401(k) Specialist Issue 3 - 2024 - 40

401(k) PRODUCTS
HSAs are Evolving: Here's What to Know
Beyond the Basics
By Brian Hutchin
MEDICAL CARE IS very personal, and so
are the expenses that go along with it. Many
eligible individuals choose to manage their
medical care costs with a health savings
account (HSA).
According to the Consumer Financial
Protection Bureau, there were approximately
36 million HSAs active in 2023, and these
accounts collectively held more than $116
billion in assets, an increase of more than
500% since 2013. This spike is no surprise
as medical costs continue to rise and as
the benefits of HSAs are becoming better
understood.
In spite of this rapid growth, it may come
as a surprise to many HSA accountholders
that HSA funds can be used more broadly
than immediate personal healthcare needs-
allowing the HSA to play an expanded role
in a person's overall financial plan. As HSA
use has increased in the more than 20 years
since they were established, we see a need
to manage these accounts similar to how we
manage other long-term financial tools. For
example, in some circumstances, an HSA can
cover medical costs for a spouse, child, and
dependents, and in other situations, such
as death or divorce, accountholders need to
evaluate how the funds may be transferred.
Beyond a fundamental understanding of
what an HSA can do, it's also critical to be
informed of their full scope and how they
need to be managed over time.
HSAs can be used to cover costs that
many may not have thought to be eligible,
such as acupuncture, contact lenses and
supplies, crutches, smoking cessation
programs, wheelchairs, dental treatments
and more.
HSAs also cover a broader spectrum of
medical needs unique to women than many
realize. The IRS provides full guidance on
what qualifies as an HSA-eligible expense, so
review these resources to understand all of
the options.
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ISSUE 3 2024 | 401kSpecialist.com
an attorney before making or changing a
beneficiary designation.
Managing Account Changes After
Divorce
HSA funds can be transferred between
partners during a divorce or separation as
part of the divorce agreement. A court order
may direct the transfer of funds from an
existing HSA balance to a new HSA opened
by the ex-spouse.
As long as the transfer is completed in
Covering Care for Medical
Dependents
An HSA can be used to pay for eligible
expenses for a spouse, children or anyone
listed as a dependent on the accountholder's
tax return, regardless of whether they
have individual or family coverage through
their health plan. Given this guidance, an
HSA can be used to cover qualified medical
expenses for aging parents-as long as they
are listed as qualified medical dependents. If
they have a non-relative listed as a qualified
dependent on their tax return, they could
use their HSA to pay for their qualified medical
expenses as well.
HSA Beneficiaries
What happens to the funds in an HSA after
the accountholder passes away? This is a
consideration to be mindful of at account
opening and over time, as one or more
beneficiaries may be designated.
In certain states, a spouse's consent may
be necessary if a person other than, or in
addition to the spouse, is named a beneficiary
or to change an existing beneficiary
designation. HSA beneficiaries and inheritance
can become a complex process, so
accountholders should seek guidance from
accordance with the terms of the agreement
and the IRS guidelines, it shouldn't
result in any tax consequences for either
party. Note, however, once a divorce or
separation is final, you cannot continue to
use your HSA to pay for your ex-spouse's
medical expenses, unless they're listed as a
dependent on your tax return.
The Bottom Line
In addition to having triple tax benefits,
portability and other advantages, HSAs can
help manage medical costs beyond personal
basics and help cover important bills for
spouses, child and medical dependents. Be
sure to research and consider working with
a professional to help you understand the
full spectrum of benefits and other considerations
involved with HSAs.
Brian Hutchin, CTP, is EVP and Director of UMB
Healthcare Services at UMB Bank in Kansas City,
Mo. With more than 25 years of financial industry
experience, he is responsible for the overall strategy
and management of the Healthcare team,
including sales, implementation and relationship
management.
All mention of taxes is made in reference to federal tax
law. Neither UMB Bank n.a., nor its parent, subsidiaries,
or affiliates are engaged in rendering tax or legal advice
and this document is not intended as tax or legal advice.
401(k) Specialist Issue 3 - 2024

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