IRS details procedures for IRA to HSA transfers (with examples)

June 10th, 2008 by WPJ

The IRS issued guidance on the transfer of funds from an IRA to HSA. This notice provides guidance on a qualified HSA funding distribution from an individual’s Individual Retirement Account (IRA) or Roth IRA to a Health Savings Account (HSA). The qualified HSA funding distribution is a one-time transfer from an individual’s IRA to his or her HSA and generally excluded from gross income.

A qualified HSA funding distribution (I.e. a distribution from the IRA to fund the HSA) may be made from a traditional IRA or a Roth IRA, but not from an ongoing SIMPLE IRA. The qualified HSA funding distribution from the IRA or Roth IRA of an eligible individual to that individual’s HSA must be less than or equal to the IRA or Roth IRA account owner’s maximum annual HSA contribution. Generally, only one qualified HSA funding distribution is allowed during the lifetime of an individual. If, however, the distribution occurs when the individual has self-only HDHP coverage, and later in the same taxable year the individual has family HDHP coverage, the individual is allowed a second qualified HSA funding distribution in that taxable year. Both distributions count against the individual’s maximum HSA contribution for that taxable year. Note, the distribution cannot be made to an HSA owned by any other person, including the individual’s spouse.

An individual must be an eligible individual (eligible to contribute to an HSA) at the time of the qualified HSA funding distribution. The distribution must be a direct transfer from an IRA or Roth IRA to an HSA.

If a qualified HSA funding distribution is made from the individual’s IRA or Roth IRA to the individual’s HSA and the individual remains an eligible individual during the entire testing period, the amount of the qualified HSA funding distribution is excluded from the individual’s gross income and the 10 percent additional tax does not apply. The testing period begins with the month in which the qualified HSA funding distribution is contributed to the HSA and ends on the last day of the 12th month following that month.

The following examples illustrate these rules. Read the rest of this entry »

Tags: , , , , ,
Posted in Contributions, FSA, Misc., News, Taxes | No Comments »

If an employee has an HDHP and HSA at thier place of work and their spouse is on a separate plan with an FSA, is that OK?

June 6th, 2008 by WPJ

No. Just as an HSA covers the spouse and tax dependents, so does an FSA. Unfortunately, the IRS considers an FSA to be “Insurance” because it is guaranteed by the employer. Because it is insurance in the eyes of the IRS, it provides coverage that is something other than a HDHP. This disqualifies the employee from contributing to the HSA until the FSA is no longer in effect. The balance in the FSA is immaterial.

Tags: ,
Posted in Contributions, FSA, HSA Regulations, Misc. | No Comments »

What are the basic rules applying to domestic partners and HSA’s?

June 5th, 2008 by WPJ

Generally the issues surrounding domestic partners (DPs) relate to contributions and withdrawals.

Note that domestic partners do not file joint tax returns so they are treated as individual taxpayers with no relationship. This means each can make their HSA contributions based on the coverage provide by their HDHP (Family or Individual). If the employer provides “Family” coverage to DPs, then each can contribute ar the family level.

Regarding withdrawals, unless the DP is a tax dependent of the account holder, the account holder cannot use HSA dollars to pay medical expenses of the DP.

One last issue – because a DP is not a spouse, if the DP is the beneficiary of the HSA, all tax advantages evaporate at the death of the account holder. The balance becomes the same as any other inheritance.

Tags: , ,
Posted in FAQ, Misc., Taxes | No Comments »

Eligible Medical Expenses

January 24th, 2008 by WPJ

Partial List of Qualifying Health Care Expenses

The following list, while not intended to be all inclusive, illustrates medical or medical-related expenses which may be reimbursed tax-exempt under a Health Savings Account.  IRS publications 502 and 969 provide more detailed and up-to-date information. Section 213(d) of the Tax Code contains the full provisions of the applicable tax deductions.

