Health Savings Account reference guide

Transcription

1 Heath Savings Account reference guide

2 Information at your fingertips This ist of chapters and page numbers wi hep you find the information you need quicky. A detaied ist of sections and topics is at the beginning of each chapter. Chapter 1 page 3 Chapter 2 page 17 Chapter 3 page 23 Chapter 4 page 29 Chapter 5 page 35 Chapter 6 page 39 Getting started with your heath savings account (HSA) This chapter introduces you to the many SeectAccount HSA features and describes how your heath pan works with your HSA. You earn how to register at seectaccount.com and how to set up your HSA with optiona features. You aso be introduced to onine toos and resources at your fingertips. Contributing to your HSA There are many good reasons to contribute to your HSA and severa ways to do it. This chapter examines why it is so beneficia to contribute to your HSA, presents strategies and tips to make contributing simpe and easy, discusses contribution imits, catch-up contributions, roover contributions and more. Being reimbursed from your HSA HSAs give you severa reimbursement options, incuding debit card, crossover, onine and manua reimbursement requests and direct deposit. This chapter examines your HSA reimbursement options, introduces you to the broad range of medica expenses for which you can be reimbursed from your HSA and gives an exampe of how you are reimbursed from your account. Saving for retirement with your HSA Your HSA is a smart way to save for retirement. This chapter presents effective strategies to maximize your HSA. It aso expains how HSAs work for peope enroed in Medicare. Managing your HSA when ife changes What happens to your HSA when you encounter ife changes ike osing your job, divorce and even death? This chapter expores what happens to your HSA when these events occur. HSAs and your taxes This chapter covers such things as reporting HSA income on your tax return, important forms to submit and how individua HSA contributions are treated on your tax return. Chapter 7 Investing your HSA page 43 This chapter introduces you to investment strategies and options that can hep you grow your HSA from minimum baances and basic investment accounts, to sef-directed mutua fund options and asset casses. Chapter 8 page 51 Getting hep with your HSA You have severa options for getting hep if you can t find information and answers in these pages. This chapter ooks at the many resources avaiabe to you as an HSA member and incudes a gossary of terms. 2

3 Chapter 1 Getting started with your heath savings account (HSA) This chapter introduces you to the many SeectAccount HSA features and describes how your heath pan works with your HSA. You earn how to register at seectaccount.com and how to set up your HSA with optiona features. You aso be introduced to onine toos and resources at your fingertips.

4 Chapter 1 Getting started with your heath savings account (HSA) Section 1 Wecome to SeectAccount HSA 6 Section 1.1 Getting to know SeectAccount 6 Section 1.2 Quick overview of what you need to do 6 Section 2 Set up your HSA 7 Section 2.1 Compete these forms 7 Section 2.2 Your optiona HSA features 7 Section 2.3 Section 2.4 Debit card or crossover Which HSA reimbursement method is better for you? 8 Submit your onine appication and contribution to SeectAccount 8 Section 2.5 Your heath pan Expanation of Heath Care Benefits 9 Section 2.6 Spend or save What s your HSA strategy? 10 Section 2.7 Your heath pan is an HSA-quaified HDHP 10 Section 2.8 HSA member eigibiity 11 Section 3 Manage your HSA onine 11 Section 4 Understanding what and when you pay 12 Section 4.1 Exampes of an HDHP without an HSA and with an HSA 13 4

5 Section 5 Frequenty asked questions 14 What is an HSA? 14 What are the advantages of an HSA? 14 What are my responsibiities as an HSA hoder? 14 What if, in the future, I am not covered by an HDHP or I end coverage through my empoyer? 14 If I (or my empoyer) change heath pans midyear, from a non-hsa pan to an HSA pan, can any amount paid toward my previous pan deductibe be appied to my new HSA pan deductibe? 14 Can business owners not eigibe for a heath reimbursement arrangement (HRA) estabish an HSA? 14 Is someone enroed in Medicare eigibe for an HSA? 14 Is the HDHP portabe? 15 How is interest credited to my HSA? 15 Is there a fee for having an HSA? 15 Why did I get a bi from my provider? 15 Wi I have to pay my provider before I am reimbursed from my HSA? 15 Why didn t I have to pay for my prescription at the pharmacy? 15 Why did I have to pay for my annua checkup? I thought I had 100 percent coverage. 15 Why did I get a check in the mai from SeectAccount? Who is SeectAccount? 15 What happens to an HSA at the end of the year? 15 5

6 Chapter 1 Getting started with your HSA Section 1 Wecome to SeectAccount HSA SeectAccount is a nationa eader in the administration of persona spending accounts. Our experience and toos make it easy to use your HSA. Section 1.1 Getting to know SeectAccount SeectAccount ranks among the top administrators nationay in managed HSA assets and accounts. We are an IRS-approved non-bank trustee with more than 20 years experience administering persona spending accounts. Setting up and using a heath savings account (HSA) makes a ot of sense. It s an easy and convenient way to pay for your eigibe medica expenses, enjoy tax savings and earn money on the funds, too. And SeectAccount is the right choice because: Experience. SeectAccount knows account administration. It s one of the top administrators of medica banking services in the nation, with one of the argest customer ca centers. Competitive SeectAccount has ow fees and competitive interest rates. There are no hidden transactions fees. Service You can get the answers you need from an experienced medica banking expert. In a recent survey 93 percent of SeectAccount customers were either satisfied or extremey satisfied with the service they received. We re here to hep. Give us a ca at (651) or to free at Our ca center is open 7 a.m. to 7 p.m. Centra Time, Monday through Friday. Investments Once you reach a minimum of $1,000 in your account, you can invest the amount over $1,000 into mutua funds seected by Devenir Advisors LLC for SeectAccount. Once you have $10,000 in investments an optiona sef-directed HSA brokerage account is aso avaiabe. By enroing in a HSA-quaified heath pan, you ve taken an important first step in managing your heath and your heath care doars. Maximize the vaue by opening a SeectAccount tax-advantaged HSA that heps you pay for medica expenses now and in the future. This HSA reference guide tes you everything you need to know about your SeectAccount HSA. If you can t find an answer here, ca the SeectAccount service team at (651) or to free at or visit seectaccount.com. Section 1.2 Quick overview of what you need to do Here s what you need to do to take fu advantage of your pan and your HSA. A these steps are covered in more detai in this reference guide. 1. Enro in a quaified high-deductibe heath pan (HDHP) 2. Ensure you are eigibe to contribute to an HSA 3. Open the HSA (medica expenses incurred before your HSA is set up are not eigibe to be reimbursed) Note: your account is not considered set up unti a contribution is made 4. Register onine at seectaccount.com to manage your HSA onine Convenience Your HSA debit card is a convenient way to pay for medica expenses and to access your account, whenever and wherever, you need it. No paperwork, no hasse. Onine withdrawas and crossover are other convenient options for your HSA. 6

7 Chapter 1 Getting started with your HSA Section 2 Set up your HSA Don t deay setting up your HSA It s in your best interest to set up and begin funding your HSA eary in your pan year even if you don t intend to use it right away. That s because medica expenses incurred before your HSA is set up are not eigibe to be reimbursed. Don t worry, it s a simpe process and we hep you, if needed. You can set up your HSA onine at seectaccount.com. Registration is a secure process, so ony you can access your persona information. Be sure to enter your e-mai address. This wi hep us get your information quicky in the future. If you aready registered but don t have your user name or password, you can request that information onine, using the ink forgot user/forgot password in the signin area or by caing SeectAccount customer service. Section 2.1 Compete these steps The first thing you need to do is compete the appication and make a contribution: HSA Appication Go onine and compete the HSA appication. If you ve purchased your pan as an individua (not through your empoyer), seect your fee option. HSA Contribution Form Go onine and contribute funds to your HSA. Contributions can be made monthy, annuay, or any timeframe you prefer. You can choose to fund your account now, or ater in the year. Note: Your account is not considered set up unti a contribution is made. Section 2.2 Your HSA features and options Your HSA comes with many features and options that make it easy to use. HSA Debit Card When you open your HSA, you wi automaticay receive a debit card which is incuded at no cost with any SeectAccount HSA. Your HSA debit card gives you and your eigibe dependents immediate access to your HSA doars. This is the fastest reimbursement option. Crossover (automatic caims reimbursement) If avaiabe through your heath pan, crossover enabes your heath pan to eectronicay submit caims to SeectAccount to reimburse you from your HSA. That means no paperwork for you. (See Chapter 3 on page 23 to earn more.) Note: Do not sign up for crossover if you have other heath coverage. If you sign up for crossover, your HSA debit card wi be removed. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 7

8 Chapter 1 Getting started with your HSA Direct Deposit SeectAccount can deposit your reimbursement directy into your checking or savings account. Direct deposit saves time because you don t have to deposit a reimbursement check and in most cases you be reimbursed sooner. Direct deposit makes sense whether or not you choose crossover. Section 2.3 Reimbursement Options HSA debit card - you wi automaticay receive an HSA debit card: Contro which medica expenses are reimbursed from your account Save the money in your HSA for future expenses or retirement Once you ve set up your HSA and made a contribution, you can use the money in your HSA, tax free, to pay for your pan deductibe and other eigibe heath care expenses. If you don t use a the money in your HSA, the baance ros over to the next year. Those doars earn interest and are avaiabe to pay for future medica expenses. As your HSA baance grows, you have the option to invest a portion of the funds. This makes an HSA a great savings too for the future, incuding when you retire. Need hep? Ca SeectAccount customer service at (651) or to free at a.m. to 7 p.m. Centra Time, Monday through Friday. Onine Withdrawa (aso caed Submit a Caim): Use the Onine Member Service Center to request a reimbursement or to pay heath care providers directy from your HSA. Crossover: (If your heath pan participates in this program). If you or your dependents have other heath coverage, do not sign up for crossover. If you do not want to use your debit card or onine withdrawa options, change to crossover through My Profie at The debit card option wi be removed. Section 2.4 Submit your appication and contribution onine to SeectAccount Appy onine at seectaccount.com or return your competed forms to SeectAccount at the address on the forms. Pease aow five to seven business days for SeectAccount to process your information. When your HSA is set up, you receive a wecome packet in the mai that incudes a verification form from SeectAccount. Note: You must make a contribution (deposit) to your HSA before it is officiay set up. 8

9 Chapter 1 Getting started with your HSA Section 2.5 Your heath pan Expanation of Heath Care Benefits When you use your heath pan, you receive information about your caims. It wi come in the form of an Expanation of Heath Care Benefits (EOB). Your EOB provides detaied caim information incuding the care you received, the doar amount covered by your heath pan and the amount you owe your doctor or provider. The EOB is not a bi. Your doctor wi bi you separatey for the amount you owe. If avaiabe with your heath pan and you seected crossover (our automatic caims reimbursement feature), your heath pan wi submit the caim to SeectAccount and you automaticay be reimbursed from your HSA for the amount you owe, as ong as there is money in your account. You re sti responsibe for paying your doctor. If you did not seect crossover, you need to use your HSA debit card, submit caims onine, or submit a caim manuay to SeectAccount to be reimbursed from your HSA. HSA caim activity is maintained by SeectAccount and can be viewed anytime through your Onine Member Service Center at Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 9

