Treasury Issues New HSA Guidance

Health & Welfare Alert

On June 3, 2008, the Department of Treasury issued Notices 2008-51 and 2008-52 52, which provide guidance on amendments to Health Savings Accounts (HSAs) made by the Health Opportunity Patient Empowerment Act of 2006 (the HOPE Act). The following is an overview of the provisions in the new guidance.

Notice 2008-51: One Time Transfer from an IRA to an HSA

Section 307 of the HOPE Act added Code Section 408(d)(9) to allow a one-time, tax-free transfer of IRA funds into an HSA (i.e., a qualified HSA funding distribution). Notice 2008-51 provides guidance on the following with respect to such a transfer:

  • Tax treatment of qualified HSA funding distributions, including the impact of such distributions on the remaining basis in the IRAs;
  • Qualified HSA funding distributions may be made from a traditional IRA or Roth IRA, but not from an ongoing SIMPLE IRA or SEP IRA;
  • Maximum amount of a qualified HSA funding distribution (may not exceed the individual’s maximum annual HSA contribution);
  • Timing and procedures for actually transferring the funds;
  • Testing period rules regarding the requirement that, after a qualified HSA funding distribution, an individual must remain eligible for an HSA for at least 12 months;
  • Tax treatment of HSA distributions not used for qualified medical expenses; and
  • Reporting and withholding requirements.

The HOPE Act provisions allowing transfers from an IRA to an HSA are effective for tax years beginning after December 31, 2006.

Notice 2008-52: Changes in Annual HSA Contribution Limits

Section 303 of the HOPE Act repealed the rule that an annual HSA contribution was limited to the individual’s deductible; for taxable years beginning after December 31, 2006, individuals eligible to contribute to an HSA may contribute the maximum dollar amount set by the Code and indexed for inflation. (E.g., 2008 limits: $2,900 for individual coverage, $5,800 for family coverage; 2009 limits: $3,000 for individual coverage, $5,950 for family coverage.)

Section 305 of the HOPE Act provides for a full-year contribution to an HSA for an individual who first becomes eligible for an HSA during the taxable year so long as the individual continues to be eligible for 12 months following the end of that tax year.

Notice 2008-52 provides guidance on the following with respect to each of those provisions:

  • Calculating the annual contribution limit;
  • Testing period rules regarding the requirement that individuals who enroll mid-year but make a full-year contribution remain eligible for an HSA for 12 months from the end of the taxable year;
  • Application of excise tax rules;
  • Tax treatment of HSA distributions not used for qualified medical expenses;
  • Effect of the HSA establishment date; and
  • Reporting requirements.

For more information, please contact any of the following lawyers:

Fred Oliphant,, 202-626-5834

Susan Relland

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