 
Abortion if legal abortion
Acupuncture, if treating a medical condition
Alcoholism treatment for inpatient treatment (including meals and lodging) at a center for alcohol addiction
Allergy medicine if treating sickness or injury
Ambulance
Antacid
Antihistamine
Artificial limbs and teeth
Aspirin 
Bactine 
Bandages 
Birth control pills 
Birthing classes / Childbirth classes / Lamaze if classes relate to child birth and not child rearing. Expenses for coach (or doula) or significant other are not eligible
Blood pressure monitoring device 
Blood sugar test kit and test strips 
Body scan 
Braille books and magazines for visually-impaired person, but only the amount above cost of regular printed material
Breast pump Not unless there is a medical need
Breast reconstruction surgery following mastectomy  if mastectomy was done following cancer
Calamine lotion 
Carpal tunnel wrist supports 
Chelation therapy if used to treat medical condition such as lead poisoning
Childbirth classes See Lamaze
Chiropractors 
Condroitin  if used to treat medical condition and not just for general health
Circumcision 
Claritin 
Co-insurance amounts and deductibles 
Cold medicine 
Cold packs 
Condoms 
Contact lenses, related materials & equipment if the lenses are needed for medical reasons.
Contraceptives 
Cosmetic procedures or surgery only amounts paid for surgery necessary to improve a deformity arising from a congenital abnormality, personal injury from an accident or trauma, or a disfiguring disease
Cough suppressants 
Counseling for medical reason. Not for marriage counseling
Crutches for rental or purchase
Decongestants 
Deductibles  
Dental treatments see restrictions for orthodontia, teeth whitening and bleaching
Dentures and denture adhesives 
Diabetic supplies. See Glucose monitoring devices and insulin
Diapers or diaper service may be reimbursable where used to relieve the effects of a particular disease
Diaper rash ointments and creams 
Diagnostic services 
Diarrhea medicine 
Drug addiction treatment for inpatient treatment (includes meals and lodging) at therapeutic drug center
Drug overdose treatment 
Drugs and medicines if legally obtained and generally accepted as medicines and drugs and if treating a medical condition. This includes both prescribed drugs and over the counter drugs.
Ear plugs  if treating medical condition
Egg donor fees 
Eye examinations, eyeglasses and related equipment and materials amounts paid for eyeglasses and lenses prescribed by doctor for medical reasons, eye examinations and eyeglass cleaners are eligible
Fertility enhancement (e.g. treatments, surgery, GIFT, IVF, etc.) to extent procedures are intended to overcome an inability to have children. Expenses for in vitro surrogate not deductible unless the surrogate is a tax dependent.
First aid cream and first aid kits 
Flu shots 
Gauze pads 
Glucosamine  if primarily for medical care
Glucose monitoring equipment blood glucose meters and test strips for diagnostic purposes
Guide dog or other animal aide includes expenses related to purchase, training and care of animal used by vision-impaired or hearing-impaired person
Hearing aids includes cost of hearing aid and batteries
Hemorrhoid treatments 
Home care if expenses qualify as nursing services. Not if for long term care
Hormone replacement therapy  if used primarily for medical care
Hospital services 
Immunizations 
Insect bite creams and ointments 
Insulin 
Lab fees if part of medical care
Language training for dyslexic/ disabled child 
Laser / Lasik eye surgery / Radial Keratotomy if for correction of eye function
Laxatives  
Learning disability expenses for special school or specially trained teacher (prescribed by doctor) for a child who has severe learning disability caused by mental or physical impairment
Lodging at hospital or similar institution  if there to receive medical care
Lodging not at hospital or similar institution up to $50/night, provided: (1) lodging is primarily for and essential to medical care, (2) medical care is provided in a hospital or medical facility related to or equivalent to licensed hospital (3) lodging is not lavish (4) no element of personal pleasure, recreation or vacation in the travel.
Medic-alert bracelet or necklace if recommended by a medical practitioner in connection with treating a medical condition
Medical conference admission & transportation 
Medical monitoring and testing devices including blood pressure monitors, syringes, glucose kit, etc.
Medical records charges (to transfer records to new practitioner) 
Medical services  if legal medical service is recommended by physician, surgeon, specialist or other medical practitioner
Motion sickness pills 
Nasal sprays or strips  if used to treat sinus problems or sleep apnea
Nicotine gum or patches 
Norplant insertion or removal
Nursing services provided by nurse or other attendant so long as services are of a kind generally performed by a nurse.
Obstetrical expenses 
Occlusal guards to prevent teeth grinding 
Optometrist   
Orthodontia   unless for cosmetic purposes
Orthopedic shoes and inserts  to the extent they exceed cost of regular shoes
Ovulation monitor 
Pain relievers 
Patterning exercises for exercises to a mentally retarded child
Physical exams if not employment-related
Physical therapy to treat specific medical condition
Pregnancy test kits 
Prenatal vitamins   
Psychiatric care  if for medical care
Psychoanalysis or psychologist if for medical care and not just for the general improvement of mental health, relief of stress, etc.
Schools and education, residential possibly, if the school or program is to treat behavioral, emotional and/or addictive conditions if the primary purpose of the program is medical care 
 Schools and education possibly, if the main reason for using the school is its resources for relieving the disability of a mentally-impaired or physically-disabled person. Includes Braille, lip-reading and remedial language training.
Screening tests  if used for medical diagnosis
Smoking cessation program including both prescription and over the counter drugs and medicines
Special foods (such as foods needed for a gluten-free or salt-free diet) if prescribed by a physician to treat a specific illness or ailment and is not a substitute for normal nutritional requirements. Reimbursement is limited to the difference between the cost of special food and the cost of commonly available regular food
Spermicidal foam 
Sterilization procedures  if legally-performed operation
Sunglasses if they are prescription lenses
Supplies to treat medical condition if used to diagnose or treat a specific medical condition and is not a personal comfort item
Taxes on medical services and products to the extent imposed on reimbursable medical care or products.
Telephone equipment for hearing impaired persons for expenses of buying and repairing special telephone equipment for hearing-impaired person
Television equipment for hearing impaired persons but reimbursable amount is limited to the cost that exceeds cost of regular item
Thermometers 
Toothache and teething pain relievers 
Transplants for surgical, hospital and labor services and transportation expenses for donors
Transportation to and from medical conference for admission and transportation expenses to a medical conference relating to the chronic disease of the individual’s dependent (meals and lodging are not eligible)
Transportation and related travel expenses for person receiving medical care if travel is primarily for, and essential to, medical care. Includes parking fees and tolls. Car mileage is reimbursed at the current rate set by the IRS each year
Vasectomy 
Viagra to treat medical condition
Weight loss programs and/or drugs prescribed to induce weight loss if prescribed by doctor to treat obesity or other medical condition
Wheelchair 
X-ray fees if received for medical reasons

