Over the weekend, Congress passed huge new changes in HSA Legislation, it only needs the President’s signature to become law. With an effective date of 2007 for the law, we wanted to make Colorado Health Insurance Insider readers aware of the possible changes.
All of the legislation is an improvement for HSAs and includes the following.
Full HSA Deduction. The new law allows eligible individuals to make a full HSA contribution up to the legal limit regardless of the deductible amount on their High Deductible Health Plan (HDHP). For example, an individual with a $2,000 HDHP could contribute and deduct up to the full limit of $2,850 for 2007.
No Reduction for Partial Year Coverage. The new law eliminates the reduced contribution amounts for individuals that start their HDHP mid-year. Instead of tricky math, individuals covered only part of the year get the full HSA deduction. The individual needs to maintain HDHP coverage for twelve months; however, or face penalties.
Rollover of IRA to HSA. The new law allows a one-time rollover of IRA assets to fund an HSA. This is limited to the amount of the year’s contribution (i.e. the individual must be eligible and not contribute the amount from another source).
Rollover of FSA to HSA. The new law allows individuals to roll money from an Flexible Spending Account (FSA) to an HSA. The law also creates an exception to the tough rule prohibiting individuals from having both an HSA and an FSA for a gap period.
Permissible to Make Extra HSA Contributions to Some Employees. The new law removes the comparability testing requirement for HSA contributions made to “non-highly compensated employees.”