Your Benefits Solutions Partner Health Savings Account Reference Guide. Plan Services Provided By

EBAS Employee Benefits Administration Services, LLC Your Benefits Solutions Partner 2014 Health Savings Account Reference Guide Plan Services Provided By Employee Benefits Administration Services, LLC 442 E Wall St. Ellsworth, WI 54011 Phone: 715.273.0128 Fax: 715.273.0147 www.ebasllc.com

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EBAS Introduces: To provide you unique services for a successful program. This manual is designed to help you maximize your healthcare plan. Making informed healthcare choices Most of us pay at least a portion of our medical expenses each year. Even if you only pay copays, deductible or coinsurance, your medical costs may change from year to year depending on your health and your lifestyle decisions. This guide will help you understand how to use your Health Savings Account to make informed healthcare decisions which will maximize your bottom line. From an administrative services company that has experience to share You can relax. EBAS has been providing administration services since 2002. Not only will you appreciate our expertise, but you ll enjoy other benefits, including: Dedicated and educated customer service Online access to account information and forms Quick turnaround and electronic deposits into checking or savings accounts No minimum contribution requirements Contribution tracking and quarterly statements upon request On Line Claims Vault TM to hold your claims electronically for future reimbursements On Line Investment Options Mission Statement To help the client, both large and small, build and communicate a complete benefits program that fits the clients needs and encourages growth, stability and trust while servicing our clients according to the golden rule of life

Part I: Introduction What are health savings accounts? Health savings accounts (HSAs) are special tax-preferred trusts or custodial accounts established under Internal Revenue Code Section 223 that are used for paying medical expenses. All references in this document to Sections refer to the Internal Revenue Code. HSAs work handin-hand with a qualified highdeductible health plan. Depending on an individual s situation, contributions to an HSA may be made by the individual, the employer or both. Contributions are deductible or excludable from the individual s gross income. Individuals, rather than the account custodians, need to determine whether funds from HSAs are used for qualified medical expenses. EBAS, as your Plan Services Provider, will help you with determining your claims as qualified or non qualified. Important Note: The HSA information provided in this document is not intended as legal or tax advice. HSAs are authorized by federal legislation. State and/or federal laws could be passed in the future which may affect the tax benefits of an HSA. Tax benefits may also be affected by failure to comply with eligibility and distribution requirements. You should refer specific questions about federal and state tax ramifications, as they relate to a particular circumstance, to your tax advisor on a yearly basis. Contributions are a federal tax deduction, even if individuals do not itemize deductions on Form 1040. (Some states do not allow state tax exemptions) Account holders may make tax-free withdrawals from their account for qualified medical expenses not covered by the high-deductible health plan and listed under Internal Revenue Code Section 213(d). The interest or other earnings on the assets in the HSA accumulate tax free. If in the future an account holder is not covered by a high-deductible health plan, the account holder may still take tax-free withdrawals from the account for qualified medical expenses, but may not contribute additional amounts to the HSA. Page 2 What are the advantages of an HSA? If the account holder becomes disabled or entitles reaches age 65, distributions can be made for nonmedical reasons without penalty, but amounts must be reported as taxable income. Employer contributions are excluded from taxable income, and employment taxes do not apply. Contributions can be made through a cafeteria plan on a pre-tax basis. Account holders may also make tax-free withdrawals from the HSA to pay insurance premiums for the following: Medicare (except Medicare Supplement policies), long-term care coverage, health coverage while receiving unemployment benefits, or health care continuation coverage required by federal law, and premiums for employer-sponsored retiree health coverage once an individual reaches age 65. Contributions remain in the HSA from year to year until they are used. There is no use-it-orlose-it provision as there is with a Cafeteria Plan Health Flexible Spending Account.

What are the Components of the HSA Plan and how they work together? High-deductible health plan Many Insurance Companies offer these plans with various deductible options available for individuals and groups of any size The premium costs for your health insurance plan is reduced Employee control of health care decisions Deductible expenses may be reimbursed from the HSA Compliant with all state mandates, including prenatal and well-child care Many Insurance Carriers offer these plans. Health savings account Contributions can be made by the employer, the employee, or both within the same tax year Individual contributions are tax deductible; employer contributions and employee contributions through a cafeteria plan are excludable from federal and most state tax Funds accumulate tax free, with interest paid on entire account balance Funds can be withdrawn tax free to pay for qualified medical expenses Funds can be used for nonqualified expenses; taxes and penalties apply Owned by account holder; portable Unused funds roll over year to year What are your obligations as an account holder? Ensure that you have an HSA-compliant high-deductible health plan (HDHP) for each month that an HSA contribution is made Ensure that contributions do not exceed the annual maximum (or the prorated maximum if the HDHP is not in place for a full period of December 1st of current year to December 31st of the following tax year) Ensure that distributions for non-qualified expenses are added back to gross income (other penalties may apply) Keep any records that support or verify distributions from your account Complete the required tax form (Form 8889) and attach it to Form 1040 Page 3