Qualifying Insurance Premiums

Long Term Care Insurance for Qualifying Policies
COBRA Premiums Under Certain Circumstances

Tags: ,
Posted in HSA Regulations, Misc., Reimbursements | No Comments »

If I elect the HDHP mid-year, can I still contribute the maximum HSA annual contribution?

January 13th, 2008 by WPJ

Normally, you are permitted to contribute 1/12th of your annual maximum for each FULL month you are covered by the HDHP.  For example if you have single coverage and are covered for 6 of 12 months in the TAX year, you may contribute 6/12ths of the annual maximum of $2900 (in 2008) or $1,450. Some people want to maximize their contribution for the tax year so they contribute more than is permitted under the 1/12th rule.  If you contribute any amount in excess of the 1/12th rule in the tax year you subject your self to what is known as the “Testing Period.”

The testing period requires you o maintain the HDHP though the entire month of December of the current tax year AND all 12 months of the following tax year. The type of HDHP coverage (single or family) an individual HSA on December 1 governs the amount that a employee is eligible to contribute for the year.  For instance, if you are enrolled in individual coverage on December 1, you may contribute up to $2,900 or if you are enrolled in family coverage, you may contribute up to $5800 to your HSA  If you fail to satisfy the testing period, the additional contributions made under this exception become taxable and subject to an additional 10% penalty tax.

Tags: , , , , ,
Posted in Contributions, HSA Regulations | No Comments »

« Older Entries
Newer Entries »