Last Reviewed: August, 2018
Health Savings Accounts (HSAs) were created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Public Law 108-173) which was signed into law on December 8, 2003. Federal credit unions are authorized by NCUA’s Rules and Regulations parts 721 and 724 to open HSAs.
HSAs are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. Individuals under the age of 65 are eligible to contribute to an HSA if they are covered by a “qualified health plan” (plans generally referred to as high-deductible health plans). As with IRAs, there are reporting obligations on any financial institution that holds HSAs.
Individuals may contribute up to 100% of the health plan deductible. For details on current contribution requirements and limitations visit the U.S. Internal Revenue Service (IRS) website.
Amounts contributed to an HSA belong to the account holder and are completely portable, that is to say, an accountholder may move the account from one financial institution to another or from one employer to another. Contributions may be made by individuals, family members and employers. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers are allowed to offer HSAs through a cafeteria plan. Funds in the account may grow tax-free through investment earnings, just like an IRA. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by end of year, unused funds remain available for use in later years. Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
In order for a member to open an HSA, he or she must be an eligible individual. An eligible individual means an individual who:
- Is covered by a high deductible health plan (HDHP); and
- Is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain types of limited coverage); and
- Is not enrolled in Medicare; and
- May not be claimed as a dependent on another person’s tax return.
A credit union:
- Is responsible for opening the account for an individual only. However, contributions may be used for family purposes.
- Is the guardian of the funds.
- Must limit yearly deposits (contributions) to the highest cap allowable by the IRS.
- Must report to the IRS evidence of contributions and distributions as custodian of the funds.
A credit union is not responsible for:
- Verification of proper use of the funds.
- Verification of a qualified health plan.