Part II: The Health Savings Account Who is eligible for an HSA? An employee (or spouse of an employee) of any employer that maintains an individual or family qualified highdeductible health plan covering that individual (the employee or spouse) and does not have a Cafeteria Plan General Use Health FSA, or other reimbursement plan that qualifies to pay for expenses before the minimum qualified HSA deductible is met. (The current minimum is $1,250 for a single person and $2,500 for family.) An individual person (or spouse) maintaining an individual or family qualified high-deductible health plan covering that individual or spouse. Note: If an individual is claimed on someone else s taxes, he or she is not eligible to establish an HSA. Note: An individual is not eligible to establish an HSA if the individual is covered under a health plan (whether as an individual, spouse, or dependent) that is not a high-deductible health plan. This includes being covered as a beneficiary under a Medicare or a spouse having a Cafeteria plan Health FSA through their employer. Who can contribute to your HSA? Is an HSA allowed for those business owners who are not eligible for a Health Reimbursement Arrangement (HRA) or Cafeteria Plans? Yes. This includes owners of S corps, Sole Proprietors, LLCs, and LLPs. Since these individuals are not eligible to participate in an HRA or Cafeteria Plan, any contributions made will be a taxable event at the time it is made. The individual will have to complete the required tax forms (#8889 HSA form) to accompany their other tax forms to receive their tax deductions for the contributions. An individual, an employer, or both can make contributions to an HSA. Contributions made by an employer will not be taxable to the employee. Contributions by an individual employee may be made with pre-tax dollars from their Cafeteria Plan if the employer has one established. After tax contributions can be made by the employee, from their personal funds and receive their tax deduction at the time of filing their income tax forms. Is an individual eligible for an HSA if enrolled in Medicare? Individuals entitled to Medicare programs are not eligible to establish new HSA s or contribute to an existing HSA. They can spend down their HSA tax free for qualified medical expenses. Page 4

What expenses and premiums can be paid out of an HSA? Distributions for qualified medical expenses can be made taxfree. Non medical distributions result in income tax and other tax penalties. A qualified medical expense is an expense for medical care as defined by Section 213(d). The expenses must primarily be for treatment of existing medical conditions or certain preventive medical care. Qualified medical expenses do not include any medical premiums except COBRA, Medicare Part B, qualified longterm care insurance, and health coverage while the account holder is receiving unemployment compensation. Premiums for employer-sponsored retiree medical plans can also be paid from the HSA. Over the counter medications may require a prescription from your doctor to be qualified as a tax free distribution. If account holders ask EBAS to comment on certain medical expenses, EBAS representatives will convey whether they believe the expense is a qualified medical expense as determined according to Section 213(d). This information does not constitute tax advice and should not be relied on. Please consult IRS Publication 502, Medical and Dental Expenses, or consult your tax advisor. Account holders are responsible for keeping appropriate records of all medical payments (provider name, amount, date, and reason). Are expenses incurred prior to the establishment of an HSA qualified for tax-free distribution from the HSA? Medical expenses which are incurred on or after the date the HSA has been established may be considered qualified. (However, contributions can be made anytime after the HSA has been established, but prior to the end of the tax year deadline for a specific tax year.) In conclusion: It is important to note that you should establish your HSA as soon as your HDHP is effective. How much can be contributed to an HSA? The statutory limit on contributions for the tax year 2014 is $3,300 for self-only HDHP and $6,550 for family HDHP. This does not include catch-up contributions. Catch-up Contributions Account holders age 55 and older that are eligible to contribute to an HSA can contribute up to $1,000 dollars. If you had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have HDHP coverage fro the full year, you must prorate the catch-up contribution for the number of months you were eligible. A spouse similarly can also make an additional contribution to his or her own HSA. Page 5

