Handling Heath Savings Accounts in a Divorce
Many people use “health savings accounts” to set aside tax-exempt money from their paychecks for medical expenses. This could be everything from routine check-ups to emergency room visits.
Like individual retirement accounts, there are maximum annual contributions for HSAs. You can contribute the following amounts:
- Family: $6,750
- Individual: $3,350
- Individuals over age 55: $4,350
Americans can make maximum contributions to HSAs for as long as they are eligible (usually until they hit 65 and qualify for Medicare).
You may not need to withdraw anywhere near the balance in your HSA accounts for medical expenses. Luckily, HSA balances can be used in the future for medical expenses. Since medical costs usually increase as people get older, many people have a tidy sum in their HSAs.
If you divorce, the balance in a spouse’s or family’s HSA will need to be divided along with other assets. The question for the couple and their attorneys is determining how to divide it.
It is also essential to know the regulations about HSAs. For divorced couples, there are specific rules about withdrawals for medical expenses. For example, HSA funds can continue to be used for qualified medical expenses for the children, regardless of who has custody of them or is claiming them as dependents.
A person can use funds from his or her individual HSA to cover an ex-spouse’s medical expenses. However, they must understand the taxes and penalties they will face if they use the funds for non-medical expenses.
This is true even if you keep an ex-spouse on your health insurance plan for a time. This is a typical set-up during or after a divorce.
In divorces, HSAs are handled the same way as Individual Retirement Accounts (IRAs). HSA interest can be transferred from one spouse to the other as part of their divorce agreement without being taxed. That money is still categorized as an HSA for the spouse who receives it.
As with IRAs and other retirement and investment accounts, it is essential to make sure that you look at and update your beneficiary designations on your HSAs when you divorce.
Avoid unintended tax consequences with the help of an attorney. For HSAs and other assets, it is wise to seek the advice of a trusted tax professional and financial adviser. Make sure to choose someone new that you have not consulted with as a couple. Your family law attorney can likely recommend people in your area.
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