Health Savings Accounts: Treasury Pushing Banks to Open More

Health Savings Accounts (HSA) are a great new deposit account for banks and credit unions. Although less than one year old, the U.S. Treasury Department has been swift to provide guidance on how the law will be implemented.

Any bank or credit union is automatically allowed to offer HSAs to their customers as either a trust or a custodial account. You can modify your IRA enrollment form to reflect HSAs or use the model HSA form, which can be found on www.treas.gov, under Money Management, just click on Health Savings Accounts and print out the form. There is one for custodial accounts and one for trust accounts.

A Health Savings Account is a special account owned by an individual where contributions to the account are to pay for current and future medical expenses. They are used in conjunction with a High Deductible Health Plan and with insurance that does not pay over-first-dollar medical expenses.

Those eligible include any individual: that is covered by a high deductible health plan; that is not covered by other health insurance; that is not enrolled in Medicare; or one who cannot be claimed as a dependent on someone else's tax return. For instance, a HSA cannot be established for a child.

There are no income limits on who may contribute to an HSA, nor is there any requirement of having earned income to contribute to one. Contribution to HSAs can be made by an employer, or the individual, or both. If made by the employer, it is not taxable to the employee. If made by the individual, it is an "above-the-line" deduction. Contributions can be made by others on behalf of an individual and still be deducted by the individual.

The big plus for financial institutions is that there is no substantiation that distributions were used for qualified medical expenses. HSA funds can be invested in the same types of investments as IRAs. Minimum deposit, minimum balance requirements, minimum distribution requirements, distribution timing requirements, and account fees can be set by the financial institution - there are no additional conditions applied by HSA rules.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 8, 10/04