10 Chapter 1 Getting started with your HSA Section 2.6 Spend or save What s your HSA strategy? Your HSA aows you to be reimbursed for eigibe heath care expenses now or in the future. There are two key ways to grow your HSA: 1. Pay for your heath care expenses out of your pocket as they incur and et your HSA doars earn interest and grow tax free 2. Activate your HSA Basic Investment Account once your HSA Base Baance exceeds $1,000 and begin investing your HSA doars. (See Chapter 7 on page 46 to earn more about your HSA investment options.) Shoud you spend, save or invest your HSA doars? Ask yoursef these questions: Wi you and your famiy have medica expenses that you can t pay out of your pocket? Wi you be abe to et your HSA doars grow, or wi you need to use the HSA to pay for medica expenses? Minimum pan deductibe eves for 2013 and 2014: $1,250 singe, in-network deductibe $2,500 famiy, in-network deductibe Maximum out-of-pocket eves for 2013 and 2014 $6,250 singe, in network in 2013 $6,350 singe, in network in 2014 $12,500 famiy, in network in 2013 $12,700 famiy, in network in 2014 Other HDHP criteria A services must appy toward the deductibe (incuding prescription drugs), with the exception of preventive care services. There can be individua (embedded) deductibe(s) on famiy poicies, as ong as the individua deductibe is not ess than the minimum famiy deductibe amount estabished by HSA aw ($2,500 in 2013 and in 2014). Your heath insurance pan can verify if you are on a quaified HDHP. Famiy HSA deductibe exampes (doar amounts wi vary these are for iustrative purposes ony) If this is not your first year with an HSA, what is your average account baance? If you choose to invest your HSA, are you wiing and abe to take on the financia risk? If you can afford to et your HSA baance grow (by paying for medica expenses out of pocket), then saving and investing your HSA coud be a smart move. However, if you have a ot of medica expenses and need to use your HSA to pay for those expenses, then consider eaving the money in your HSA Base Account where it wi earn interest. Section 2.7 Your heath pan is an HSA-quaified HDHP That means it meets the foowing criteria, which aows you to contribute to an HSA to hep pay for eigibe expenses. Individua deductibe Famiy deductibe Exampe: Husband and wife on heath pan. Husband incurs $2,700 in caims during year; wife incurs $500 in caims during year. HSA-compiant deductibe structure for a famiy heath pan with an embedded individua deductibe HSA-compiant deductibe structure for a famiy heath pan $2,500 None individua accumuations appy toward an aggregate famiy deductibe $5,000 $5,000 Husband meets $2,500 individua deductibe, then the remaining $200 is paid at coinsurance or 100% (depending on pan design). Wife meets $500 toward her individua deductibe. Tota famiy deductibe met is $3,000. Husband meets $2,700 toward the famiy deductibe. Wife meets $500 toward the famiy deductibe. Tota famiy deductibe met is $3, The deductibe and out-of-pocket maximums are subject to annua adjustment for a of the high-deductibe heath pans at every eve. These adjustments are effective on the pan s annua renewa date.

11 Chapter 1 Getting started with your HSA Section 2.8 HSA member eigibiity You are eigibe to contribute to an HSA if you meet these criteria: 1. You are covered by a quaified high-deductibe heath pan (HDHP). Aso see preceding section 2.7 on page 10. You re ineigibe for an HSA if you re covered under a heath pan (as an individua, spouse or dependent) that is not an HDHP, incuding Medicare. Section 3 Manage your HSA onine Compete HSA transactions fast, easy and paperess on seectaccount.com. At the Onine Member Service Center you can: Submit an appication to set up your HSA Get reimbursed for expenses Sign up for features ike direct deposit 2. You are not a dependent. If you are caimed as a dependent on someone ese s tax return, you cannot set up an HSA. 3. You are not covered by Medicare. 4. You are not in a medica fexibe spending account (FSA) uness your FSA imits eigibe expenses to vision, denta and preventive services during the heath pan deductibe period. 5. You have no other coverage. Note: Coverage under a spouse s FSA wi disquaify your HSA, uness your spouse s FSA imits eigibe expenses to vision, denta and preventive services during the heath pan deductibe period. Eigibe individua status is determined monthy as of the first of each month. You can contribute to more than one HSA, but your tota contributions cannot exceed the annua imit (see Chapter 2, Section 1 on page 19 for contribution imits). You may enro in the foowing types of pans whie maintaining your HSA eigibiity: Accident coverage Disabiity coverage Denta and vision care Long-term care insurance Insurance for a specified disease or iness Insurance that pays a fixed amount per day (or other period) of hospitaization Insurance in which the coverage reates to iabiities from Request a debit card or order a repacement card View account baances and transaction history Set up one-time or recurring contributions to your HSA Open and manage your HSA investment account Manage your HSA investment account Pay heath care providers Designate beneficiaries Give a famiy member or trusted individua authority to contact Seect Account on your behaf Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 workers compensation aws, torts or ownership or use of property (such as automobie insurance) 11

12 Chapter 1 Getting started with your HSA Section 4 Understanding what and when you pay Your HSA is a smart way to save money and pay for medica expenses, a at the same time. HSAs are easy to use. But there are a few things you shoud know as you use your new heath pan and HSA. With an HSA-compatibe HDHP you pay for eigibe medica expenses unti you reach your deductibe. When your deductibe is met, your heath pan starts to pay (subject to coinsurance amounts) unti the out-of-pocket maximum has been met. When you ve met your outof-pocket maximum, the heath pan pays 100 percent of covered expenses. Preventive care is covered at 100 percent, even during the deductibe phase. When the money in your HSA is spent, you pay for the rest of your deductibe out of your own pocket, incuding prescriptions. How can you avoid HSA surprises? Here are a few tips: Make sure that you and your spouse are aware of your current HSA baance when receiving care or fiing prescriptions Keep track of your HSA activity so you know when you have to begin paying out of pocket. Use the onine member service center or ca customer service to get baance information Use generic drugs to save money on maintenance drugs. It can aso hep decrease the number of prescriptions you need after you ve used up your HSA baance Whie your HSA can go a ong way toward heping you pay for your heath care expenses, it may not cover a your expenses, at east not in the first few years. Here s an exampe of how your HSA works with your heath pan to cover your expenses, and what your experience woud be if you had a high-deductibe heath pan without an HSA. 12

13 Chapter 1 Getting started with your HSA Section 4.1 Exampe of an HDHP without an HSA $1,450 deductibe $2,900 out-of-pocket maximum 80/20 coverage after deductibe unti the out-of-pocket maximum is met You pay for a expenses out of your own pocket during this time. The heath pan begins to pay. You may pay a share of expenses (coinsurance). Your pan pays the rest. The heath pan pays 100% of eigibe expenses for the rest of the year. Exampe of an HDHP with an HSA $1,450 deductibe $2,900 out-of-pocket maximum Preventive care benefits are usuay covered 100 percent from Day 1. $1,450 deductibe $750 HSA contribution (you, your empoyer or both) $2,900 out-of-pocket maximum 80/20 coverage after deductibe unti OOP is met You can use your HSA to pay for expenses.* $750 account baance You pay for a expenses out of your own pocket once your HSA is spent. $1,450 deductibe When you ve met your deductibe, the heath pan begins to pay. You may pay a share of expenses (coinsurance). Your pan pays the rest. $2,900 out-of-pocket maximum Preventive care benefits are usuay covered 100 percent from Day 1. The heath pan pays 100% of eigibe expenses for the rest of the year. *Additiona features: Your HSA aows you to save any unused doars for future heath care expenses, PLUS you can have tripe tax advantages; money put into the account isn t taxed; unused account doars earn tax-free interest; and withdrawas aren t taxed if used for quaified medica expenses. An additiona difference between a deductibe pan and an HSA pan: with an HSA pan, prescriptions are subject to the deductibe. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 13

14 Chapter 1 Getting started with your HSA Section 5 Frequenty asked questions Ensure that you have an HSA-compiant HDHP Ensure that contributions do not exceed the annua maximum Q: What is an HSA? A: An HSA or heath savings account is a specia taxpreferred trust or custodia account estabished under Interna Revenue Code Section 223 that is used to pay for medica expenses. A references in this document to Sections refer to the Interna Revenue Code. HSAs works with a high-deductibe heath pan (HDHP). Depending on your situation, HSA contributions may be made by you, your empoyer or both. Contributions are deductibe or excuded from your gross income. Since your HSA is your own individua account, you aone contro the account. For exampe, you must make sure funds from your HSA are used for eigibe medica expenses, not your heath pan, SeectAccount or your empoyer. Q: What are the advantages of an HSA? A: There are many financia advantages to owning an HSA, incuding: Empoyer contributions and empoyee pretax contributions via a cafeteria pan are not taxabe income Post-tax contributions are tax deductibe even if you do not itemize deductions on Form 1040 You may make tax-free withdrawas from your HSA for eigibe medica expenses not covered by your pan The interest or other earnings on the HSA funds accumuate tax free If, in the future, you are not covered by an HDHP you may sti make tax-free withdrawas from your account for eigibe medica expenses but you can no onger contribute to the HSA If you become disabed or reach age 65, withdrawas can be made for non-medica reasons without penaty, but amounts must be reported as taxabe income Q: What are my responsibiities as an HSA hoder? A: Your HSA beongs to you. You re responsibe for maintaining the account. Here s what is expected of you as an HSA hoder: 14 Ensure that withdrawas for non-quaified expenses are added back to gross income Keep a records that support withdrawas from your account Compete the required tax form (Form 8889) and attach it to Form 1040 Ensure that you do not have any medica coverage that wi disquaify the HSA incuding a genera purpose FSA Ensure that you cannot be caimed as someone ese s tax dependent Q: What if, in the future, I am not covered by an HDHP or I end coverage through my empoyer? A: If you or your empoyer change heath pans and the new pan is not an HDHP, you can continue to use your HSA for eigibe medica expenses, but you can t contribute to your HSA for any month that you were not covered by an HDHP. Q: If I (or my empoyer) change heath pans midyear, from a non-hsa pan to an HSA pan, can any amount paid toward my previous pan deductibe be appied to my new HSA pan deductibe? A: Yes, amounts that were appied to your deductibe in the same caendar year or in the same pan year from a non-hsa pan to an HSA pan wi carry over and be appied to your new heath pan deductibe. Q: Can business owners not eigibe for a heath reimbursement arrangement (HRA) estabish an HSA? A: Yes. This incudes owners of S corps, soe proprietors, LLCs, LLPs and partnerships. However, these individuas cannot use pretax doars via a cafeteria pan to fund their HSA. These individuas are eigibe to make posttax contributions to their HSA and caim a deduction when they fie their taxes. We recommend you consut your tax advisor in this situation, as specia rues appy. Q: Is someone enroed in Medicare eigibe for an HSA? A: If you re enroed in a Medicare program, you cannot estabish a new HSA or contribute to an existing HSA. You can, however, spend down your existing HSA. If you

