This Know Your Benefits article is provided by M3 Insurance and is to be used for
informational purposes only and is not intended to replace the advice of an insurance
professional. Visit us at http://m3ins.com. © 2015 Zywave, Inc. All rights reserved.
Health savings accounts (HSAs) are a great
way to save money and efficiently pay for
medical expenses. HSAs are tax-
advantaged savings accounts that
accompany high deductible health plans
While HSAs are a helpful approach to paying
for medical care, the fact that they combine
both insurance and tax regulations make
them a unique type of benefit with a fairly
involved set of requirements. There can be
confusion over how HSAs are administered,
especially concerning unusual scenarios.
The following questions address situations
that HSA owners may find themselves in, but
are not a typical part of standard HSA
What if I want to deposit the maximum
annual contribution at once?
This is allowed. While HSAs are typically
deducted from your paycheck and deposited
every pay period, you may opt for a one-time
payment provided that:
• Your contribution does not exceed the
HSA limit when added to an employer
contribution. HSA limits apply to the overall account contribution, and not to each
person or entity depositing money into the account. For this reason, you may
need to calculate the yearly employer contribution before determining your
personal maximum contribution.
• You are eligible to contribute to an HSA for the entire year. If you obtained HSA
eligibility after Jan. 1, your maximum contribution limit decreases by one-twelfth
for every month you are not eligible. You can only make a contribution for the
months you’re eligible. There is an exception to this rule for individuals who are
eligible to contribute to an HSA on Dec. 1 of a calendar year. They are allowed to
contribute an amount equal to the annual HSA contribution amount provided they
remained covered by the HSA for at least a 12-month period after contributing.
What if my spouse or family member wants to make contributions to my HSA?
Family members may make contributions on behalf of other family members,
• The total contribution put forth by you, your family member and your employer
does not exceed the annual contribution limit (with only a single exception for the
additional catch-up contribution if the account holder is at least 55 years old).
What if I want to use an HSA to pay for my dependent’s medical care?
This is generally allowed, as qualified medical expenses include unreimbursed
medical expenses of the owner, his or her spouse or dependents.
What if I use my HSA for a nonqualified medical expense?
Nonqualified withdrawals from your HSA are considered taxable income. The money
withdrawn from the account for nonqualified expenses would be added to your gross
income and taxed, and it would also be subject to a 20 percent penalty. There are
exceptions to the penalty if you are age 65 or older, if you are totally and permanently
disabled, or if a withdrawal is made after your death.
While HSAs are a helpful approach to paying for
medical care, the fact that they combine both
insurance and tax regulations make them a unique
type of benefit with a fairly involved set of
Health Savings Accounts: “What if” Scenarios
What if I want to use my HSA to pay my
This would not be considered a qualified
medical expense and would be subject to
taxes and penalties.
What if I want to use my HSA to pay for
long-term care insurance?
This is allowed. HSA distributions used to
pay for long-term care insurance premiums
qualify as tax-free, penalty-free distributions.
However, there is an annual limit to the
amount you may contribute toward this
expense, which is adjusted by the IRS every
What if I want to close my account?
Unless any of the previous exceptions have
been met, the funds remaining in the
account would be subject to taxes and
penalties if withdrawn for reasons other than
a qualified medical expense.
What if I want to invest the funds in my
You can invest the funds in bank accounts,
money markets, mutual funds and stocks, if
that is something your HSA servicer allows.
Any earnings made on the investments
would not count toward your annual
contribution limit. You may not invest in
collectibles, art, automobiles or real estate.
What if I leave my employer?
Your HSA belongs to you regardless of your
employment. If you change jobs, or stop
working altogether, you can keep your total
HSA balance, including all employer
contributions. You can continue spending the
account balance on qualified medical expenses free of taxes or penalties.
However, you will not be able to make further contributions to your account, unless
you remain enrolled in a HDHP. If you lose your HDHP, all contributions to an HSA
must be suspended until you are back on an HSA-compliant HDHP plan.
What if I change my health coverage to a plan that doesn’t allow an HSA?
You will have to stop making contributions to your HSA, but you will be free to spend
the account balance with the same tax-free benefits, provided the money goes toward
qualified medical expenses. You could also hold on to the balance and any
investments until age 65, at which point the money would be available to you with no
taxes or penalties.
For more information on these or other HSA scenarios, contact M3 Insurance today.