Health Savings Account (HSA)

INDIANA UNIVERSITY

IU Human Resources

A healthy couple retiring at age 65 can expect to pay

$404,253 in premiums, dental, vision, hearing and all other out of

pocket health-related expenses during retirement*

Reality Check

*Source: HealthView Services – 2017 Retirement Health Care Costs Data Report

Using Social Security benefits to cover healthcare costs:

• A 66-year-old couple will need 59% of benefits

• A 55-year-old couple will need 92% of benefits

• A 45-year-old couple will need 122% of benefits

Healthcare costs will be one of the most significant expenses in retirement.

Reality Check

*Source: HealthView Services – 2017 Retirement Health Care Costs Data Report

Health Savings Account

• Savings Account

• For Healthcare Expenses

• Paired with enrollment in an HDHP

• Offers Triple Tax Savings

• Help prepare for Retirement

HSA Contributions

• University makes a contribution each year Varies by medical plan enrollment

Varies by coverage level

• You make contributions each yearMinimum of $300 per year

Annual maximums are set by the IRS

Made through payroll deductions

Can change election any time

Annual HSA Contribution Maximums

Maximums For 2018 (changes each year)

• Spouse may contribute to their own HSA up to another $1,000 (if also enrolled in an HDHP)

• Maximums include contributions from all sources (IU & employee)

Employee Only $3,450

Family (Employee + Child(ren), Employee + Spouse, or Family) $6,850

Age 55+ “Catch-Up” $1,000

Tax Advantage #1

No Taxes on Contributions

• No Federal Income Taxes

• No State Income Taxes

• No Local Income Taxes

• No Social Security Taxes (OASDI)

• No Medicare Taxes (FICA)1

Tax Advantage #2

No Taxes on Interest or Earnings

• Cash Account earns savings interest

• Open an Investment Account

$1,000 initial account transfer

Set up one time or recurring transfers

Manage investments online (FREE)

Speak with a Nyhart registered investment representative (FREE)

2

Tax Advantage #3

No Taxes on Withdrawals when Used for IRS Approved Health Expenses

• Medical

• Prescriptions

• Dental

• Vision

• Hearing Aids

• Acupuncture

• COBRA premiums

• Medicare premiums

3

List of HSA eligible expenses at hr.iu.edu/benefits/2018/hsa.html

More Advantages

• Use for the health expenses of any tax dependent (spouse, child(ren), dependent relative, etc.)

• Flexibility of access

Use debit/Visa card at healthcare providers (physician offices, pharmacy, dental, vision providers)

Use Online tools to pay bills directly

Use Online tools to transfer money

Download the mobile app

More Advantages

• Unused funds are always yours to keep

Even when you retire

Even when you leave IU employment

Even when you are no longer eligible to make contributions

Even when you pass away, your funds can pass to your beneficiaries

• Review & update every year

• Can use funds to reimburse yourself for expenses incurred all the way back to the date the account was opened

IRS Rules

HSA Restrictions

• Must meet eligibility requirements to be eligible to make tax-free contributions

• Until Age 65, must use ONLY for IRS qualified healthcare expenses, otherwise IRS imposes:

‒ 20% penalty

‒ Income taxes

• Age 65 or older, can use account for non-healthcare expenses:

– NO penalty

– Income taxes

Eligibility Rules You must have a valid Social Security Number.

You cannot be claimed as a dependent on someone else’s tax return.

You must be covered under an HDHP.

You must have NO other medical coverage.• Coverage by a federal government program, e.g., Medicare A & B

or D, Tricare, or VA medical

• Coverage by a spouse’s medical plan unless it is also an HDHP

• Coverage by a spouse’s:

o Flexible spending account (FSA)

o Health Reimbursement Arrangement (HRA)

o IU’s TSB Healthcare Reimbursement Account (TSB)

HSA Reporting Requirements

What to Retain:

Copy of Receipt

Doctor’s Prescription or Note

• Show expense is primarily for medical care

• Recommended for treatment of a specific medical condition

Tax Reporting:

Form 8889 (annually with income taxes)

• Report contributions to your HSA

• Report distributions from your HSA

• Figure any taxes or penalties for ineligible contributions and/or distributions

Receipts are not sent to the IRS.

Keep receipts and records for use if audited by the IRS

Retirement Considerations

How Medicare Affects Your HSA

• Medicare enrollment (A, B or D) will make you ineligible to contribute tax-free dollars to your HSA.

• If actively employed and covered by a group health plan at age 65:

• Can postpone enrollment in Medicare until retirement

• Not able to postpone if drawing from Social Security income benefits (yours or spouse’s)

When You Enroll in Medicare

• Enroll during initial eligibility (7 month period around 65th birthday):

o If your birthday falls mid-year: HSA Contribution maximum will be prorated based on number of months you were on an HDHP up to your Medicare effective date

o If your birthday falls after December 1st: Can contribute full annual contribution maximum

• Enrollment postponed until after retirement:

o Medicare backdates the enrollment date in Medicare Part A either 6 months or back to 65th birthday (which ever is closest)

o HSA Contribution maximum will be prorated based on number of months you were on an HDHP up to your Medicare effective date

If You are Ineligible to Make Tax-Free Contributions

You can enroll in HDHP plan and waive the HSA• No HSA account will be opened; No IU contribution

• No taxes or penalties to worry about

• Can still enroll in the TSB Healthcare Reimbursement Account

If you are ineligible and still enroll in the HSA• You will be required to contribute the $300 minimum to receive the IU

Contribution to your account

• You are responsible for:o Filing an “Excess Contribution” form with Nyhart

o Reporting all contributions (University and Employee contributions) as taxable income on your annual tax return

o Paying any taxes or penalties assessed by the IRS.

• Recommend consulting a tax advisor

Resources

Nyhart

• View account activity

• Expense Tracker function

• Transfer funds online to/from a personal bank account

• Pay your healthcare expenses directly from account

• Find common forms

• Searchable IRS Qualified Expense List iu.nyhart.com

Castlight Health • Search for a primary care physician

• Learn more about prescription drug options

• Know where you stand in your deductible

• Look up prior medical and Rx claims

• Estimate personalized costs for medical services

• Compare in-network doctors, facilities, and medical services

• Review step-by-step explanations of past medical spending

• Receive helpful tipsus.castlight.com

IRS Website

• Publications 969 – Health Savings

Accounts and Other Tax-Favored Health Plans

502 – Medical and Dental Expenses

• Tax Forms Form 8889

Instructions for Form 8889www.irs.gov

Questions

IU Human Resources

TEL: 812-856-1234

FAX: 812-855-3409

askHR@iu.edu

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