15 Chapter 1 Getting started with your HSA decine Medicare coverage when you turn 65, you can continue to contribute to an HSA. For more information about HSAs and Medicare, see Chapter 4, Section 2 on page 32. Q: Is the HDHP portabe? A: Yes. If you eave your job, your heath pan s medica coverage may be continued through COBRA. This coverage remains an HDHP. Once COBRA coverage ends, you may appy for portabiity coverage. Remember, you own your HSA and the doars are yours to keep. Q: How is interest credited to my HSA? A: SeectAccount wi credit interest monthy on the average daiy baance for the month in your HSA. SeectAccount reserves the right to decare a different rate of interest at any time. SeectAccount does not pay interest on funds that are transferred to optiona investment accounts. Q: Is there a fee for having an HSA? A: Yes. If you purchased your pan as an individua, you can choose which of the three HSA options is best for you. Each program has a different fee. (You find the fee options on your HSA Appication.) If your HSA is through your empoyer, your empoyer wi choose the program option and may pay the fee for that program or pass it on to you. Accounts paid by individua account hoders are bied annuay and payment is automaticay debited directy from the HSA, as soon as funds are avaiabe. Q: Why did I get a bi from my provider? A: You re responsibe for paying your pan deductibe and any out-of-pocket expenses (incuding coinsurance) that you incur at the provider s office or pharmacy. Your provider wi send you a bi for the amount you owe after your heath pan has processed the caim and appied discounts you receive as a heath pan member. You can use your HSA doars to pay these expenses. If you seected the crossover reimbursement feature, a pay-the-provider option may be avaiabe to you. See Chapter 3, Section 1.2 on page 25 for more on crossover and pay-the-provider options. Q: Wi I have to pay my provider before I am reimbursed from my HSA? A: It s possibe. Some states aw authorizes providers to coect deductibe and coinsurance amounts at the time of service, but providers may not deny you treatment if you are unabe to pay in advance. If you have crossover, you usuay receive your reimbursement before you get a bi from your provider. If you need to make specia payment arrangements with your provider or cinic, ca the cinic s business office. Any ate charges are your responsibiity and whie you may choose to pay these fees from your HSA, they are considered ineigibe expenses and wi be subject to income tax and a 20 percent penaty tax. Q: Why didn t I have to pay for my prescription at the pharmacy? A: If you seected crossover and have money in your HSA, the doars in your account wi be used to cover the cost of the prescription at the pharmacy. That means you woud pay nothing out of pocket when picking up your prescription. Q: Why did I have to pay for my annua checkup? I thought I had 100 percent coverage. A: Many pans pay for preventive care at 100 percent. Check your Summary Pan Description or ca your heath pan customer service to earn more about your preventive benefits. These resources can aso verify which services count as preventive care. Q: Why did I get a check in the mai from SeectAccount? Who is SeectAccount? A: SeectAccount is the administrator of your HSA (and FSA, if you have one), not your heath pan. SeectAccount processes your reimbursement caims and then either sends you a check for the amount requested or deposits the money into a checking or savings account. It s your choice. Q: What happens to an HSA at the end of the year? A: The funds in an HSA, regardess of the source of contributions, aways beong to you as the account hoder. Contributions remain in the account from year to year unti used. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 15

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17 Chapter 2 Contributing to your HSA There are many good reasons to contribute to your HSA and severa ways to do it. This chapter examines why it is so beneficia to contribute to your HSA, presents strategies and tips to make contributing simpe and easy, and discusses contribution imits, catch-up contributions, roover contributions and more.

18 Chapter 2 Contributing to your HSA Section 1 Who can contribute to an HSA? 19 Section 2 Catch-up contributions 19 Section 3 Strategies to make your money work for you 19 Section 3.1 Contributions through payro deductions 19 Section 3.2 Roover contributions and transfers 20 Section 3.3 Moving money from individua retirement account (IRA) 20 Section 3.4 A smart IRA roover strategy 20 Section 3.5 Top reasons to contribute to your HSA 20 Section 3.6 Excess HSA contributions 21 Section 4 Frequenty asked questions 21 For new HSAs, are maximum contributions prorated on a monthy basis? 21 What if contributions exceed the annua imit? 21 What if contributions and/or withdrawas do not occur according to reguations? 21 Is the maximum contribution eve adjusted if I move from famiy to singe coverage, or vice versa? 21 Can empoyee pretax HSA contributions be changed throughout the year? 22 Can I ro over or transfer funds from an existing HSA or MSA to an account with another custodian? 22 If my HSA is set up midyear (after my FSA), can I change my FSA contributions for the rest of that year? 22 Can I contribute to an HSA at the same time as an FSA and/or HRA? 22 Can an individua and their spouse have famiy HDHPs and HSAs? 22 Is there a deadine for setting up and contributing to an HSA? 22 18

19 Chapter 2 Contributing to your HSA Section 1 Who can contribute to an HSA? An individua, an empoyer, or both can make contributions to an HSA. As an empoyee, you won t pay tax on the contributions your empoyer makes to your account. In addition, you won t pay tax on contributions made through a company-sponsored cafeteria pan (if offered by your empoyer). You can aso make post-tax contributions and itemize them as an above-the-ine deduction when you compete your tax return, even if you don t itemize deductions. Note: HSA contributions must be made in cash and are vountary. Current contribution information can be found on the U.S. Department of Treasury website at treas.gov. The maximum annua HSA contribution imits for an eigibe individua without catch-up contributions are: Maximum Contribution Limits 2013 Limits 2014 Limits $3,250 for sef-ony HDHP $3,300 for sef-ony HDHP $6,450 for famiy HDHP $6,550 for famiy HDHP $1,000 age 55+ catch-up contribution (in addition to singe or famiy maximum) Section 2 Catch-up contributions If you are age 55 and oder and are eigibe to have an HSA, you can contribute an additiona $1,000 a year to your own account unti you reach age 65 or when you go on Medicare. If you had HDHP coverage for the fu year, you can make the fu catch-up contribution regardess of when your 55th birthday fas during the year. If you did not have HDHP coverage for the fu year but meet the 13-month testing period, you can sti contribute the entire catch-up amount. For more about the testing period, see Section 4, page 21. A spouse in the same situation can aso contribute an additiona $1,000 to his or her own HSA. Section 3 $1,000 age 55+ catch-up contribution (in addition to singe or famiy maximum) monthy premium than a traditiona heath pan. Consider contributing the premium savings to your HSA. If done automaticay through your empoyer s pretax payro deduction pan, you save federa and FICA taxes. By caiming the HSA contribution as part of your 1040 tax fiing, you save federa taxes on post-tax contributions. If you can t make reguar HSA contributions, deposit some doars in your HSA to set up your account. Then contribute as you incur medica expenses to take advantage of tax-free withdrawas to reimburse yoursef. Your HSA must be set up before expenses are eigibe to be reimbursed. The HSA is not considered set up unti some funds are deposited. Make the maximum contribution aowed and take out ony what you need for eigibe expenses. This reduces your taxabe income and gives you the benefit of tax-free heath care expenses. An effective strategy for quicky growing your HSA is to pay for your heath care expenses out of pocket whie etting your HSA funds accumuate tax free. This way you save for retirement. Pus, because you ikey have a higher income today, you may be better abe to afford to pay expenses out of pocket. Save your medica expense receipts so you can be reimbursed from your HSA ater or even after you retire. See an exampe of this strategy in Chapter 4, Section 1.2 on page 31. Note: Before deciding on your HSA contribution and investment strategy, consut your tax advisor or accountant. SeectAccount cannot provide tax advice. Section 3.1 Contributions through payro deductions The easiest way to contribute to your HSA is through your empoyer s pretax payro deduction program. However, you can make post-tax contributions any time. You can make onine contributions by authorizing withdrawas from your bank account or mai your contributions to SeectAccount. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Strategies to make your money work for you Because your HSA-quaified heath pan is a highdeductibe heath pan, chances are it has a ower 19

20 Chapter 2 Contributing to your HSA Section 3.2 Roovers contributions and transfers Roover contributions and transfers to an HSA are permitted as ong as the source of the funds is another HSA or medica savings account (MSA). Funds that move directy between the od account trustee and the new account trustee are caed trustee-to-trustee transfers. A other movement of funds from an HSA or MSA account is considered a roover contribution. A roover of HSA funds must be competed within 60 days from the date of receipt to avoid taxation. One roover every 12 months is permitted. If you make a roover contribution, you must certify to the trustee, in writing, that you are making a roover contribution. Once made, the certification is fina. An unimited number of trustee-to-trustee transfers may be arranged by you without the restrictions mentioned for roover contributions. Since your HSA is owned ony by you, you cannot ro over or transfer money to your spouse s HSA account uness you die or a ega proceeding such as a divorce requires it. The roovers and transfers discussed in this section do not count toward your maximum annua HSA contribution. your HSA (up to the contribution maximum amount). This one-time strategy works we for peope age 64 or younger because it must be done prior to enroing in Medicare. In addition, you may have a ower annua income (especiay if you re an eary retiree). Doars withdrawn from traditiona IRAs are taxed. But doars withdrawn from an HSA are not taxed if used for eigibe medica expenses. Section 3.5 Top reasons to contribute to your HSA Contributions can often be made through an empoyer cafeteria pan on a pretax basis Contributions remain in your HSA from year to year unti they are used. Unike an FSA, there is no use-it-orose-it provision. Contributions can be made by an empoyer, an empoyee or both in the same tax year Individua contributions are tax deductibe; empoyer contributions and empoyee contributions through a cafeteria pan are excuded from taxabe income Section 3.3 Moving money from an individua retirement account (IRA) You can make a one-time, tax-free transfer from an existing traditiona IRA to your HSA. This roover must be transferred from trustee to trustee to receive the tax benefit. The amount transferred counts toward and is imited to your maximum annua HSA contribution amount. To compete an HSA transfer, visit seectaccount.com and downoad the form caed the HSA One-Time IRA Roover Request Form. Money accumuates tax free with interest paid on those doars that have not been invested Funds can be withdrawn tax free to pay for eigibe heath care expenses. You can aso make tax-free HSA withdrawas to pay some insurance premiums. See Chapter 3, Section 3.1 on page 27 for a partia ist of eigibe medica expenses. Funds can be used for non-eigibe expenses but taxes and penaties appy The HSA beongs to you no matter where you work HSA funds are a great way to pay for medica expenses after you retire Section 3.4 A smart IRA roover strategy If you have a traditiona IRA (not a Roth, SEP or SIMPLE IRA) and one year you do not have the means to maximize your HSA contribution, consider roing part of your IRA into Section 3.6 Excess HSA contributions Contributions that exceed the maximum imit for the year or that are made by an ineigibe individua are considered excess HSA contributions. If you make an 20

21 Chapter 2 Contributing to your HSA excess contribution, it shoud not be deducted from your income on the tax return. Contributions made by empoyers (or pretax contributions through a cafeteria pan) that exceed the aowabe imit must be added back to gross income by the empoyee on the individua s tax return. It is not the empoyer s responsibiity to add such amounts retrospectivey as income to the empoyee s W-2. However, an empoyee must make every reasonabe effort to notify his or her empoyer prospectivey that empoyer contributions wi exceed the aowabe imit so the empoyer can make the necessary changes to the contribution. An excise tax of six percent for each tax year is imposed on the account hoder for these excess individua or empoyer contributions. If, however, the excess contributions for a tax year and the net income attributabe to these excess contributions are taken out of the account before the tax return deadine, the excise tax does not appy. However, the net income attributabe to the excess contribution is incuded in the account hoder s income for the tax year the withdrawa is made. Section 4 Frequenty asked questions Q: For new HSAs, are maximum contributions prorated on a monthy basis? A: Annua HSA contributions for new HSAs are not prorated on a monthy basis as ong as you are HSAeigibe on December 1 and maintain HDHP coverage throughout the subsequent 13-month testing period. The testing period begins on December 1 in the year the quaified HDHP coverage is obtained and runs through December 31 of the foowing year. The testing period is aso caed the 13-month rue. Enroing in an HDHP and estabishing an HSA any time after January 1 triggers the testing period if you contribute the maximum amount to your HSA. If you do not satisfy the 13-month rue, contribution imits are prorated and tax consequences appy. See Chapter 5, Section 1.2 on page 37 for exampes of pro-rated maximum contribution amounts. Q: What if contributions exceed the annua imit? A: Generay, you must pay a six percent excise tax on contributions made to an HSA that are greater than the annua imit. (See IRS Form 5329 to determine this tax.) If excess contributions are made, you won t pay the excise tax on that excess amount if you: Withdraw the excess contributions by the due date of your tax return, and Withdraw any income earned on the withdrawn contributions and incude the earnings in other income on your tax return for the year. Q: What if contributions and/or withdrawas do not occur according to reguations? A: As the account hoder, you must report contributions and withdrawas to the IRS. You re responsibe for ensuring that HSA transactions are within the aowed reguations. Excess HSA contributions may be corrected by withdrawing the excess amount pus any attributabe net income before the due date of your tax return thus avoiding a six percent excise tax. You re aowed to correct mistaken HSA withdrawas when there is cear and convincing evidence that amounts were distributed from an HSA because of a mistake of fact due to reasonabe cause. You can correct the mistake by repaying the withdrawa no ater than Apri 15 foowing the first year that you knew or shoud have known that the withdrawa was a mistake. When a correction is made, the mistaken withdrawa does not have to be incuded in gross income or be subject to the additiona excise tax. The repayment does not count as an excess contribution. If an error is made by SeectAccount in its roe as the administrator, SeectAccount is responsibe for taking corrective action. Q: Is the maximum contribution eve adjusted if I move from famiy to singe coverage, or vice versa? A: Yes. You may contribute more if you move from singe to famiy coverage. You can make a prorated contribution based on when coverage was in force or you can make the entire annua maximum contribution as ong as the coverage is maintained through December of the foowing year. You may have to decrease contributions if you move from famiy to singe coverage (the decrease wi appy to any month in which singe coverage was in force for a portion of the month). You can change your contribution eection at any point, however you must ensure contributions do not exceed aowabe amounts. See Chapter 5, Section 1.2 on page 37 for exampes of prorated maximum contribution amounts. 21 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8

