Topic: Health Savings Accounts
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We want to start maintaining health savings accounts (HSAs) for our customers. We would hold the accounts, but we would not invest the funds or otherwise manage the accounts. Does Illinois law establish whether we should we set these up as custodial or trust accounts?
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No, there is no Illinois law that specifically defines a bank’s role with respect to an HSA. We recommend consulting with a tax professional to clarify your bank’s role and requirements regarding HSAs, but we believe that a bank may serve as either a trustee or custodian for such accounts. Under the Internal Revenue Code…
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We have several questions about the Department of Labor’s (DOL) Fiduciary Rule. We offer CD IRAs and health savings accounts (HSAs). We don’t collect any custodial or periodic fees for these accounts. Are HSAs covered by the rule? How should we handle distributions from our CD IRAs? Can we refer our customers to our wealth management department (without compensating employees for these referrals)?
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The DOL rules expressly include health savings accounts in the definition of an IRA, but the new Fiduciary Rule will apply only if your bank is providing “investment advice” (as defined by the new rule) for “compensation” (as defined by the rule) in connection with the HSAs. Similarly, the Fiduciary Rule could apply to distributions…
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Can we return a check drawn on a Health Savings Account (HSA)?
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Yes, and we would recommend returning checks that would result in an overdraft to the HSA account. The IRS rules for HSAs prohibit accountholders from overdrawing an HSA — overdrafts are treated as loans, which are prohibited transactions. (It is possible to link a savings account to an HSA to cover overdrafts as a workaround,…
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Is a Health Savings Account (HSA) treated like other checking/savings accounts for remittance or does it follow the IRA guidelines for remittance?
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A Health Savings Account (HSA) should be treated like a savings or checking account under the Uniform Disposition of Unclaimed Property Act (UPA), subject to the discussion below. An HSA is a custodial account that may be established as a savings or checking account. Unlike an individual retirement account (IRA) — which is specifically addressed…
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If a husband has family insurance coverage and a health savings account (HSA), can he and his spouse each make a catch-up contribution into his HSA? Or should his spouse make a catch-up contribution into her own HSA?
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Each spouse must make their $1,000 “catch-up” contribution into their own respective HSA. In 2016, an eligible individual with self-only qualifying insurance coverage can contribute up to $3,350 to his HSA. If the individual has family coverage, his maximum contribution is increased to $6,750. If an eligible individual is 55 years or older at the…
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Does Illinois law permit a dormant account fee to be assessed on a health savings account that is held as a demand deposit account product? The account has had no customer-initiated transactions for twelve months.
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We are not aware of any law or rule that would prevent you from charging a dormancy fee on a health savings account (HSA). However, we caution that charging such a fee might be viewed as an unfair act or practice. Given the nature of HSAs, many accounts may remain inactive because IRS rules penalize…
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Can a health savings account (HSA) be linked to a savings account to make up for overdrafts?
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Based on our conversation with the IRS (through their business helpline, 800-829-4933), we do not believe that the IRS rules would prohibit a bank from linking HSAs to savings accounts for purposes of overdraft protection. Unlike an overdraft transaction that is covered by the bank, such transfers would not be considered loans to the HSA…
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Does the interest earned by a health savings account (HSA) count towards its annual contribution limit?
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We posed this question on the IRS helpline, and we were told that interest paid on HSA accounts does count towards the annual contribution limit (and therefore, any interest paid on an HSA account would reduce the amount that could be contributed to the account). The IRS Publication on HSA accounts states that HSA accounts…