What happens if contributions are made that exceed the annual limit? Generally, account holders must pay a 6 percent excise tax on contributions made to an HSA that are greater than the annual limit. (See IRS Form 5329 to determine this tax.) If excess contributions have been made, account holders may withdraw some or all of the excess and not pay the excise tax on the amount withdrawn if they: Withdraw the excess contributions by the due date, including extensions, of their tax return, - and - Withdraw any income earned on the withdrawn contributions, and include the earnings in other income on their tax return for the year. Withdrawn contributions cannot be claimed as a deduction on Form 1040. When making a withdrawal of excess contributions, account holders must inform EBAS that the withdrawal is for that purpose. EBAS will compute the earnings on the excess contributions for the account holder. The total withdrawal will include the earnings portion. The withdrawal for excess contributions and the earnings will be reported to the account holder on IRS Form 1099-SA. Can both an individual and spouse have family HDHPs and HSAs? Yes. If both an individual and spouse have family HDHPs, the limit for both HSA plans combined is $6,450 for 2013, for the family. A family cannot increase their annual contribution due to the fact that there are two HDHPs and/or two HSAs. An HSA cannot be jointly owned by a husband and wife. Each spouse (Account Holder) can make contributions to their own HSA s but cannot transfer monies from one to the other. However, one spouse s HSA may pay or reimburse qualified expenses the other spouse incurred without penalty. (Be careful not to reimburse the same expenses from both accounts as this would be considered double dipping ). When can distributions be made from an HSA? Distributions can be made at any time. When receiving a distribution for qualified medical expenses not covered by the high-deductible health plan, account holders do not pay tax on the distribution. Unless individuals are disabled, age 65 or older, or die during the year, they must pay income taxes plus an additional tax of 20 percent on any amount not used for qualified medical expenses. If an individual becomes disabled or reaches age 65, distributions can be made for non-medical reason without penalty, but amounts must be reported as taxable income. If withdrawals for the year are less than or equal to the qualified medical expenses that were paid, there will be no tax requirement on those withdrawals. Page 6

How does the Account Holder track their claims and distributions with HSAToday? Since the account holder can request a distribution any time, the HSAToday system will track all claims submitted. The account holder will submit a claim form and choose from two options how they want to be reimbursed. The first option will enter your claims and reimburse you. The second option will enter your claim on the system and hold the claim in your personal Claim Vault TM. EBAS will keep a physical copy of the claim for the account holder. How does the Claims Vault TM work? Since the account holder can choose when they want a distribution but must also keep track of those expenses, the Claims Vault TM will do this for them. Physical records must still be kept, but once the expense is entered into the vault, the account holder can request their distribution on a later date for those expenses. This is a unique way for the account holder to Save and earn interest on their HSA dollars. How do account holders make distributions from an HSA? To request a withdrawal, account holders will need to submit an HSA Distribution Request Form to EBAS. The account holder will need to indicate on the form whether or not EBAS will process this request and issue reimbursement according to the available balance in the account or hold the claim in the Claims Vault TM. EBAS will also help to verify if the claim is a qualified expense or not. Payment will be issued either by check or electronic funds transfer. When reports are printed for you, the distributions will be tracked on the report as qualified versus nonqualified. What happens to an HSA at the end of the year? The assets in an account, regardless of the source of contributions, always belong to the account holder. Contributions remain in the account from year to year until they are used up. What happens to an HSA if the account holder dies? Account holders may designate a beneficiary when they enroll and change the beneficiary designation in writing at any time. If a spouse is the designated beneficiary of an HSA, the account will be treated as the spouse s HSA after the death If the spouse is not the designated beneficiary of the HSA on the date of death: 1) the account stops being an HSA, and 2) the fair market value of the HSA becomes taxable to the designated beneficiary If there is no designated beneficiary, the fair market value of the account will be included in the account holder s final income tax return and estate tax return Page 7

Who is responsible if contributions and/or disbursements do not occur according to regulations? The account holder is responsible to report the contributions and distributions to the IRS, and is ultimately responsible for ensuring that account transactions are within the allowed regulations. An excess HSA contribution may be corrected by withdrawing the excess contribution plus any attributable net income before the due date of the account owner s tax return (including extensions), thus avoiding an excise tax. Individuals are allowed to correct mistaken HSA distributions when there is clear and convincing evidence that amounts were distributed from an HSA because of a mistake of fact due to reasonable cause. Correction is accomplished by repaying the mistaken distribution no later than April 15 following the first year the individual knew or should have known that the distribution was a mistake. When correction is made, the mistaken distribution does no have to be included in gross income or be subject to the 20 percent additional tax, and the repayment does not count as an excess contribution. If an error is made by EBAS in its role as the account services provider, EBAS would be responsible for that activity. Can an individual have more than one HSA? An individual may contribute to more than one HSA account; however, the total contributions may not exceed the annual limit. What other types of coverage are permitted? An individual remains eligible for an HSA if, in addition to an HSA-compliant HDHP, the individual has coverage (whether provided through insurance or otherwise) for: Accidents Disability Dental care Vision care Long-term care insurance Insurance for a specified disease or illness Insurance that pays a fixed amount per day (or other period) of hospitalization. Insurance under which substantially all of the coverage provided relates to liabilities from workers compensation laws, torts, or ownership or use of property (such as automobile insurance). To establish an HSA, federal law prohibits individuals enrolled in high-deductible health plans from being enrolled in other health plans, including Medical, that are not also high-deductible as defined by law. Page 8