22 Chapter 2 Contributing to your HSA Q: Can empoyee pretax HSA contributions be changed throughout the year? A: Yes. Eigibiity requirements and contribution imits for HSAs are determined on a month-by-month basis, rather than an annua basis. If you make HSA contributions under a cafeteria pan, you can start or stop contributing or increase or decrease the amount at any time, as ong as the change occurs after the change request is received. Q: Can I ro over or transfer funds from an existing HSA or MSA to an account with another custodian? A: Yes. If you want to transfer an existing HSA or Medica Savings Account (MSA) baance to SeectAccount, SeectAccount wi move the funds. If you want to ro over an existing HSA or MSA with SeectAccount, the assets in that account wi be distributed to you. Under a roover, you must deposit the amount into the new account with SeectAccount no ater than the 60th day after the withdrawa was received from the previous custodian to avoid tax penaties. Q: If my HSA is set up midyear (after my FSA), can I change my FSA contributions for the rest of that year? A: Perhaps. You can ony change your FSA eection for specific quaifying events, such as marriage, divorce, birth of a chid or adoption. Coverage under a spouse s FSA wi disquaify your HSA, uness your spouse s FSA imits covered expenses to vision, denta and preventive services during the heath pan deductibe period. Q: Can I contribute to an HSA at the same time as an FSA and/or HRA? A: You can contribute to an HSA whie covered by the foowing types of medica FSAs and/or HRAs: imited purpose FSA and/or HRA; suspended HRA; post-deductibe FSA and/or HRA; retirement HRA (See Chapter 8, Section 3 on pages for term definitions). If the account hoder can be reimbursed, a medica FSA that pays for a eigibe expenses (a genera purpose FSA) disquaifies you from contributing to an HSA. If the genera purpose medica FSA has a grace period, you cannot contribute to an HSA during this time, uness the FSA has a $0 baance at the end of the pan year. Q: Can an individua and their spouse have famiy HDHPs and HSAs? A: Yes. If both an individua and spouse have famiy HDHPs, the maximum annua HSA contribution for the famiy is $6,450 in 2013 and $6,550 in This is true if there is just one HSA or if each spouse has their own HSA. A famiy cannot increase its annua contribution just because there are two HDHPs and/or two HSAs. This imit is spit equay uness the individua and spouse agree on a different division. An account hoder, age 55 or oder, can contribute an additiona $1,000 catch-up contribution to their own HSA account. For other tax situations, consut your tax advisor. A husband and wife cannot have a joint HSA. Each spouse who wants to contribute to an HSA must open a separate HSA. Doars cannot be transferred between the HSAs. However, one spouse may use withdrawas from his or her HSA to pay or reimburse the eigibe medica expenses of the other spouse, without penaty. However, both HSAs may not reimburse the same expenses. Note: If a husband and wife each has an individua HDHP, each can contribute up to $3,250 in 2013 and $3,300 in 2014, pus a $1,000 catch-up contribution to their own HSA if they are age 55 or oder. Q: Is there a deadine for setting up and contributing to an HSA? A: Your HSA must be set up and contributions made by your tax return due date for the year. For caendar year taxpayers, the deadine for HSA contributions is Apri 15 (uness that day is a Saturday, Sunday, or ega hoiday, then the next business day). This deadine appies regardess of whether contributions are made by you (individua/empoyee), your empoyer or both. This deadine aso appies regardess of whether you have an extension with the IRS. If a contribution is made after Apri 15, it appies to the foowing (current) tax year. 22

23 Chapter 3 Being reimbursed from your HSA HSAs give you severa reimbursement options, incuding debit card, crossover, onine and manua reimbursement requests and direct deposit. This chapter examines your HSA reimbursement options, introduces you to the broad range of medica expenses for which you can be reimbursed from your HSA and gives an exampe of how you are reimbursed from your account.

24 Chapter 3 Being reimbursed from your HSA Section 1 Your HSA reimbursement options 25 Section 1.1 Debit cards 25 Section 1.2 Crossover 25 Section 1.3 Onine and manua caims 25 Section 1.4 Direct deposit 26 Section 2 How you are reimbursed from your HSA 26 Section 2.1 How you are reimbursed with a debit card 26 Section 2.2 How you are reimbursed when you have crossover 26 Section 3 Medica expenses that can be reimbursed by your HSA 27 Section 3.1 Partia ist of eigibe medica expenses 27 Section 3.2 Capita expenses 27 Section 4 Frequenty asked questions 28 What expenses can be paid from an HSA? 28 What premiums can be paid from an HSA? 28 Are caims incurred prior to setting up my HSA eigibe to be reimbursed? 28 If I have both an HSA and an FSA, which account pays first? 28 Regarding the new federa aw that changes the rues for over-the-counter drugs: What over-the-counter drugs are HSA eigibe as of January 1, 2011? 28 24

25 Chapter 3 Being reimbursed from your HSA Section 1 Your HSA reimbursement options Getting reimbursed for eigibe heath care expenses from your HSA is easy. You can get your money faster by enroing in specia features ike the HSA debit card, crossover (automatic caims reimbursement), onine withdrawa or direct deposit. Why send in paper caims to get reimbursed when you can do it more quicky onine? A of these options are avaiabe onine at seectaccount.com. Section 1.1 Debit cards You can use your debit card to pay your portion of eigibe medica, denta and vision expenses. Debit cards are an attractive option with severa advantages. They are easy to use and there is no waiting to be reimbursed from your HSA. The debit card automaticay transfers funds from your HSA to your heath care provider. You avoid paying cash up front and don t have to submit a caim reimbursement form and wait to be reimbursed. There s no paperwork. Debit cards are incuded at no extra cost. When to use a debit card A debit card ets you contro where and when to use your HSA doars. You present your debit card at the pharmacy. For medica caims usuay processed by your heath pan simpy write your debit card number on your doctor s bi and return it to the provider. You can aso ca your heath care provider with your debit card number. Section 1.2 Crossover Another automatic HSA reimbursement option is crossover where avaiabe. It aows your heath pan to send your medica caims from the provider to SeectAccount for reimbursement. Crossover saves time and money especiay with the pay-the-provider feature that streamines the provider payment process. Pay-theprovider is ony avaiabe if your empoyer offers it. Crossover with the pay-the-provider feature is simiar to a debit card in that providers are automaticay paid from the member s HSA. Be mindfu that the pay-theprovider feature: works ony with providers in your heath pan s network does not work with paper caims is not an option if you have a debit card If you do not have pay-the-provider, you are responsibe for paying your heath care provider for any amount you owe. When to use crossover Peope who use their HSA to pay for current medica expenses find crossover convenient. It works for a wide range of eigibe heath and medica expenses. And if you incur vision or other caims that are not eigibe for crossover, you simpy submit a withdrawa request onine at seectaccount.com. Remember, you cannot seect both crossover and the HSA debit card you can choose ony one of these options. Note: If your dependents have other heath coverage, you shoud not sign up for crossover. Section 1.3 Onine and manua caims If you do not seect crossover or if crossover is not avaiabe to you (or if you have an HSA debit card and choose not to use it), the fastest and easiest withdrawa method is requested onine by signing into the Onine Member Service Center at seectaccount.com. The paper withdrawa request form can aso be found at seectaccount.com. SeectAccount wi process the request and reimburse you as ong as there are sufficient funds in your HSA. Payment can be deposited to your checking or savings account, or by check to you. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 25

26 Chapter 3 Being reimbursed from your HSA Section 1.4 Direct deposit Another time-saving feature of your HSA is the abiity to choose direct deposit. It gives SeectAccount the authority to deposit reimbursements directy into your checking or savings account. This saves you a trip to the bank to deposit a paper check and, in most cases, decreases the time it takes to be reimbursed from your HSA. Note: If a reimbursement request is greater than the account baance, the difference wi pend for up to one year and be reimbursed as funds become avaiabe. When you submit a caim, you re responsibe for verifying that the expense is an eigibe medica expense as determined by Section 213(d). You shoud keep appropriate receipts for a medica payments (provider name, date, reason, and amount). However, you do not need to submit this information with your withdrawa request. Section 2 How you are reimbursed from your HSA Here s an exampe of how you are reimbursed from your HSA with a debit card vs. crossover Section 2.1 Section 2.2 How you are reimbursed with a debit card Step 1 You cut your hand doing yard work and go to the doctor, who examines the wound and appies a few stitches. How you are reimbursed when you have crossover Step 1 You cut your hand doing yard work and go to the doctor, who examines the wound and appies a few stitches. Step 2 Your doctor submits the caim to your heath pan Step 2 Your doctor submits the caim to your heath pan. Step 3 Your heath pan pays the portion of the caim that s covered by them. Step 3 Your heath pan pays the portion of the caim that s covered by them. Step 4 You receive an Expanation of Heath Care Benefits (EOB) from your heath pan stating what has been paid by them and any amount that you owe. Step 4 Your heath pan automaticay sends SeectAccount your payment responsibiity information on this caim. Step 5 If you have the HSA debit card and did not use it at the time of service, simpy write your debit card number on the bi or ca your heath care provider s business office with the number. You can show your debit card before or after services - run as a credit instead of debit. Step 6 The baance due after your heath pan has paid is charged to your debit card and paid from your HSA to your provider. Step 5 SeectAccount wi access your accounts and reimburse you (to the extent that funds are avaiabe in your account). If you have more than one account (for exampe, an FSA and an HSA) the order in which your accounts are accessed is determined by your pan. Step 6 You wi receive your reimbursement check or direct deposit notification. NOTE: If the caim cannot be paid in fu from your HSA, the caim wi pend for up to 12 months, and you wi be reimbursed as additiona contributions are made to your account. In the meantime, you wi sti need to pay your provider. Remember, you are responsibe for keeping a documents and receipts of a eigibe medica expenses whether paid through a debit card, crossover or manua caim. You need this documentation if you are audited by the IRS. 26

