Library
Improvements to Health Savings Account Plans
On December 20, 2006 President Bush signed the Tax Relief and Health Care Act of 2006, which includes many significant improvements to health savings accounts (HSAs). These new rules took effect on January 1, 2007.
The new legislation makes the following favorable changes to existing law:
The HSA contribution limit is increased for all individuals.
This improved and simplified new law allows any eligible employee with HDHP coverage to make increased contributions to their HSA plans. For 2007 the amounts are $2,850 for single coverage, and $5,650 for family coverage.
Allows full year contributions for mid-year enrollees.
The new law permits a full year HSA contribution for persons who join an HDHP midyear if the employee continues to be eligible for HSA contributions for the entire calendar after the year in which he or she joins the HDHP. Previous law allowed mid-year enrollees in an HDHP only a pro-rated contribution to their HSAs (1/12th of the limit for each month of eligibility).
Allows employers to make higher HSA contributions on behalf of nonhighly compensated employees.
The new law allows employers to contribute higher amounts for nonhighly compensated employees than for highly compensated employees.
Allows rollovers from FSAs and HRAs to HSAs.
The new legislation opens a five year window during which employers may transfer, or allow employees to transfer, funds from FSAs or health reimbursement arrangements (HRAs), or both.
Permits a one-time tax-free irrevocable rollover from an individual retirement account into an HSA.
The rollover will count toward the annual maximum HSA contribution for the year in which it is made, and no deduction is allowed for the rollover. Additionally, failure to maintain eligibility for HSA contributions for at least 12 months following the IRA transfer would result in income tax and a 10% penalty on the transfer.
For more detail you may want to check out:
