42 NOVEMBER / DECEMBER 2023 With benefits enrollment season underway, chances are likely you’ll soon experience an uptick in potential clients who want to set up new health savings accounts for next year. More employers than ever are offering their employees a high deductible health plan with an HSA option to help keep costs down. Before these new HSA clients start showing up at your office door, it’s important to understand HSA rules and the steps involved in opening an HSA because proper documentation is key. Plan Agreement To establish an HSA, the IRS requires that an HSA document (i.e., application or plan agreement) be signed by the HSA administrator and the HSA owner. The plan agreement lists both the HSA administrator’s and the HSA owner’s responsibilities. The types of HSA documents that may be used are: • an IRS HSA model document: Form 5305-B; • Health Savings Trust Account, or Form 5305-C; • Health Savings Custodial Account; • a standardized document from a form’s provider; or • a custom-designed document. There is no IRS prototype program for HSAs, so forms providers generally design plan agreements for their HSA document kits based on the IRS model forms. Regardless of which type of document is chosen, HSA administrators need to be familiar with the contents of the HSA plan agreement that they use. The HSA administrator may give copies of its HSA document or document kit to the employer or can work directly with the employees. To prove that the plan agreement was received, an HSA owner should sign and date a copy of the plan agreement or the HSA application as an acknowledgment of receipt. Copies of the signed document must be given to the HSA owner. The HSA administrator should retain copies as well. What You Need Before Opening an HSA An entity that has applied for and received nonbank trustee or custodian powers for HSAs will have an approval letter from the IRS that also must be given to HSA owners when they establish HSAs. Disclosure Statement Disclosure statements, which are documents that contain nontechnical explanations of the rules, have long been required for some tax-deferred arrangements, including IRAs. But laws and official IRS guidance have not yet required disclosure statements for HSAs. But to provide good customer service and to educate HSA owners about the HSA rules, it’s a good idea for financial organizations to provide HSA owners a disclosure statement with the plan agreement. Forms providers, like Ascensus, may offer HSA disclosure statements as part of their HSA document kits. A copy of IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, also could serve as a disclosure statement. Beneficiary Designation Although designating beneficiaries is not an IRS requirement, it is very helpful for both financial organizations and HSA owners. An HSA owner may indicate the individuals (or entities) that will have rights to the HSA assets when the HSA owner dies. If proper procedures are followed, HSA administrators should have no difficulty determining who should receive the HSA assets after death. To assure the validity of the beneficiary designation, the HSA owner should sign and date the document used to name beneficiaries (e.g., the HSA application or a separate beneficiary form). Some financial organizations even require a witness to verify the HSA owner’s identity. Deadline An HSA must be established by the HSA owner’s tax return due date for the year, not including HUMAN RESOURCES Ascensus is an associate member of the Indiana Bankers Association.
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