27 Chapter 3 Being reimbursed from your HSA Section 3 Medica expenses that can be reimbursed by your HSA Your HSA can reimburse you for a broad range of heath and medica-reated expenses. Beow is a partia ist of eigibe heath care expenses. For a more detaied isting of eigibe, potentiay eigibe and ineigibe heath care expenses, go to seectaccount.com. If you have eigibiity questions, pease contact SeectAccount customer service at (651) or to free at Section 3.1 Partia ist of eigibe heath care expenses Asthma treatments/nebuizer Chiropractic treatments (for exampe, adjustments) Coinsurance amounts (heath, vision, denta) Copayments (heath, vision, denta) Deductibes (heath, vision, denta) Denta procedures, non-cosmetic (for exampe, X-rays, fiings, extractions, crowns, impants) Eyegasses prescription sungasses, safety gasses Hearing tests, aids and batteries Long-term care premiums Patient responsibiities under the medica, denta or vision pan soey because of the pan s deductibe, copay (coinsurance), reasonabe and customary charge imit or benefit imit Prescription drugs (drugs ordered from other countries are not covered) Heath care expenses that can be reimbursed from your HSA incude services and suppies incurred by you or your dependents for the diagnosis, treatment and prevention of disease or for the amounts you pay for transportation to and from medica care. In genera, deductions aowed for medica expenses on your federa income tax according to Interna Revenue Code Section 213(d) may be reimbursed through your HSA. You cannot deduct medica expenses on your federa income tax that have been reimbursed through your HSA. It is possibe that changes in the IRS rues can affect the eigibe, potentiay eigibe, and/or ineigibe expense categories. HSA-eigibe heath care expenses incude the foowing heath insurance premiums: COBRA Heath insurance premiums whie receiving unempoyment compensation under state or federa aw Medicare insurance (except Medicare suppement pans after you reach age 65) Empoyer-sponsored retiree medica pans after you reach age 65 Quaified ong-term care insurance Section 3.2 Capita expenses A capita expense is an improvement and/or specia equipment added to a home or other capita expenditure that may be eigibe if the primary purpose is medica care. An exampe might be constructing a ramp that aows for wheechair access to a home. Remember to keep a receipts and documentation for eigibe heath care expenses with your tax records. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 27

28 Chapter 3 Being reimbursed from your HSA Section 4 Frequenty asked questions Q: What expenses can be paid from an HSA? A: Payments for eigibe medica expenses incurred by you or your tax dependents can be made tax free. Other payments resut in income tax and excise tax penaties. An eigibe medica expense is an expense for medica care as defined by Section 213(d). The expenses must primariy be to aeviate or prevent a physica or menta defect or iness. Many expenses for medica care wi fa under Section 213(d). For a detaied isting of eigibe, potentiay eigibe and ineigibe medica expenses, go to seectaccount.com. On the home page, cick on HSA Resources to view eigibe expenses. (See IRS Pubication 502, Medica and Denta Expenses, for a detaied expanation.) Q: What premiums can be paid from an HSA? A: Quaified premiums incude: COBRA heath insurance Insurance premiums after you reach age 65, incuding Medicare Parts A, B, C and D but not Medicare suppement pans Quaified ong-term care insurance Heath insurance premiums whie receiving unempoyment compensation under state or federa aw Premiums for empoyer-sponsored retiree medica pans for account hoders 65 or oder Q: If I have both an HSA and an FSA, which account pays first? A: SeectAccount wi aways attempt to pay your expenses from the FSA first as this is a use it or ose it type of account. However, medica expenses can t be paid from the FSA during the HDHP deductibe so the FSA wi be bypassed in this circumstance. To make your FSA work with HSA requirements, your empoyer shoud provide a specia FSA pan for you instead of a genera purpose FSA. A imited purpose FSA is a specia FSA that can t be used for medica expenses but can be used for vision and denta expenses. A post-deductibe FSA can pay vision and denta expenses immediatey and can aso pay medica expenses once the deductibe has been satisfied. If the FSA is imited to vision and denta, the FSA can pay for these caims first. However, keep in mind they re aso eigibe expenses under the HSA. Q: What over-the-counter drugs are HSA eigibe? A: Over-the-counter (OTC) medicines or drugs except insuin (for exampe, aspirin, cod remedies, or aergy medicines) are not eigibe for reimbursement under an HSA (or medica FSA) uness the medicine or drug is prescribed (regardess of whether a prescription is required to obtain the item). Other OTC medica items other than medicines or drugs (for exampe, bandages or contact ens soution) continue to be eigibe. HSA participants need to make sure they maintain documentation incuding a prescription for their own records shoud they be audited by the IRS. Refer to seectaccount.com for a more compete ist of eigibe medica expenses. Q: Are caims incurred prior to setting up my HSA eigibe to be reimbursed? A: No. Ony caims incurred on or after the date that your HSA was estabished are eigibe regardess of the effective date of the HDHP. Your account is considered estabished when funded. 28

29 Chapter 4 Saving for retirement with your HSA Your HSA is a smart way to save for retirement. This chapter presents effective strategies to maximize your HSA. It aso expains how HSAs work for peope enroed in Medicare.

30 Chapter 4 Saving for retirement with your HSA Section 1 Using your HSA to save for retirement 31 Section 1.1 Strategies to maximize your HSA 31 Section 1.2 A smart way to save for retirement 31 Section 1.3 More strategies for growing your HSA 31 Section 1.4 It s never too ate to grow your HSA 32 Section 2 Your HSA and Medicare 32 Section 3 Frequenty asked questions 33 My wife and I turn 65 this year and wi sign up for Medicare. Can we sti use the money in our HSA? 33 I am turning 65 in Apri and wi enro in Medicare at that time. How much can I contribute to my HSA for the year? 33 Must this contribution be made prior to my 65th birthday? 33 I am married, covered by a famiy HDHP with an HSA. My spouse is enroed in Medicare but aso covered under the famiy HDHP. Can I sti contribute to the HSA? 33 I am enroed in Medicare and have money remaining in my HSA. What happens to these funds? 33 30

31 Chapter 4 Saving for retirement with your HSA Section 1 Using your HSA to save for retirement According to Fideity Investments, a 65-year-od coupe retiring in 2012 wi need more than $240,000 to cover their medica expenses in retirement even with Medicare coverage. If ever there was a strong reason to save for future medica expenses, this is it. One of the biggest reasons more peope don t retire before age 65 is ack of heath insurance. The truth is many Americans reach age 65 woefuy unprepared for the medica expenses they face after they retire. One of the most important ong-term reasons for having an HSA is to save money for medica expenses during retirement. An HSA is one of the best ways to save money for medica expenses during retirement. Ony HSAs aow you to make withdrawas tax free to pay for eigibe medica expenses. You can make withdrawas before and after age 65. Section 1.1 Strategies to maximize your HSA If your goa is to maximize your HSA to save for your retirement, here are three key strategies to consider: Strategy 1: Make the maximum aowed contributions to your HSA at the beginning of each year. Even though you have unti Apri 15 of the foowing year to make HSA deposits, you can take advantage of the tax-free growth in your account by funding it as soon as possibe. The extra interest you earn by contributing to your account on January 1 of each year rather than the next Apri 15 coud be significant over 20 years or more. Strategy 2: Deay withdrawing money from your HSA as ong as possibe so it grows. You have the option of paying for your medica expenses out of pocket and eaving your money in the HSA so it grows tax free. Remember, you can withdraw money from your HSA tax free at any time to pay for eigibe medica expenses. As ong as you save your receipts, you can withdraw money from your account tax free at any future time to reimburse yoursef for expenses you incur today. Strategy 3: If you are wiing to accept the risks inherent with investment, you may want to pace your HSA funds in mutua funds or other investments that offer significant growth potentia. See Chapter 7 on page 43 for more about investing your HSA. Section 1.2 A smart way to save for retirement (Exampe) A 45-year-od coupe deposits $6,150 a year in their HSA for 20 years. They incur $2,000 a year in eigibe medica expenses. They get a six percent return on their investments. If they withdraw the $2,000 from their HSA each year, they have a net HSA contribution of $4,150 per year. In 20 years they wi have $161,819 in their HSA as they begin their retirement. An even smarter way to save for retirement If the same coupe deays withdrawing that $2,000 each year, they wi have $239,805 in their HSA at age 65. They can then reimburse themseves tax free from their HSA for the $40,000 in medica expenses incurred in the previous 20 years and sti have $199,805 in their HSA. That s $37,986 more than if they had withdrawn the money each year as expenses incurred. Section 1.3 More strategies to grow your HSA Your HSA makes saving for future heath care needs, incuding retirement, easier than ever. Here are a few ways you can save for the future with an HSA: Take advantage of ower premiums Because your HSA heath pan premiums are ikey ower than a traditiona heath pan, you may find yoursef with extra money. Instead of spending that money set it aside each month and contribute it to your HSA. You never know when you need it. Contribute to your HSA By contributing even $100 a month to your HSA you can quicky buid a nest egg for heath care needs that wi hep bridge the gap between the contributions your empoyer may make Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 31

32 Chapter 4 Saving for retirement with your HSA to your account and your deductibe eve. Pus, you enjoy tripe tax advantages HSA contributions can be pretax (and you reduce your taxabe income), you earn tax-free interest on the money in your HSA and HSA withdrawas for eigibe expenses are tax free. Take advantage of your HSA roover feature Money remaining in your HSA at the end of one year ros over to the next year. Add this to your reguar account contributions and you have a tidy sum before you know it. Keep in mind, in order to save money, you have to make wise decisions about how you spend your HSA doars. Invest your HSA doars Your HSA has a buit-in investment account that you can activate when your Base Baance exceeds $1,000. Athough there is an inherent risk with investing it can be an effective way to grow your money over the ong term. Section 2 Your HSA and Medicare When you enro in Medicare, you can use your HSA to pay Medicare premiums, deductibes, copays and coinsurance under any part of Medicare. If you have retiree heath benefits through your former empoyer, and you are age 65 or oder, you can aso use your HSA to pay for your share of retiree medica insurance premiums. Note: you cannot use your HSA funds to pay premiums for a Medicare suppement or Medigap pan. Whie Medicare wi pay for many heath expenses during retirement there are many expenses that Medicare does not cover. Nursing home expenses, unconventiona treatments for termina iness and proactive heath screenings are expenses that wi not be paid by Medicare but can be paid from your HSA. Section 1.4 It s never too ate to grow your HSA Just because you are nearing retirement doesn t mean there isn t time to take advantage of an HSA. Consider the foowing: If you pan to retire in four years and start contributing $100 a month from your paycheck (pretax), in four years you have $4,800 pus earned interest in your HSA. By contributing the maximum amount each year ($3,250 for 2013, and $3,300 for 2014) pus the overage-55-aowed-extra contribution of $1,000, you have over $17,000 in your HSA in ony four years. If you have famiy coverage you can grow your account even more since you can contribute $6,450 in 2013 and $6,550 in Long-term care is assistance with daiy iving activities such as dressing, bathing and feeding. Long-term care can be paid with HSA funds up to a maximum annua amount. If you have an HSA at the time you enro in Medicare, there are a few things you shoud know: You can no onger contribute to your HSA once you re enroed in Medicare If you pan to enro in Medicare coverage part way into the year, your HSA contributions wi be prorated based on the number of months you were covered by an HDHP. For instance, if you enro in Medicare in Apri, you can contribute ony one-fourth of the annua maximum to your HSA. You can continue to spend or invest the money in your HSA If your spouse is not enroed in Medicare and has an HSA, he/she can contribute up to the annua famiy maximum for the year between a accounts. However, you must maintain famiy coverage under a quaified HDHP. 32

33 Chapter 4 Saving for retirement with your HSA Section 3 Frequenty asked questions Q: My wife and I turn 65 this year and wi sign up for Medicare. Can we sti use the money in our HSA? A: Yes. Athough you can t contribute to an HSA after you enro in Medicare, you can keep the account and use your HSA funds tax free for eigibe medica expenses after age 65. You can use HSA doars for a broad range of medica expenses, incuding premiums for Medicare Parts A, B and D (prescription drugs), and to pay Medicare Advantage pan premiums. You may aso pay quaified ong-term care premiums. However, you can t use HSA money tax free to pay Medicare Suppement or Medigap premiums. Remember, you wi owe taxes on any withdrawas for non-eigibe medica expenses. Q: I am turning 65 in Apri and wi enro in Medicare at that time. How much can I contribute to my HSA for the year? A: Once you (as the account hoder) are enroed in Medicare you must pro-rate the contributions for the year that coverage begins. Medicare coverage wi begin on the first of the month in which you turn 65. In this case you woud take the aowed contribution for the year (incuding any catch-up contribution) and divide by 12. Since you are eigibe to contribute from January to March, mutipy the monthy amount by three to get your maximum aowed contribution amount. Q: Must this contribution be made prior to my 65th birthday? A: No. Contributions can be made unti your tax fiing deadine, typicay Apri 15. Q: I am enroed in Medicare and have money remaining in my HSA. What happens to these funds? A: HSA funds can continue to be spent on a tax-free basis for eigibe medica expenses for you and your tax dependents. If you, as the account hoder, are over age 65 and the money is withdrawn for other than medica expenses, it is subject to income tax, but no other penaties appy. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Q: I am married, covered by a famiy HDHP with an HSA. My spouse is enroed in Medicare but aso covered under the famiy HDHP. Can I sti contribute to the HSA? A: Yes. Being eigibe to contribute to the HSA is determined by the status of the HSA account hoder, not the dependents of the account hoder. Your spouse on Medicare does not disquaify you from making contributions to your HSA, even though your spouse is covered by your HDHP. 33

34 34

35 Chapter 5 Managing your HSA when ife changes What happens to your HSA when you encounter ife changes ike osing your job, divorce and even death? This chapter expores what happens to your HSA when these events occur.