Can an individual have a Section 125 Health Flexible Spending Account (FSA) and/or a Health Reimbursement Arrangement/Account (HRA), in addition to an HSA? HSA law states that an individual must be covered by an HSA-compliant (HDHP) in order to establish or make contributions to an HSA. An individual is not eligible to have an HSA if she/he is covered as a participant, spouse, or dependent under any other health plan that provides coverage for any benefit that is covered under the HSA-compliant HDHP. When is it compliant to contribute to an HSA and also have an FSA and/or HRA? The IRS and Treasury Department issued guidance detailing that an employee may establish and contribute to an HSA while also covered by the following types of health FSAs and/or HRAs: Limited Purpose FSA, Post Deductible FSA, Post Deductible HRA and/or a suspended HRA. During the deductible phase of the HSAcompliant health plan, an HRA and/or FSA must be limited to permitted expenses, which are generally vision, dental and preventive care. Once the minimum HSA deductible is met, an FSA or an HRA can then begin to pay additional expenses, beyond just vision, dental and preventive care. It is important to note, that the dates of service for these expenses reimbursed from these plans must be after the date the deductible was met and not before. How does a group establish a cafeteria plan? EBAS can help establish a cafeteria plan for an employer. Please contact EBAS for more information. The group will be required to adopt a Plan Document (generally for a fee); no legal filings are required. What is a limited purpose FSA or HRA? Limited purpose FSAs or HRAs are limited to expenses for permitted benefits. These benefits include vision, dental, or preventive care. A limited purpose FSA or HRA is the only type permitted during the deductible phase of the H DHP. After the minimum HSA deductible is satisfied, the limited purpose account can remain in place, or can be expanded to cover additional services (post-deductible FSA or HRA). What is a post-deductible health FSA? One that provides reimbursement for all Section 213(d) expenses, including HDHP out-of-pocket expensed (but not deductible expenses), only after the minimum HDHP deductible has been satisfied. What is a post-deductible HRA? One that provides reimbursements for all expenses determined eligible, based on employer design, including HDHP out-of-pocket expensed (but not deductible expenses), only after the minimum HDHP deductible has been satisfied. *When refering to the minimum HDHP deductible, we are talking about the IRC Section 223 minimums. For tax year 2013, the minimum is $1,250 for individual and $2,500 for family. Page 9

What is the primacy of an HSA and an HRA and/or health FSA? If the individual has available an HSA plus a health FSA and/or an HRA that are eligible to pay the same medical expense (based on all the rules previously described in this document) the health FSA or the HRA may pay the medical expense, so long as the individual certifies to the administrator that the expense has not been reimbursed and that the individual will not seek reimbursement under any other plan or arrangement covering that expense (including the HSA). The individual always has the choice of using their HSA instead of an HRA or health FSA. Can the mid-year establishment of an HSA (after an FSA is already in place) alter employer/employee contributions to the medical FSA for the remainder of that year? No. Note that an employer adding an HSA mid-year may need to change the health FSA Plan Document for those employees electing an HSA, to limit covered expenses during the health plan deductible period to vision, dental and preventive services only or as post deductible expenses. Also note that coverage under spouse s health FSA will disqualify an employee or individual s HSA, unless the spouse s FSA limits covered expenses during the health plan deductible period to vision, dental and preventive services only. Can employee pre-tax HSA contribution elections be changed throughout the year? Yes. The eligibility requirements and contribution limits for HSAs are determined on a month-by-month basis, rather than on an annual basis. An employee who elects to make HSA contributions under a cafeteria plan may start or stop the election or increase or decrease at any time as long as the change is effective prospectively (i.e., after the request for the change is received). Which is the primary account between an HSA and a medical FSA? When the FSA is limited to vision, dental and preventive care, these services would also be eligible under the HSA, and it is permissible to allow the FSA to consider those claims first. How does the HSA contribution change when there is a change in the contract status of the health plan (from a family plan to a single plan, or visa versa)? Account holders may increase contributions if they move from single to family coverage (the increase will only apply to those full months in which family coverage was in force), and account holders may have to decrease contributions if they move from family to single coverage (the decrease will apply to the first full month in which single coverage was in force). The account holder can change their contribution election at any point, but they are responsible to ensure contributions do not exceed allowable amounts. Page 10

