Health Savings Account

Question 1

Health Savings Account

Answer 1

an IRC Section 223 Plan that provides tax benefits for amounts accumulated in it to pay health care expenses

Question 2

What did it replace?

Answer 2

the Medical Savings Account

Question 3

Who is it available to?

Answer 3

All US citizens under the age of 65

Question 4

Do you have to be employed?

Answer 4

No

Question 5

Who can provide it?

Answer 5

Employers for employees

Question 6

Who can set it up?

Answer 6

self employed individuals, those not covered by employer plans, and those who are covered by employer plans

Question 7

Where is it held?

Answer 7

At a 3rd party

Question 8

Sometimes segmented as a separate account on what financial statement?

Answer 8

The company’s balance sheet

Question 9

To contribute to an HSA, a person must be covered under a……

Answer 9

high-deductible health plan

Question 10

He or she CANNOT be: (3)

Answer 10

1. covered under a non high deductible plan
2. 65 or older
3. cannot be claimed as a dependent on another person’s tax return

Question 11

He or she CAN be: (2)

Answer 11

1. covered by certain types of “permitted insurance” that don’t have high deductibles (accidents, dental, vision, long term workers comp, hospitalization)
2. In a health plan with low deductible or first dollar coverage for preventative care (HMO)

Question 12

Minimum dollar amount of individual deductible

Answer 12

$1,200

Question 13

Minimum dollar amount of family deductible

Answer 13

$2,400

Question 14

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?

Answer 14

individual - $3,000

family - $5,950

Question 15

Catch up provision

Answer 15

$1,000 for those 55 and older

Question 16

You have until _____ of the following year to make the maximum contribution

Answer 16

4/15

Question 17

Employer or employee contributions to an HSA grow ______

Answer 17

tax-deferred

Question 18

Before age 65, withdrawals that are not used to meet deductibles or pay for unreimbursed medical expenses are reflected as……

Answer 18

ordinary income plus a 10% penalty

Question 19

After age 65, a person can make withdrawals from this account …..

Answer 19

for any reason and only has to recognize these withdrawals as ordinary income

Question 20

When is it indicated?

Answer 20

When employers desire a way to save on insurance costs

Question 21

Advantages of HSA (6)

Answer 21

1. offers tax-saving opportunities to eligable individuals
2. any unused funds are not forfeited at year end
3. even if employee changes jobs, HSA still goes with him
4. no requirements that HSA funds can only be used to pay medical expenses
5. qualified plan participant can contribute regardless of income level
6. no limits on amount that can be withdrawn per year

Question 22

Disadvantages of HSA (5)

Answer 22

1. No appropriate for tailored benefit plans
2. not likely to extend converage to people currently without coverage
3. lower income employees may see high deductibles
4. taypayers in lower income bracket get less tax benefit
5. structure may encourage adverse selection

Question 23

How can contributions be made?

Answer 23

• directly by an individual
• through salary reductions under an employer’s cafeteria plan
• directly by employers

Question 24

Do HSA have to be funded?

Answer 24

yes

Question 25

Do you need IRS permission to set these up?

Answer 25

no

Question 26

Contributions must be in what form?

Answer 26

cash only!

Question 27

What kind of contracts can HSAs not invest in?

Answer 27

insurance contracts

Question 28

What can the trustee/custodian of an HSA also sell?

Answer 28

health insurance

Question 29

Assets in an HSA can accumulate _____ limits

Answer 29

without

Question 30

Participants can use funds to pay for deductibles and qualified medicial expenses for who?

Answer 30

Themself, spouse, and dependents

Question 31

Are distributions to pay deductibles and medical expenses taxable?

Answer 31

no

Question 32

What is a “qualified” medical expense?

Answer 32

Any expense eligible for an itemized medical expense deduction

Question 33

Employees cannot use HSA plan funds to pay their share of health insurance premiums except for: (4)

Answer 33

1. long-term care insurance premiums
2. Healthcare continuation coverage
3. Healthcare coverage while receiving unemployment compensation under federal or state law
4. Medicare and other healthcare coverage if you are 65 or older exepct for Medicare Supplemental Policy

Question 34

Contributions made by an individual are _______ regardless of whether he itemizes deductions

Answer 34

“above the line”

Question 35

An employer’s direct contributions under a cafeteria plan are: (3)

Answer 35

1. deductible by employer
2. not taxable to employee
3. not subject to FICA and FUTA taxes

Question 36

Can an individual make HSA contributions for eligible family members?

Answer 36

yes–son/daughter who needs financial support can take HSA deduction but CANNOT be claimed as a dependent on other person’s tax return

Question 37

When are HSA distributions tax free?

Answer 37

When they are used to pay for qualified medical expenses

Question 38

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……

Answer 38

death, disability, or attainment of age 65

Question 39

Are HSA plans offered by employers subject to ERISA?

Answer 39

yes

Question 40

Are HSA plans adopted by individuals subject to ERISA?

Answer 40

no

Question 41

What are 3 alternatives to HSA?

Answer 41

grandfathered MSA, HRA, or FSA