36 Chapter 5 Managing your HSA when ife changes Section 1 Changing jobs 37 Section 1.1 Pro-rated contributions 37 Section 1.2 Cacuating pro-rated maximum contributions 37 Section 2 Transferring an HSA in a divorce 38 Section 3 Tax treatment of an HSA after death of an account hoder 38 Section 4 Frequenty asked questions 38 If my spouse has a famiy HDHP with an HSA, and I ose coverage under my individua HDHP, can I continue to make contributions to my HSA? 38 Can I ro my HSA into my spouse s HSA? 38 What if I am no onger covered by an HDHP or I terminate group coverage through my empoyer? 38 What if I need to use my HSA for non-eigibe expenses? 38 I changed jobs and have an HRA from my former empoyer that has a spend-down feature. What is that and how does it affect my new HSA? 38 What happens to an HSA if the account hoder dies? 38 36

37 Chapter 5 Managing your HSA when ife changes Sometimes our ives take an unexpected turn. When that happens, you can take comfort knowing that your HSA was designed with your security and best interests in mind. That s true whether you encounter a job change or termination, a divorce or your famiy status changes. Section 1 If you have your HSA with SeectAccount and are no onger with the empoyer that offered the HSA pan, SeectAccount wi transfer your HSA to an individua HSA. Ca SeectAccount to initiate this transfer. Note: You can then choose which SeectAccount HSA product you prefer and whether you want an HSA debit card. SeectAccount offers three HSA options with different interest rates and fees. Changing jobs Acquiring or maintaining heath insurance coverage can be a major concern when changing or osing a job. That s a good reason to contribute to your HSA now. Here are a few other things to know when your empoyment situation changes. If you find yoursef no onger covered by an HDHP, you can continue to use your HSA funds to pay for eigibe medica expenses. However, you can no onger make HSA contributions for any month during which you were not covered under an HDHP. If you need to use your HSA for non-eigibe expenses, you wi need to add those doars to your gross income for tax purposes. If you are receiving unempoyment benefits, your heath insurance premiums are eigibe medica expenses. (Refer to the onine ist of eigibe medica expenses in Chapter 3, Section 3.1. on page 27) If you keep the HDHP (for exampe, if you continue medica coverage through your former empoyer through COBRA), you can sti make contributions to your HSA. Note: If you choose COBRA coverage, you can remain in the empoyer group at SeectAccount whie under that empoyer s pan. If you change jobs and have access to heath coverage through your new empoyer, check to see if you can enro in an HDHP that is HSA-quaified. If you do not have an HSA option or you enro in another pan option, you wi not be abe to contribute to your HSA. However, you can sti use your HSA to be reimbursed for eigibe medica expenses. If your new empoyer offers an HSA-quaified pan and contributes empoyer doars to the HSA, you may want to move your HSA to the administrator they use. Section 1.1 Pro-rated contributions If, for whatever reason, you are enroed in an HSAquaified HDHP for a partia year, the maximum HSA contribution for that year must be in proportion to the number of months you were covered by the HDHP. (See exampes beow.) Section 1.2 Cacuating pro-rated maximum contributions Bob is younger than age 55. He was covered by an individua HDHP for six months before osing his coverage. What s the maximum amount he can contribute to his HSA that year? In 2014, the maximum contribution for individua coverage is $3,300. Because Bob was covered by a HDHP for six months (haf) of the year, he can contribute haf of the maximum amount aowed of $1,650. ($3, months x 6 months = $1,650.) Lynn, age 58, was covered by a famiy HDHP for five fu months of the caendar year. In 2014, the maximum contribution for famiy coverage is $6,550, pus an annua catch-up contribution of $1,000 for each spouse over age 55. Because Lynn was covered for five months, she can contribute 5/12 of $7,550 or $3, ($7, months x 5 months = $3, ) Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 37

38 Chapter 5 Managing your HSA when ife changes Section 2 Transferring an HSA in a divorce Transferring of a or part of your HSA to a spouse or former spouse in a divorce as required by a divorce decree is not a taxabe transfer. A former spouse may avoid paying taxes on the account if it is maintained as a quaified HSA. Section 3 Tax treatment of an HSA after death of an account hoder The tax treatment of an HSA after the death of the account hoder depends on who is named as beneficiary of the HSA. If the deceased account hoder s beneficiary is a spouse, the HSA is treated as the surviving spouse s HSA. Withdrawas to the surviving spouse for eigibe expenses are tax free. If a non-spouse beneficiary is named, the HSA ceases to be an HSA as of the date of death. In this case, the vaue of the HSA is taxabe to the beneficiary or to the estate of the account hoder if a beneficiary is not named. The non-spouse beneficiary incudes the baance of the HSA in his or her income for the year of the account hoder s death. Note: This rue aso appies if the account hoder names the estate or fais to name a beneficiary. Section 4 Frequenty asked questions Q: If my spouse has a famiy HDHP with an HSA, and I ose coverage under my individua HDHP, can I sti contribute to my HSA? A: Yes, if your spouse has a famiy HDHP, you can continue to make contributions to your own HSA. Q: Can I ro my HSA into my spouse s HSA? A: No. If your spouse has a famiy HDHP, you cannot ro your HSA into his or her HSA. Q: What if I am no onger covered by an HDHP or I terminate group coverage through my empoyer? A: If you change heath pans to a non-hdhp, you may sti continue to use your HSA for eigibe medica expenses, but you cannot make contributions for any month you were not covered by an HDHP. Your maximum aowed HSA contribution wi then be pro-rated based on the number of months you were covered by an HDHP. Q: What if I need to use my HSA for non-eigibe expenses? A: If you use your HSA for expenses that are not eigibe medica expenses, you must report the amount of the withdrawa as gross income for tax purposes. You wi incur an additiona 20 percent penaty tax for those HSA funds withdrawn. Q: I changed jobs and have an HRA from my former empoyer that has a spend-down feature. What is that and how does it affect my new HSA? A: The spend-down feature ets you continue to use the money in the HRA from your previous empoyer, but your empoyer cannot make new contributions to the HRA. You cannot open or contribute to your new HSA unti the HRA doars are spent and the current pan year for the HRA is over. You can enro in the new HDHP, but not set up the HSA unti that time. Q: What happens to an HSA if the account hoder dies? A: As an account hoder, you may designate a beneficiary when you open your HSA. You may change your beneficiary in writing at any time. If a spouse is the designated beneficiary of an HSA, the account is treated as the spouse s HSA after the death. If the spouse is not the designated beneficiary of the HSA on the date of death: 1) the account stops being an HSA, and 2) the fair market vaue of the HSA becomes taxabe to the beneficiary. If there is no beneficiary, the fair market vaue of the HSA wi be incuded in the account hoder s fina estate tax return. 38

39 Chapter 6 HSAs and your taxes This chapter covers such things as reporting HSA income on your tax return, important forms to submit and how individua HSA contributions are treated on your tax return.

40 Chapter 6 HSAs and your taxes Section 1 Reporting HSA income on your tax return 41 Section 2 IRS reporting requirements 41 Section 3 How individua HSA contributions are treated on your tax return 42 Section 4 Frequenty asked questions 42 Can withdrawn excess contributions be caimed as a deduction on Form 1040? 42 40

41 Chapter 6 HSAs and your taxes When being reimbursed from your HSA for eigibe medica expenses, you do not pay tax on the withdrawa. You must pay income taxes pus an additiona tax of 20 percent on any HSA amount used for non-eigibe medica expenses, uness you re disabed, age 65 or oder or die during the year. If you become disabed or reach age 65, withdrawas can be made for non-medica reasons without penaty, but amounts must be reported as taxabe income. If withdrawas for the year are ess than or equa to the eigibe medica expenses that were paid, there are no tax requirements on those withdrawas. Section 1 Reporting HSA income on your tax return You wi receive the foowing IRS forms from SeectAccount: Form 1099-SA maied from SeectAccount reports any withdrawas made in a tax year by January 31 each year. Form 5498-SA maied from SeectAccount by May 31 each year reports contributions made for a specific tax year. You are responsibe for keeping records to support withdrawas and to compete Form 8889 and attach it to Form In addition to the required government forms (Form 5498-SA and Form 1099-SA), there are severa reports SeectAccount provides to assist you with your tax obigations: Verification Form You receive a confirmation packet when SeectAccount processes your HSA appication. It provides information on how to receive reimbursements and make deposits. Annua Statement You receive a statement foowing the end of the caendar year verifying the contributions received, withdrawas made and account baance. You can view the status of your account anytime at seectaccount.com. Expanation of Payment You get a statement with each withdrawa request, detaiing the resuts of that withdrawa. Baance information is aso on this statement. Heath savings accounts offer deductions on federa income tax for any deposits made to the account. Most states aso offer the same deductions on state income taxes. However, since HSAs were set up as a federa program, the individua states can choose to compy with the federa guideines concerning tax treatment of HSAs, or estabish their own rues. At the time this guide was prepared, the states of Aabama, Caifornia, New Jersey, and Wisconsin did not aow an HSA tax credit for state income taxes. Be sure to check with your tax advisor to determine your state s current status and guidance in preparing your tax returns. Section 2 IRS reporting requirements The IRS states that HSA contributions and withdrawas are reportabe transactions. Tax deductions are generay avaiabe either to the eigibe individua and/or the empoyer. Withdrawas from HSAs for eigibe medica expenses wi avoid income tax consequences to the HSA hoder. That s why the IRS requires these withdrawas to be reported. To make reporting withdrawas easier, the IRS offers forms to be used by the parties invoved. Regardess of whether HSA contributions are made by you or your empoyer, the contributions must be reported on your tax return. Contributions to and withdrawas from HSAs are reported by the account hoder on Form The empoyer is required to report empoyer HSA contributions to the IRS on the tax return that is fied by the empoyer. Empoyer HSA contributions, incuding empoyee pretax contributions through a cafeteria pan, are aso reported on the W-2 (Box 12, code W) for each empoyee. HSA information in this guide is not intended as ega or tax advice. HSAs are authorized by federa egisation. State and/or federa aws coud be passed in the future Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 41

