HSAs can now be entered in TOTAL! In the program they will be included in the list of Retirement Plans such as 401k’s, IRAs, Roths, etc.
Health Savings Accounts (HSAs) provide a number of tax benefits that make them attractive:
- Contributions are fully deductible up to the limit for the year
- Growth is not taxed each year
- Withdrawals for medical expenses are not taxable, meaning that the money would not be taxed going into or out of the account
- Early withdrawals for medical expenses are not subject to penalty taxes
- Withdrawals for non-medical expenses are taxed as ordinary income, similar to an IRA
With these benefits does come some drawbacks:
- Tax penalties are applied to non-medical withdrawals prior to age 65 (compared to 59.5 for other retirement accounts)
- Early withdrawals are taxed at 20% (compared to 10% for other retirement accounts)
- Like other retirement plans, there are limits:
- Single Individual: $3,550 in 2020
- Family: $7,100 in 2020
- Not all medical expenses qualify for tax-free withdrawals
Behavior in TOTAL:
In TOTAL, withdrawals made to cover medical expenses entered in Itemized Deductions will not be taxable. Medical insurance premiums are not considered qualified expenses for HSAs in TOTAL.
Additionally, any scheduled withdrawals will be considered qualified distributions, so they will be subject to neither ordinary income taxes nor penalty taxes. This way, if there is a time when medical expenses for clients are higher, the expenses do not need to be entered in the Itemized Deductions input section.
Both personal and company contributions can be entered. Even though HSAs have contribution limits, TOTAL will treat any personal contributions as tax deductible, even if the total exceeds the limit.
In the event of a shortage that causes asset withdrawals, TOTAL will first use the HSA to cover medical expenses. After the medical expenses, or if the clients have none entered, then the HSA will be the last asset used to cover the shortfall.