The fall may bring you questions about health savings account eligibility and enrollment.
Here are answers to eight common questions about HSA distributions.
Generally, yes. The same IRS guidance on qualified medical expense (IRS Publication 502) applies to HSAs, FSAs and HRAs with some key differences outlined below. IRS Publication 502 serves as a starting point to determine whether an expense is qualified or not and is not the ending point as the facts and circumstances matter.
Insurance Premiums. HSAs allow for the purchase of insurance premiums in some cases in a manner different than FSAs and HRAs.
Death Distributions. HSA assets pass to named beneficiaries in the case of death of the HSA owner with a special rule that spouses can treat it as their own.
Timing of Distributions. HSAs are more flexible on the timing of distributions.
Distributions for General Expenses. HSAs can be used for nonqualified medical expenses if the HSA owner is willing to pay taxes and penalties.
Age Sixty-Five Distributions. At age sixty-five HSA owners can use the HSA for any reason penalty-free.
Rollovers/Transfers. HSAs allow for an HSA owner to move the funds to a new custodian at the HSA owner’s discretion.
Caution: Employers can further restrict the definition of a qualified medical expense for FSA and HRAs, but not HSAs.
2. What exactly, for this purpose, is a prescription drug?
A prescription drug is a licensed medication or biological that requires a prescription for its dispensing. Under HSA rules an HSA owner may use his or her HSA to pay for over-the-counter drugs so long as the HSA owner obtains a “prescription” even if the drug is available without a prescription.
For HSAs, a “prescription” means a written or electronic order for a medicine or drug that meets the legal requirements in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue prescriptions in that state.
3. Is medical marijuana qualified with a prescription?
No. Marijuana is a banned substance under federal law. Even if the taxpayer lives in a state that has legalized marijuana and the taxpayer has a valid prescription, the HSA owner cannot use the HSA to pay for the marijuana.
4. Are prescription drugs from Canada qualified?
Generally, no. Individuals cannot buy prescription drugs from another country and import them into the U.S. because that process is usually illegal – although many people do it. If an HSA owner buys drugs from Canada in violation of U.S. law, the HSA owner cannot use the HSA to pay for them.
If an HSA owner buys a legally imported foreign prescription drug then it is a qualified medical expense (this would include drugs bought legally in the U.S. but were produced overseas or are produced by foreign drug companies).