42 Chapter 6 HSAs and your taxes that affect the tax benefits of an HSA. Tax benefits may aso be affected by faiure to compy with eigibiity and withdrawa requirements. Refer specific questions about federa and state tax ramifications, as they reate to a particuar circumstance, to your tax advisor each year. Section 3 How individua HSA contributions are treated on your tax return Contributions made by an eigibe individua to an HSA are deductibe in computing your federa adjusted gross income. The contributions are deductibe whether or not you itemize deductions. A sef-empoyed person s HSA contributions are subject to SECA taxes (the Socia Security taxes appicabe to the sef-empoyed). Contributions made by an empoyer or empoyee through a cafeteria pan are excuded from federa gross income, are not subject to withhoding for federa income tax and are not subject to other empoyment taxes (for exampe, Socia Security tax). Even though not taxabe to the empoyee, empoyers are required to report the amount of the HSA contribution on the empoyee s W-2. An empoyee who eects to make HSA contributions under a cafeteria pan may start or stop the eection or increase or decrease the amount at any time as ong as the change is effective prospectivey (that is, after the request for the change is received). Additiona rues regarding tax treatment of your HSA doars incude: generay subject to an additiona 20 percent penaty, uness the withdrawa is made after death, disabiity or reaching age 65. HSA egisation and tax advantages are based on federa aw. Amost a states with a state income tax foow the federa tax treatment. At the time this guide was prepared, ony Aabama, Caifornia and New Jersey were beieved to incude HSA contributions in gross income for state income taxes. SeectAccount does not provide tax advice. You shoud rey on your own tax professiona for more information on your state s tax requirements and your tax preparation. Section 4 Frequenty asked questions Q: Can withdrawn excess contributions be caimed as a deduction on Form 1040? A: No. When withdrawing excess contributions, you must inform SeectAccount that the withdrawa is for that purpose. SeectAccount wi compute the earnings on the excess contributions for you. The tota withdrawa wi incude the earnings portion. If contributions are made with pretax doars, then both the withdrawa and earnings are incuded in your taxabe income. The withdrawa for excess contributions and the earnings wi be reported to the account hoder on IRS Form 1099-SA. Tax treatment of earnings on amounts in an HSA Earnings on amounts contributed to an HSA are generay not taxabe to the HSA hoder. Withdrawas from an HSA There is no restriction on when and how often you may request withdrawas from the HSA. When you or your dependents incur an eigibe medica expense, a withdrawa from the HSA may be made to reimburse you for the expense. Non-eigibe withdrawas Withdrawas that are not for eigibe medica expenses are aways incuded in your gross income. In addition, such withdrawas are 42

43 Chapter 7 Investing your HSA This chapter introduces you to investment strategies and options that can hep you grow your HSA from minimum baances and basic investment accounts, to sef-directed mutua fund options and asset casses.

44 Chapter 7 Investing your HSA Section 1 Investment strategies and options 45 Section 1.1 When your HSA Base Baance reaches $1, Section 1.2 When your Basic Investment Account baance exceeds $10, Section 1.3 Investment accounts are sef-directed and sef-managed 45 Section 1.4 Investment account options based on baance 46 Section 1.5 Investment asset cass descriptions 47 Section 2 Investment account fees and reporting requirements 48 Section 2.1 Mutua funds fees and charges 48 Section 2.2 HSA investment options discosures 50 Section 3 Frequenty asked questions 50 What are my HSA investment options? 50 Are the sef-directed investment accounts part of my HSA? 50 How can I direct future contributions to go into my Basic Investment Account? 50 How do I request a withdrawa when I have an active investment account? 50 44

45 Chapter 7 Investing your HSA You can invest a portion of your HSA in a variety of investment options. To take advantage of these investment opportunities, you need to seect one of the investment account options within your HSA as your baance grows. If you don t want to assume the risk of oss that comes with investing in the market, you can choose to eave your entire HSA baance (your base baance) at SeectAccount where it may earn interest at rate(s) estabished by SeectAccount. Section 1 Investment strategies and options HSA investment options are through an arrangement between SeectAccount (your HSA administrator) and the Chares Schwab Trust Company (the subcustodian for the investment accounts). As one of the most recognized names in the investment industry, the Schwab patform gives you access to mutua funds from various fund famiies, as we as panning toos to hep you manage and anayze your investments. Section 1.1 When your HSA Base Baance reaches $1,000 When your HSA Base Baance reaches $1,000, you can activate your sef-directed Basic Investment Account with the Chares Schwab Trust Company as the investment custodian. This account, as part of the HSA, gives you access to a variety of mutua funds from the Schwab s Mutua Fund OneSource Service. The mutua funds avaiabe under this option are seected by Devenir LLC, a registered investment advisor. There is an additiona monthy fee for an investment account. You can open a Basic Investment Account at seectaccount.com. Generay, you wi be abe to access your investment account onine within two to three business days after you open it. You can then obtain mutua fund prospectuses, seect the mutua funds in which you wish to invest, determine how much to invest and aocate future contributions. Section 1.2 When your Basic Investment Account baance exceeds $10,000 When your Basic Investment Account baance exceeds $10,000, you can activate a Sef-Directed Brokerage Investment Account with Chares Schwab. This account, aso a part of your HSA, gives you access to more than 2,500 mutua funds from a variety of fund famiies, as we as stocks, bonds and other investments. There is a monthy fee for a brokerage investment account. Section 1.3 Investment accounts are sef-directed and sef-managed Investment accounts are sef-directed and sef-managed. This means you decide whether and when to invest, seect the mutua funds or other investments (avaiabe through the Brokerage Investment Account option) in which you want to invest, and decide how much to invest. If you need hep with this process, you have access to onine resources and toos through the Schwab site accessibe from your HSA account at seectaccount.com. The website aso provides access to Financia Toos, a group of research and panning toos at If you do not have access to the Internet, you can activate and access your HSA investment account by caing Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 45

46 Chapter 7 Investing your HSA Section 1.4 Investment account options based on baance $10,000 + $1,000 $10,000+ $1,000 minimum $1,000+ $0 $1,000 D Base Investment Account D D Sef-Directed Brokerage Account Base Baance Investment pan options A minimum of $1,000 required in Base Savings Account Monthy fees based on account type Account type Your avaiabe funds Monthy account service fees* Base Baance Funds in the Base Baance earn interest at rates set by SeectAccount. Account hoder may eave a funds in the base account. Annua fees vary Basic Investment Account When your Base Baance exceeds $1,000, you have the option to invest the amount over this threshod in a variety of pre-seected mutua funds. An additiona $1.50 per month; this fee is paid out of the Basic Investment Account Sef-Directed Brokerage Investment Account When your Basic Investment Account exceeds $10,000, you have the option to invest the amount over this threshod in a wider range of mutua funds as we as stocks, bonds and other investments. An additiona $1.50 per month standard transaction fees are paid out of the Sef-Directed Brokerage Investment Account. *These fees are in addition to any HSA account administrative fees that SeectAccount may charge. 46

47 Chapter 7 Investing your HSA Section 1.5 Investment asset cass descriptions Investment asset cass Description Large Cap Vaue Companies having a market capitaization of between $10 biion and $200 biion and companies that are considered cheap reative to other stocks by vauation measurements, such as price-to-earnings and price-to-book vaue ratios. Large Cap Income Companies having a market capitaization of between $10 biion and $200 biion that pay dividends and provide a steady stream of income. This typicay incudes we-estabished companies such as utiities and financia services firms. Large Cap Growth and Income Companies that have a market capitaization of between $10 biion and $200 biion whose saes and profits are expected to grow; that pay dividends and provide a steady stream of income. This typicay incudes we-estabished companies such as utiities and financia services firms. Large Cap Growth Companies having a market capitaization of between $10 biion and $200 biion, or whose saes and profits are expected to grow. Mid Cap Companies with a market capitaization of between $2 biion and $10 biion or whose saes and profits are expected to grow. Sma Cap Companies with a market capitaization of between $300 miion and $2 biion. Sma cap funds invest in companies primariy in the securities of sma and medium-sized companies. The risks associated with investments in sma companies incude ess experienced management, imited product ines and financia resources, shorter operating histories, ess pubicy avaiabe information, reduced iquidity and increased price voatiity. Internationa Index Fund Fixed Income Lifestye Funds These types of funds invest in companies and debt instruments throughout the word. Investing in these securities invoves considerations and potentia risks not typicay associated with investments in domestic corporations and obigations issued by the U.S. government. These risks incude risks associated with changes in currency vaues, economic, poitica and socia unrest, the reguatory environment of the countries where the fund invests, as we as difficuties in receiving current and accurate information. An index fund mirrors the hodings of a broad based market index such as the S&P 500. The goa of an index fund is to match the returns of the index. Fixed income funds generay invest in bonds and other debt instruments which pay a steady stream of income. Lifestye Funds are funds whose asset mix is determined according to the eve of risk and return that is appropriate for an investor s current ife situation. Lifestye funds may be conservative, moderate or aggressive. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Money Market Money market funds invest in debt instruments with maturities of one year or ess and are considered very iquid. 47

48 Chapter 7 Investing your HSA Section 2 Investment account fees and reporting requirements When you choose to invest your HSA doars, you wi pay fees on your HSA base baance, your Basic Investment Account and your Sef-Directed Brokerage Investment Account. Here are some detais on these fees: You pay a monthy investment account service fee of $1.50 to SeectAccount. This fee is deducted monthy from your Basic Investment Account and is ony deducted when the Basic Investment Account has a baance. Peope who have the HSA Thrift Saver with a Sef- Directed Brokerage Investment Account, which can be opened once your Basic Investment Account baance exceeds $10,000, wi be charged $1.50 per month for the brokerage account. Its recommended to ro your basic investment account funds into the brokerage account to avoid investment account fee. Schwab s standard brokerage commission schedue appies to transactions in the Sef-Directed Brokerage Investment Account. Appicabe commissions and execution fees wi aso be deducted from your Sef-Directed Brokerage Investment Account baance. Account hoders with a Sef-Directed Brokerage Investment Account wi pay standard transaction fees for trades they make through their Sef-Directed Brokerage Investment Account. In addition, short-term redemption fees may appy for fund units that are sod within the time frame isted in the fund s prospectus. Refer to a fund s prospectus to earn if redemption fees appy. Section 2.1 Mutua fund fees and charges In addition to the monthy investment account service fees for the HSA investment options, read the fund s prospectus carefuy before investing. It contains compete information about the fund, incuding management fees, charges and expenses. To get inks to prospectuses go to seectaccount.com home page and cick on Products/HSA/Hod it works tab and Investments. Seect the fund prospectus by cicking on the ink to our preseected mutua funds. Mutua funds purchased from Chares Schwab & Co. Inc. through the Basic Investment Account options avaiabe under your HSA wi be purchased without an initia saes charge. Some mutua funds may impose redemption fees of up to two percent of the redemption proceeds to discourage short-term trading. If a redemption fee is charged, it is paid to the fund and is intended to offset portfoio transaction costs, market impact and other costs associated with short-term trading. The mutua funds avaiabe through Schwab s Mutua Fund OneSource Service may charge 12b-1 fees as discosed in the fund s prospectus. A 12b-1 fee is a fee that a mutua fund company pays to others out of fund assets to cover administrative services, incuding record keeping and sharehoder services, and to compensate persons who distribute the fund s shares. Chares Schwab & Co. Inc. receives payments from the mutua fund companies participating in Schwab s Mutua Fund OneSource Service for record keeping and sharehoder services and other administrative services. Schwab aso may receive payments from transaction fee fund companies for certain administrative services. Schwab may make certain pan expense payments to the record keeper for the investment accounts for administrative and record keeping services it provides. In addition, these pan expense payments may aso be used to offset investment account expenses for custodia and investment advisory services. Without these pan expense payments from Schwab, the monthy investment account service fees described above coud be higher. Devenir, as investment advisor to the HSA, may consider the avaiabiity of these pan expense payments when it seects mutua funds for the Basic Investment Account. None of the monthy investment account service fees, pan expense payments or the investment account transfer fee, if appicabe, is paid to SeectAccount. 48

