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Individuals who have Economic Stimulus Act payments made by direct deposit to their individual retirement accounts (IRAs), Coverdell education savings accounts (CESAs), or health savings accounts (HSAs) may remove the payments without incurring any adverse tax consequences.

Under IRS Announcement 2008-44, an individual may withdraw an amount no greater than the amount of the directly deposited Economic Stimulus Payment. Withdrawals occuring no later than the taxpayer’s income tax return due date for 2008, plus extensions (for a CESA, the later of May 31, 2009, or the taxpayer’s income tax return due date for 2008, plus extensions), will not be subject to federal income tax nor to any penalty tax.

Financial organizations should report the deposits and distributions in the usual manner. Taxpayers will address the taxation of such distributions on their federal income tax returns.

We previously announced that on November 27, 2007, the Internal Revenue Service (IRS) released new model contracts for health savings accounts (HSAs). Form 5305-B, Health Savings Trust Account and Form 5305-C, Health Savings Custodial Account were updated to incorporate changes from the Health Opportunity Patient Empowerment (HOPE) Act of 2006. These updated model contracts have now been included in Wolters Kluwer Financial Services–Bankers Systems HSA agreements. Only the IRS can require financial organizations to amend these contracts with existing HSA owners and the IRS has yet to issue an order requiring such amendments. However, given the significance of the IRS model contract changes–increased contribution limits as well as new methods for funding an HSA using dollars from an IRA, a health flexible spending arrangement, or a health reimbursement arrangement–we are strongly recommending that financial organizations begin using the new agreements immediately and send amendments to existing HSA owners within 30 days of adopting the new agreements.

On November 27, 2007, the Internal Revenue Service released new model contracts for health savings accounts (HSAs). Form 5305-B, Health Savings Trust Account and Form 5305-C, Health Savings Custodial Account have been updated to incorporate changes from the Health Opportunity Patient Empowerment (HOPE) Act of 2006. The changes address increased contribution limits as well as new methods for funding an HSA using dollars from an IRA, a health flexible spending arrangement, or a health reimbursement arrangement. We will be updating our HSA documents to incorporate changes in the model contracts. 

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Most Recent HSA Question

We’ve been told that we should use a power of attorney (POA) on a Health Savings Account (HSA) because you cannot have an authorized signer on a revocable trust account. Is that true?