Topic: Health Savings Accounts
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Are financial institutions required to open health savings accounts (HSAs) for individuals that apply for them, or can we follow our standard procedures for determining eligibility for checking and savings accounts? For example, we generally deny accounts to customers due to previous account closures. We would provide adverse action notices if information from a consumer report is used to deny the account.
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We are not aware of any law or regulation requiring banks to open HSAs for all individuals who apply for them, and we believe that you may follow your bank’s internal procedures for determining eligibility to open a new account — including providing adverse action notices when required. While the IRS has established requirements that…
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Do Health Savings Accounts (HSAs) require monthly interest payments? We are considering paying interest on these accounts on a quarterly or semi-annual basis.
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We are not aware of a requirement to make HSA interest payments at any particular frequency. The IRS’ form HSA agreements do not specify that interest be paid monthly or at all. Additionally, Regulation DD does not impose a requirement to pay interest “at any particular frequency,” and the official commentary to Regulation DD provides…
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Are we required to notify our customers of an over contribution to a health savings account (HSA)? Are we required to distinguish between individual and family HSAs?
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No, your bank is not required to notify HSA customers when they have exceeded their annual contribution limit. Under the IRS requirements for HSA trustees, your bank generally should monitor contributions to HSAs and reject contributions that exceed a maximum amount, which is the sum of the maximum family coverage deductible plus the maximum catch-up…
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A customer who named her husband as the beneficiary of her health savings account (HSA) prior to their divorce has died. The executor of the customer’s estate is claiming that the HSA belongs to the estate and not the beneficiary, since he is a former spouse. Is the executor correct?
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We do not have enough information to determine if the executor is correct, and due to the complexity of this issue (as discussed below), we recommend obtaining the advice of bank counsel or requesting that the executor provide a court order to your bank before you distribute the HSA. If the HSA qualifies as a…
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Under the new unclaimed property law, tax-deferred accounts could be presumed abandoned three years after the date “by which distribution of the property must begin to avoid a tax penalty,” two years after the date “of the required distribution as stated in the plan,” or two years after the date “by which distribution of the property must begin in order to avoid a tax penalty.” How can we calculate those dates for health savings accounts?
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Those dates are inapplicable to health savings accounts (HSAs). HSAs are governed by a section of the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) that covers a wide range of tax-deferred accounts, including HSAs. It provides for five separate possible abandonment periods for such accounts, but not all of the possible abandonment periods are…
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Do we need to obtain a wet signature on individual retirement account (IRA) and health savings account (HSA) documents, or can we use an electronic pin pad to obtain a signature? Also, do we need to keep hard copies of IRA and HSA files, or can we retain only electronic copies?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We believe that you may accept electronic signatures on IRA and HSA documentation. Both Illinois…
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We just started offering health savings accounts (HSAs). If a customer cashes a check (for any reason) using their HSA, and the check is returned, can we offset the returned check amount against the HSA funds? Would that be a nonqualified distribution? Our account agreement holds the customer responsible for checks deposited in the HSA that are returned unpaid, but we do not deposit these checks when cashing them. We use IRS form 5305-C for our HSAs, which are custodial accounts.
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No, in our view, your bank should not exercise a setoff against funds in an HSA account for a check that it cashed for its HSA customer which subsequently was returned for insufficient funds. In general, under Illinois law, the right of setoff can arise contractually when a deposit account or loan agreement provides for…
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Under the new Illinois unclaimed property law going into effect on January 1, 2018, when is a health savings account (HSA) presumed abandoned if the presumed owner is deceased?
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Under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA), HSAs generally are presumed abandoned thirty-three years after the date the account was opened, unless there is a distribution or the owner dies. HSAs are governed by a provision in the Illinois RUUPA that covers a wide range of tax-deferred accounts, including HSAs. Any one…
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We plan to start offering health savings accounts (HSAs), initially to employees, and later to the public. Do we need to list the bank as custodian on HSAs? Do we need to list the bank as a custodian on individual retirement accounts (IRAs)?
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We recommend consulting with a tax professional, but in our view, your bank can serve as either a custodian or trustee of an HSA, but it must serve as a trustee of an IRA. Under the Internal Revenue Code and IRS guidances, an HSA is a “trust” that must be established with a “qualified trustee”…