49 Chapter 7 Investing your HSA Information provided by Devenir, LLC. Devenir Investment Advisors LLC is a registered investment advisor that was chosen by SeectAccount to research and seect the HSA mutua fund investment options. Devenir s investment seection methodoogy screens the pan s mutua fund options on a number of criteria, which incudes, but is not imited to, tota fund performance, category ranking by Morningstar and track record. Devenir wi periodicay review and may recommend changes in the group of mutua funds avaiabe in the Basic Investment Account if a particuar fund no onger meets Devenir s investment seection criteria. You wi not be given separate notice of these changes; however, if you access your Basic Investment Account at seectaccount.com, you can find a ist of the current group of mutua funds and find access to the fund prospectuses. Any change in the group of mutua funds wi not affect amounts you have previousy invested, and you may continue to invest in funds that are no onger part of the group. The HSA investment account mutua fund seections represent a variety of asset casses. This aows you to choose how you want to aocate your assets. Historicay, no one asset cass outperforms any other. By diversifying your investments among various asset casses you have the potentia for minimizing risk and maximizing returns in your account, but there is no guarantee. Diversification and asset aocation do not protect your account from market fuctuations and do not guarantee a gain or protect against a oss of principa in your account. To determine your asset aocation you shoud consider factors such as your risk toerance, investment objectives and time horizon for these assets. When considering your time horizon for any investment you choose to make in your HSA, keep in mind the roe you expect your HSA to pay in meeting your future heath care needs and that you may need to iquidate investments to fund a withdrawa from your HSA. How do you determine an asset aocation that s right for you? Through the HSA investment account, you have access to a number of Schwab s web-based educationa and panning toos to hep you make your investment seections. These toos incude easy-to-use asset aocation guides, goa panners and cacuators to hep you reach your specific savings goas. The investor profie avaiabe through Schwab 401(k) Toos can hep you determine what type of an investor you are conservative, moderate or aggressive and suggest a recommended diversification that you may wish to consider when you make your investment decisions. Over time, your risk toerance, investment objectives or time horizon for these assets may change. The asset aocation you choose today may not be appropriate in the future. It s a good idea to re-evauate these factors and rebaance your portfoio as necessary. For questions about your investment account, ca SeectAccount to free between 7 a.m. and 7 p.m. Centra Time, Monday through Friday. For questions or advice about the stabiity of investment options, pease consut your financia advisor or accountant. You can find the Schwab 401(k) Toos when you go to the Financia Toos at Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 49

50 Chapter 7 Investing your HSA Section 2.2 HSA investment options discosures Devenir does not intend to provide personaized investment advice to participants of this sef-directed HSA program. Information provided for the investment options herein are for informationa purposes ony and shoud not be mistaken as a recommendation from Devenir or its representatives. Devenir reserves the right to change investment options at any time. Information about asset cassifications for investment options have been provided by Morningstar or the fund prospectus and the asset cassifications are subject to change over time. Past performance is no guarantee of future resuts. Before you make any investment, you shoud carefuy review the fund s prospectus and consider its objectives, associated risks and any fees or expenses that may appy. Investing entais the risk of oss of principa. The record keeper for the investment accounts may receive certain pan expense payments from Chares Schwab & Co. Inc. for administrative and record keeping services provided to the HSA investment accounts. The pan expense payments may aso be used to offset custodia fees charged by the Schwab Trust Company and investment advisory fees charged by Devenir for services provided to the investment accounts. These payments may be based on the market vaue of the fund or the number of participants that invest in it. The record keeper expects to receive the pan expense payments from Schwab with respect to these funds. OneSource is a registered mark of Chares Schwab and Co. Inc. Morningstar is a registered mark of Morningstar, Inc. SeectAccount and Devenir are unaffiiated companies. SeectAccount and Devenir are not affiiated with The Chares Schwab Trust Company or its affiiated broker deaer, Chares Schwab & Co. Inc., member SIPC/NYSE. Section 3 Frequenty asked questions Q: What are my HSA investment options? account to invest in ife insurance poicies, coectibes (such as artwork) or other intangibes as defined by the IRS. Q: Are sef-directed investment accounts part of my HSA? A: Yes. Whie the Basic Investment Account and the Brokerage Investment Account are hed in the custody of the Chares Schwab Trust Company, they are part of your SeectAccount HSA. SeectAccount does not pay interest on the investment accounts. Q: How can I direct future contributions to go into my Basic Investment Account? A: You can direct future HSA contributions to mutua fund investments at seectaccount.com. You find various options to contro or manage the fow of contributions to the mutua fund(s) you seect. Generay, you may eect to have a or a portion of your future contributions fow directy into the investments you have seected in your investment account. There is one restriction: If your Base Baance fas beow $1,000 due to HSA withdrawas for heath care caims, then your future contributions wi first be used to buid your Base Baance back to $1,000, with the remainder invested per your instructions. Q: How do I request a withdrawa when I have an active investment account? A: Account withdrawas are aways paid from your Base Baance. If there are not enough funds in your Base Baance to pay a caim, the caim wi be pended for 12 months or unti more funds are avaiabe in your Base Baance. These funds can come from either new contributions or from transferring funds from your investment account to your Base Baance. Transferring funds from the sef-directed investment account or the Basic Investment Account to the Base Baance is not automatic. You must manuay request such a transfer. Withdrawas wi be taken pro-rata from the mutua funds you have invested if you have seected the pro-rata transfer option (the ony option for the basic investment account). Otherwise, Schwab brokerage accounts must have the money moved to cash to transfer to a sefdirected account. You wi need to seect the fund(s) and amount(s) you wish to se to fund your withdrawa. A: In genera, you can invest your HSA doars the same way you woud an IRA. However, you cannot use the 50

51 Chapter 8 Getting hep with your HSA You have severa options for getting hep if you can t find information and answers in these pages. This chapter ooks at the many resources avaiabe to you as an HSA member and incudes a gossary of terms.

52 Chapter 8 Getting hep with your HSA Section 1 Hepfu websites 53 Section 2 Important phone numbers 53 Section 3 Gossary of terms 54 52

53 Chapter 8 Getting hep with your heath pan and HSA Section 1 Hepfu websites Onine member service center Seectaccount.com, your 24/7 onine resource to hep you manage your account(s). How to register 1. Visit SeectAccount.com. 2. Seect Members under Register/Sign In on the eft side of the screen. 3. Cick on Register. 4. Enter your name, birth date, e-mai address, SeectAccount ID number, ast four digits of your Socia Security Number, and zip code. Other websites containing hepfu answers, rues and forms are at: irs.gov Interna Revenue Service medicare.gov Medicare Section 2 Important phone numbers SeectAccount customer service (651) Fax (651) a.m. to 7 p.m. Centra Time Medicare MEDICARE TTY ine Dedicated customer service Ca SeectAccount customer service at the number above with questions about your HSA or your HSA investment accounts. Automated teephone sef-service You aso have the option of getting basic account information through our new interactive phone system when you ca SeectAcount customer service. This gives you access to information ike your account baance, recent contributions and withdrawas, caims status, investment account baances and more. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 53

54 Chapter 8 Getting hep with your heath pan and HSA Section 3 Gossary of terms Limited purpose FSA or HRA Limited to expenses for permitted benefits. These benefits incude vision, denta or preventive care benefits. Post-deductibe heath FSA Provides reimbursement for a Section 213(d) expenses ony after the HDHP deductibe has been satisfied. Typicay, expenses ike vision, denta and preventive care are payabe out of the post-deductibe FSA during the deductibe phase. Suspended HRA Refers to instances where the empoyee has chosen to discontinue reimbursements from the HRA except for preventive care and permitted benefits during the time period in which the empoyee is making contributions to an HSA. An empoyer may sti contribute to a suspended HRA. Caims incurred during the time that the HRA was suspended cannot be paid at a ater date when the HRA is no onger suspended, except caims for preventive care and permitted benefits. Caim Information from a heath care provider or member that says services were provided. COBRA Short for Consoidated Omnibus Budget Reconciiation Act, a federa aw under which empoyers with 20 or more empoyees must offer continuation of heath care coverage to empoyees (and their dependents) when an empoyee eaves their job. The empoyee must pay the entire premium for coverage. Coverage can be extended for up to 18 months. Coinsurance The percent of covered heath care costs that you pay after the pan deductibe is met (not a pans have coinsurance). Crossover Automatic transfer of caims information from your heath pan to SeectAccount so you can be quicky reimbursed from your HSA for eigibe expenses. Deductibe Amount you pay for heath care services each year before your heath pan pays. You can use money from your HSA during your pan deductibe. Expanation of Payment (EOP) A form you receive from SeectAccount when you make a withdrawa from your HSA, or when you receive reimbursement (if you have crossover). Fexibe spending account (FSA) An account to set aside pre-tax doars that you think you spend for medica or dependent care expenses during the year. This can resut in significant tax savings. Grace period A grace period gives you up to 75 additiona days to incur expenses. A run-out period gives you more time to submit caims for reimbursement. This feature can be chosen by an empoyer for a company-sponsored FSA. Heath reimbursement arrangement (HRA) An empoyer-guaranteed amount of money that you can use to pay some of your heath care expenses. Heath savings account (HSA) A tax-advantaged account that ets you pay current heath care expenses or save for future expenses. You must be covered by a highdeductibe heath pan (HDHP) and not be covered under any other heath pan. HSA contributions can be made by you, your empoyer or both. High-deductibe heath pan (HDHP) A pan that works with a heath savings account. Out-of-pocket maximum The most you can pay for covered heath care services in a year (a worst-case scenario). Premium The amount paid each month for your heath care coverage. Often, you pay a portion of the tota, which is deducted from your paycheck and your empoyer pays the rest. Provider A doctor, cinic or hospita. It can aso mean other care faciities or professionas, such as physician assistants, chiropractors, psychoogists and many others. Roth IRA Not a traditiona IRA, but a specia type of IRA that pays a taxes up front. 54

55 Chapter 8 Getting hep with your heath pan and HSA SECA Sef Empoyed Contributions Act The business owner s version of the FICA tax that empoyees pay. Like FICA, it is made up of your contributions to both the Socia Security and Medicare programs. However, the basic tax rate for the sef-empoyed under SECA is percent twice the 7.65 percent rate that empoyees must pay on their paychecks as FICA tax to refect the fact that empoyees pay one-haf the FICA tax and empoyers pay the other haf. SEP IRA A specia type of IRA used as a Simpified Empoyee Pension Individua Retirement Account SIMPLE IRA Not a traditiona IRA, but a specia type of empoyer provided IRA caed Savings Incentive Match Pan for Empoyees Traditiona IRA A tax-deferred retirement account in which individuas can make deductibe contributions that are subject to tax ony upon withdrawa. USERRA Acronym for Uniformed Services Empoyment and Reempoyment Rights Act. Estabished in 1994 to protect peope who vountariy or invountariy eave their civiian jobs to perform miitary duties. USERRA requires that empoyers aow such individuas and their dependents to remain covered by the companysponsored heath pan for up to 24 months, if they choose. If the individua decides not to continue coverage, they can be reinstated in the pan without any waiting periods or excusions when they return to their civiian job. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 55

56 MII Life Inc., d.b.a. SeectAccount F8188R13 (6/14)