HSA accounts
I am changing my health insurance in three months to a non-HSA account. I now have a HSA account with my current health insurance. Do I have to dissolve my current HSA account when I change accts? Can I keep the acct. open in case I need it later? Can I max out the acct. before I drop it? I am trying to find a way to create a savings acct. after maxing out my RIRA. Thanks for your help.
Permalink Submitted by Alan Spross on Wed, 2012-07-11 22:35
I think you mean that about October you will no longer be covered by a high deductible plan. If that is the case, your 2012 HSA contribution must be pro rated by the number of months where you were covered on the first of the month. For example, if you are covered through 10/1, you can make 10/12 of your full annual HSA contribution.
If your HSA custodian allows you to keep the account, you can keep it or roll it over, otherwise you must roll it over to avoid a taxable and penalized distribution. You can keep your HSA account for years and allow it to grow tax free, but any distributions must be for qualified medical expenses to avoid tax and penalty.
You should avoid taxable distributions if you can. In any given year, you can choose to pay medical expenses out of your account or not. One possible strategy is to only use the HSA if you cannot itemize deductions including your medical for a given year. If you can itemize, you should pay the expenses from other funds to allow you to take the deduction.