Additional HSA Funding Sources (2008)


What sources other than annual contributions are available to fund an HSA?

If you have immediate health care needs, there may be insufficient funds in an HSA, especially in its initial phase, to pay for the health insurance policy deductible and/or any qualified medical expenses not covered by the health insurance policy. To compensate for this potential problem, there are several other sources from which you can roll over (transfer) funds into an HSA on a tax-free basis:
Funds may be rolled over to an HSA from an unused flexible spending account (FSA) or a health reimbursement account (HRA).
Funds may be rolled over to an HSA from an IRA.


What are the requirements to fund an HSA with funds from an FSA or HRA?

An employee has a one-time opportunity to roll over unused funds from an existing flexible spending account (FSA) and/or health reimbursement account (HRA) into an HSA. The transfer is tax-free and must be made prior to January 1, 2012. The maximum transfer amount is the lesser of the balance in the FSA or HRA as of the date of transfer or September 21, 2006.


What are the requirements to fund an HSA with funds from an IRA?

A one-time tax-free transfer of funds from an IRA to an HSA may be made. The amount rolled over cannot exceed the annual HSA statutory maximum contribution for the year ($2,900 for individual coverage or $5,800 for family coverage in 2008). The transfer of funds from an IRA to an HSA can be done only once during your lifetime and, once rolled over to the HSA, the funds cannot be transferred back to the IRA.

Health Savings Account Distributions


When can funds from an HSA be withdrawn tax free?

HSA funds can be withdrawn tax free at any time to pay for the qualified medical expenses of yourself, your spouse and dependents. These expenses include:

  • Prescription and over-the-counter drugs
  • Doctors visits, lab, x-ray and other diagnostic and treatment services
  • Dental, vision and psychiatric care services
  • Qualified long-term care services and long-term care insurance premiums
  • Medicare Part A and B premiums, Medicare HMO or Medicare Advantage premiums (but not Medicare supplemental policy premiums)
  • COBRA health continuation coverage premiums and health insurance premiums for those on unemployment compensation
It is your responsibility to ensure that expenses paid from the HSA are qualified medical expenses and to keep adequate records concerning the use of HSA funds.


Can HSA funds be withdrawn to pay for non-medical expenses?

Yes. Such withdrawals, however, are subject to income tax plus a penalty tax of 10% of the amount withdrawn. Any such withdrawals made after you reach age 65, die or become disabled are not subject to the 10% penalty tax.


What happens if I become ineligible for an HSA?

In this event, no additional contributions can be made to your HSA. The funds in the HSA, however, can still be used as described above. If used solely to pay for qualified medical expenses, the distributions will be free of income tax.


What happens if I die?

If the beneficiary listed on the HSA is your surviving spouse, she/he becomes the new account owner and can use the HSA subject to the normal rules that apply to all HSAs. If the beneficiary is other than your surviving spouse, the funds in the HSA are taxable income to your beneficiary in the year of death, except for any of your qualified medical expenses paid from the HSA within one year of death.

Health Savings Account Checklist

Become covered under a qualifying high-deductible health plan.

  • Establish a Health Savings Account with a qualified HSA trustee or custodian.
  • Arrange for payment of HSA contributions, subject to the maximum annual contribution amount ($2,900 for individual coverage or $5,800 for family coverage in 2008).
  • An HSA typically provides a checkbook or debit card to use when paying for qualified medical expenses. While receipts are not submitted to the HSA administrator, they should be retained if needed in order to demonstrate that distributions have been made exclusively for qualified medical expenses.
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VSA 2A3.17, 2A3.15, 2A3.18 ed. 01-08
VSA, LP The information, general principles and conclusions presented in this report are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care has been taken in the preparation of this report, neither VSA, L.P. nor The National Underwriter Company is engaged in providing legal, accounting, financial or other professional services. This report should not be used as a substitute for the professional advice of an attorney, accountant, or other qualified professional.