Barney enrolled in his employer's high-deductible health plan and established an HSA, to which he contributed $100 a month. After four years, the account holds $4,000. Barney leaves the employer for another job, and his coverage under the HDHP ends. What happens to the $4,000 in the HSA?
Answer (2)
When Barney leaves his employer and his coverage under the high-deductible health plan (HDHP) ends, the $4,000 in his Health Savings Account (HSA) remains in his control. Here's how it works:
Ownership : HSAs are individually owned accounts. This means that even if Barney changes jobs, the funds in his HSA continue to belong to him. The account is not tied to his employment status or the specific health plan, so he can use it at his discretion.
Usage : Barney can use the funds in his HSA to pay for qualified medical expenses, even if he is not currently covered by a high-deductible health plan. These expenses include things like doctor visits, prescription drugs, and even some over-the-counter medications, to name a few.
Tax Advantages : The contributions he made to the HSA were pre-tax, and the money can be withdrawn tax-free for qualifying medical expenses. If he withdraws funds for non-medical expenses before age 65, he would typically pay taxes on those amounts plus a 20% penalty. However, after age 65, the penalty is waived, but the withdrawn amount will be taxed as ordinary income if not used for medical expenses.
Future Contributions : If Barney enrolls in another high-deductible health plan with a future employer or on his own, he is allowed to make further contributions to his existing HSA. If he does not have a qualifying plan, he cannot make new contributions, but he can still use the balance for qualified expenses.
Overall, Barney's HSA is a versatile savings vehicle that provides him continued access to funds specifically for medical expenses, regardless of his employment status.
Barney retains control of the $4,000 in his Health Savings Account (HSA) after leaving his job, as HSAs are individually owned accounts. He can use the funds for qualified medical expenses without being tied to his employment or HDHP coverage. Additionally, he can make contributions to the HSA if he enrolls in a qualifying health plan in the future.
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