HSA TRUSTEES / CUSTODIANS
Synopsis by Dave Ballard Insurance
We are a bank/credit union, do we have to seek
approval to offer HSAs?
Banks and credit unions are automatically approved to offer HSAs to their customers
as either a trust or a custodial account.
We are not a bank or a credit union, who else is
allowed to offer HSAs?
Insurance companies and other entities
who are approved trustees/custodians of IRAs are approved to offer
HSAs. Additional entities wishing to become approved trustees/custodians
of HSAs can apply to the IRS to do so.
What is the difference between an HSA “custodian” and
an HSA “trustee”?
The differences between a “custodian” and a “trustee” are
minor. A trust is a legal entity under which assets are actually
owned and held on behalf of a beneficiary. The trustee has some
level of discretionary fiduciary authority over the assets of the
fund. The trustee must exercise that authority in the best interests
of the beneficiary. A custodial arrangement, on the other hand,
is like a trust, but the custodian simply holds the assets on behalf
of the owner of the assets. Other than holding the assets and doing
as the owner orders, the custodian has no fiduciary obligations
to the owner. The determination of what constitutes a trust or custodial
arrangement is a determination made under state law.
Do we have to use specific forms to establish these
accounts?
Banks or credit unions can modify their
existing IRA enrollment forms to reflect HSAs, or use the model
IRS forms. These model forms are available from the IRS or can be
downloaded from the Treasury & IRS web sites.
What information must be reported?
Reporting requirements are straightforward.
Form 5498 is used to report total contributions made to the account
during the year and the value of the account at the end of the
year. Form 1099-SA reports the total distributions taken from
the account during the year. Both forms must be sent to the account
owner and the IRS. Both forms and instructions for completing
the forms are available from the IRS or can be downloaded from
the Treasury and IRS web sites.
What rules can we set regarding account administration?
Minimum deposit, minimum balance requirements,
minimum distribution requirements, distribution timing requirements,
and account fees can be set by the trustee/custodian (i.e., the
HSA rules do not apply any additional conditions on an HSA trustee
or custodian).
Can HSA accounts be invested?
HSA funds can be invested in the same
types of investments as IRAs. You do not have to offer all investment
options to account holders.
Do we have to verify that distributions from an
HSA were used only for “qualified medical expenses”?
Substantiation that distributions were
used for qualified medical expenses is not required.
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