HSA FAQ for Moneytree Plan
See also: Retirement Plans - Health Savings Account | Health Savings Account Comparison
Questions:
Q: How do I create an HSA?
A: HSAs can be entered as a type of Retirement Plan in the Assets section.
Q: How will the program automatically withdraw funds from HSAs?
A: In the event of an income shortage that causes withdrawals from assets, the HSA will be used before any other assets to cover any medical expenses since the withdrawal will be tax free. For non-medical expenses, the HSA will be last by default, avoiding it if at all possible.
Q: Will the program limit the tax deductible contributions to HSAs?
A: No, just like with other retirement plan types, the program does not impose limits to personal or company additions entered in the main Assets inputs. Additionally, the entire personal contribution will be considered tax deductible. The advisor will have to be sure that they do not enter monthly contributions that would exceed the limit, unless they mean to. Additions can be automatically maximized in the Ret. Plan Strategies tab.
Q: How do I make sure medical expenses automatically result in tax free withdrawals?
A: The program tracks a number of expenses that qualify for tax-free withdrawals. Regular Medical Insurance policies do not qualify. Premiums paid for Medicare Part B and LTC insurance qualify, as well as expenses entered in Taxes > Itemized Deductions > Medical Expenses. Scheduled distributions from HSAs are also assumed to qualify for tax free distributions.
Q: Premiums for medical insurance entered in Miscellaneous Insurance are included in itemized deductions, but are not resulting in tax free withdrawals. How do I fix this?
A: Although medical insurance premiums entered in Miscellaneous Insurance are included as medical expenses for itemized deductions, most medical insurance policies cannot be paid tax free by an HSA. If the policy is Medicare Part B, you can switch it to that to have qualifying premiums calculated based on clients' income. You can also switch the policy to LTC insurance, or add the premiums in Taxes > Itemized Deductions > Medical Expenses.
Q: I have a client that is expecting a large medical expense in the near future. How do I make sure that cost can be covered by the HSA without making a mess of the Itemized Deductions entries?
A: To allow for some flexibility, the program assumes any scheduled withdrawals will be used for qualified medical expenses. Follow this procedure to schedule a withdrawal to pay a large medical expense:
Go to Assets and select the HSA being used to pay the medical expense
Expand the Future Changes section if it is not already, then click the Add New Entry button
Enter the age the medical expense will occur (this will be the HSA owner's age)
Convert the expense amount to a monthly amount and enter it in as a negative value (the withdrawal will be annualized)
Click the Add New Entry button again
Enter the age the medical expense will end, then set all other values to 0 to stop the withdrawals; if they will resume contributions, then the original contribution amounts can be entered
To model the medical expense go to Expenses > Other Expenses and fill in the details; be sure to leave the Tax Deductible field at 0%
Q: The report is not showing penalty taxes for early withdrawals. How do I fix this?
A: Check Assumptions > Other. If the box labeled "Calculate Penalty Tax on Pre 59.5 Plan Distributions" is not checked then that is likely the case. Though the label says 59.5, the program recognizes that penalty taxes on HSAs can be incurred for distributions prior to age 65. Also note that if there are any scheduled withdrawals, the program will assume that it is for a qualified expense, so no income or penalty taxes will be calculated.
Q: My clients have some medical expenses that they can itemize, but do not qualify for tax free withdrawals from their HSA. How do I model this?
A: If the expense in question is not a medical insurance premium, this will require a workaround. Go to Insurance > Miscellaneous Insurance and create a medical insurance premium. Even if they are not actually from insurance premiums, this is an effective workaround. Medical insurance premiums will be both added to personal expenses and the premium amount will be treated as an itemized medical expense while not qualifying for tax free HSA withdrawals.
Q: How do I back into the value determined in the Taxable Income column of the report?
A: For Aspire reports this can be quickly be backed into by the following calculation.
On the page "Health Savings Account - [Ind 1/2]" (H11/H12) take the value from the For Spend Shortage column [a]
On the page "Itemized Deduction Expenses" (G6) record the values from the Medical Expenses column [b]
The Taxable Income amount will be equal to [a] - [b]. If the result is less than 0, then no taxable income amount will be reported.
There may be no taxable income if the shortage for that year does not exceed the clients' medical expenses
In Prosper the report lumps together medical insurance premiums entered in Insurance > Miscellaneous Insurance and the values entered in Taxes > Itemized Deductions > Medical Expenses. To back into this value using only the reports, follow this procedure:
Determine the qualifying medical expenses for HSA distributions:
Go to page "Itemized Deduction & Exemption" (D10) and record the value in the Medical Expenses and Premium column [a].
Go to page "Misc. Insurance Premiums" (B23) and record the value in the Medical and Long-Term Care columns [b]
Take [a] - [b]. This will be the maximum amount that qualifies for tax free withdrawals in the event of a shortage [c].
Determine the "Taxable Income" amount:
On page Health Savings Account - [Ind 1/2] (C14/C15) record the value in the "For Spend Shortage" column [d].
Take [d] - [c]. This will be the amount in the Taxable Income column. If the result is less than 0, the value will be blank for that year.
There may be no taxable income if the shortage for that year does not exceed the clients' taxable income.