalty if the account holder is under age 65. This can be a real sore spot for someone if they unknowingly incur expenses after the start of the high-deductible health plan (HDHP), but before the establishment date of the HSA because those expenses can then never be taken as a qualified distribution.
Whether you are helping employers simply explain account establishment and individual HSAs, or advising on employer responsibilities associated with Medicare enrollment, our series is meant to address the questions you may hear often and those that take you by surprise.
To continue learning more, please visit our UMB Healthcare Services HSA FAQ section.
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