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New HSA Installation with 1-1 medical expenses-Mechanics?


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We're installing an HSA for 1-1-2016 that will have a frontloaded employer contribution of 1000.00. I know that the trustee will need to get the HSA approval process in place and that will take time after Open Enrollment starts ( you have to elect the HSA, then agree to the Bank regs, then the trustee sets up your accunt , and finally deductions begin.

In the event that someone needs care on 1-1 and wants to use the employer contribution,and the employer knows that the employee has elected an HSA can the employer deposit those dollars into an employee account?

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If you frontload, it must be credited to the employee at the same time, otherwise front loading makes no sense and really did not happen and would not be deductible by the employer, absent the use of a Trust.

As far as I know, the funds have to be deposited before the expense is incurred. The employer cannot and should not be making deposits in response to the expenses.Accounts must be pre-funded.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 2 weeks later...

Funds do not have to be deposited before the services are provided. There is no requirement as to the ordering of contributions and distributions for qualified expenses. The IRS has specifically addressed this. Most employers do not make a single contribution, but rather make smaller contributions each pay period.

What must happen Is that the HSA account must be "opened" prior to the date the service is provided.

Therein lies potential problems. You need to determine the HSA custodian rules on account creation and deposits. In many cases custodians will not open and/or designate deposits as having occurred on 1/1 since their systems will not allow those transactions on a non-business day.

One solution is to open the account on the last business day of the previous year and fund on the first business day of the current year. However, the designation of what constitutes an "opened" account is subject to state law.

In some states an account is not considered opened until the first deposit occurs. In this case a "test" deposit of <= $1.00 can be made and reversed when the first real deposit is made. I have even seen some cases where they leave the test deposit in.

This is almost a standard consideration in HSAs to ensure that the date of account opening is 1/1. You should contact your custodian/trustee to determine how the handle this. This can not be the first time they have heard it.

Remember the date of the employer contribution is not critical here. Providers take significant time to bill for services and even if the participant was required to pay on the spot, they can reimburse themselves later.

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