IU Human Resources Health Savings Account (HSA) for Retirees Updated 03/21/2019 INDIANA UNIVERSITY
Reality Check You may live much longer than you think. who are in their 90 & mid-50s today will live to be *Source: Society of Actuaries https://www.soa.org/research/age-wise/
Reality Check 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 * *Source: HealthView Services – 2017 Retirement Health Care Costs Data Report
Health Savings Account • Savings Account • For Healthcare Expenses HSA • Paired with a High Deductible Health Plan (HDHP) • Offers Triple Tax Savings • Helps build your healthcare savings for Retirement
HSA Contributions University makes a contribution each year: • Varies by medical plan enrollment • Varies by coverage level You make contributions each year: • Minimum of $300 per year • Annual maximums are set by the IRS • Made through payroll deductions HSA • Can change election any time
Annual HSA Contribution Maximums Maximums For 2019 (changes each year) Employee Only $3,500 Family (Employee+Child(ren), Employee+Spouse, or Family) $7,000 Age 55+ “Catch-Up” Contributions $1,000 • 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)
̶ ̶ ̶ ̶ ̶ Tax Advantage #1 No Taxes on Contributions No Federal Income Taxes No State Income Taxes No Local Income Taxes No Social Security Taxes (OASDI) 1 No Medicare Taxes (FICA)
̶ ̶ 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 2 • Manage investments online (FREE) • Speak with a Nyhart registered investment representative (FREE)
̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ Tax Advantage #3 No Taxes on Withdrawals when Used for IRS-approved Health Expenses Medical Prescriptions Dental Vision Hearing Aids 3 Acupuncture COBRA premiums Medicare premiums Medicare supplement plan premiums (i.e. The IU Blue Retiree Plan) List of HSA eligible expenses at hr.iu.edu/benefits/medical-plans/hsa.html
̶ ̶ ̶ More Advantages Use for 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 (remember to review & update every year!) • Spouse = HSA remains tax-free • Friend or family member = Taxable • Estate = Taxable 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: Flexible spending account (FSA) o Health Reimbursement Arrangement (HRA) o IU’s TSB Healthcare Reimbursement Account (TSB) o
̶ ̶ ̶ ̶ ̶ ̶ If You are Ineligible to Make Tax-Free Contributions You can enroll in an 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: Completing necessary documents and withdrawing funds from account o Reporting all contributions (University and Employee contributions) as o taxable income on your annual tax return Paying any taxes or penalties assessed by the IRS. o Recommend consulting a tax advisor
Turning Age 65 Considerations
Enrollment in Medicare Automatic Enrollment – Age 65 and – Receiving benefits from Railroad Retirement Board (RRB); OR – Receiving benefits from Social Security • From your record • From your spouse’s record
̶ ̶ ̶ Enrollment in Medicare Initial Enrollment Period 7 month period around 65 th birthday • 3 months before your birthday • Your birthday month • 3 months after your birthday Special Enrollment Period Any time while covered by an active group health plan During 8-month period after employment ends
̶ ̶ ̶ Enrollment in Medicare Postponing Enrollment Must be in an active group plan (i.e. IU’s medical plan) Use special enrollment period once retired Part A enrollment effective date is backdated 6 months from the date you apply for Medicare or SSI
̶ ̶ ̶ ̶ ̶ How Medicare Affects Your HSA ANY enrollment in Medicare will make you ineligible to contribute tax-free dollars to your HSA. Part A Part B Part D Date of enrollment will affect the amount of HSA contribution allowed for that year: Prorated amount if partial year Full amount if December 1 or later
Retirement Considerations
̶ ̶ ̶ Retirement Date Verify your IU Retiree Status eligibility date IU’s contribution is made with 2 nd paycheck in January • Must have retirement processed AFTER the close of payroll (coordinate with your dept) • Full contribution deposited (not prorated based on retirement date) • No portion of IU’s contribution is due back to IU Your HSA contributions are split out evenly over the number of paychecks in the year (assuming 12 months of employment) • Do not have to contribute full $300 prior to retirement
Dealing with Excess Contributions Annual Contribution Maximum – Prorated based on number of months you are an eligible individual. Example : Retirement Date: May 30 Eligible to Contribute: 5/12 of annual max Each year you make excess contributions : – Complete a Distribution Request Form • Must have full amount available in account in order to remove it – Send to Nyhart before end of tax year (Dec 31) – Report amount on income taxes; pay taxes
Leaving IU HSA Account Stays with You – IU automatically notifies Nyhart of retirement – Nyhart converts account to an ‘individual’ account • New account will be created • Brief blackout period • New debit/Visa cards • New login information • Monthly account maintenance fee ($2.75/mo) – Account can remain with Nyhart or later be transferred to another HSA account vendor (if you choose)
Resources
Nyhart iu.nyhart.com Login to your account to: • View account activity • Find common forms • IRS Qualified Expense List • Use the Expense Tracker function • Transfer funds online to/from a personal bank account • Pay your healthcare expenses directly from account • Manage investment account
Internal Revenue Service (IRS) www.irs.gov Publications: • 969 – Health Savings Accounts and Other Tax-Favored Health Plans • 502 – Medical and Dental Expenses Tax Forms: • Form 8889 • Instructions for Form 8889
Questions
IU Human Resources The IU Human Resources Customer Care Team is here to assist you in all matters related to your employment at Indiana University. Starting from when you begin your career, continuing through your service, and providing a seamless transition as you complete your employment journey – we are here for you. T : 812-856-1234 F : 812-855-3409 askHR@iu.edu
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