Part III: The High-Deductible Health Plan To be an HSA-compliant HDHP, the following must have: For 2014 the minimum in-network deductible is $1,250 for individual and $2,500 for family. For 2014 the maximum in-network out-of-pocket is $6,350 for individual and $12,700 for family. All services must apply toward deductible (including prescription drugs), with the exception of preventive care. There can be single (embedded) deductible(s) on family policies, as long as the single deductible is not less than the minimum family deductible amount established by HSA law. When individual (embedded) deductibles are allowed on family contracts (based on the amount of the individual deductible), the maximum annual HSA contribution is limited to the maximums incorporated by the law. IRS Limits on deductible and funding: HDHP Maximum Deductible HSA Deposit (2014) Singe Coverage $1,250... $3,300 $1,500... $3,300 $2,000... $3,300 $2,500... $3,300 $5,000... $3,300 Family Coverage $2,500... $6,550 $3,000... $6,550 $4,000... $6,550 $5,000... $6,550 $10,000... $6,550 What happens in the future if the account holder is not covered by a highdeductible health plan or terminates employment from group coverage? If an individual or the employer changes health plans, and the new plan is not a high-deductible health plan, account holders may continue to use the HSA for distributions, but may not make additional contributions for any months during which there is not coverage from the highdeductible health plan. Is the high-deductible health plan portable? If an individual terminates employment, the medical coverage may be continued through COBRA or State Continuation, and this coverage would remain a high-deductible health plan. Following COBRA or State Continuation exhaustion, an individual may enroll for portability coverage if the health plan allows. Page 11

Part IV: Account Administration - EBAS and National Advisors Trust How do you contact EBAS? National Advisors Trust is the trust custodian for the HSAToday Plan HSAToday Bank Info www.myhsatoday.com Custodial questions can be answered by calling Customer Service at (715) 273-0128 or on our website. For questions regarding your high-deductible health plan, please call the phone number on the back of your member identification card or visit the EBAS web site, www.ebasllc.com. Can account holder rollover or transfer funds from an existing account (MSA or HSA) to an account with another custodian? Yes. If an account holder would like to transfer an existing HSA or MSA balance to their HSAToday Plan, EBAS will facilitate the movement of the assets from the previous account directly to the new account. If an account holder would like a rollover of an existing HSA or MSA to the HSAToday Plan, the assets in that account will be distributed to the account holder. Under a rollover, one must pay the amount into the new account with HSAToday no later than the 60th day after the day the distribution was received from the previous custodian in order to avoid tax penalties. How is interest credited to the account? HSAToday will credit interest on the entire balance in the HSA. There is no risk of the principal value of the contributions decreasing due to market changes. National Advisors Trust reserves the right to declare a different rate of interest at any time. What reporting is available from the custodian? In addition to the required government forms (Form 5498-SA and Form 1099-SA), there are several other reports National Advisors Trust / HSAToday will send out: Verification Form HSA enrollees will be sent a packet of information once EBAS processes the HSA application. This packet will confirm the information, as well as provide information on how to receive reimbursements and make contributions. Account Statements Account holders may request from EBAS statements pertaining to account balances, account history and distributions. EBAS will also give reports which detail which distributions were qualified or non qualified. This is an important report for tax filing. Account holders may also view all activity online at www.ebasllc.com or www.myhsatoday.com. Page 12 Is there an administrative fee associated with the HSA? EBAS may charge an administrative fee for maintaining the health savings account which is separate from the annual premium paid for the highdeductible health plan. An initial bill will be issued following the HSA effective date and subsequent bills will be generated each January for that calendar year. (Please note that the amount of the initial invoice will be based on the number of months the account is in effect during that calendar year.)

Part V: Health Savings Account Tax Treatment and Distributions How does an account holder report an account on a tax return? Account holders will receive the following IRS forms from National Advisors Trust: Form 5498-SA which reports contributions made for a tax year Form 1099-SA which reports any distribution made in a tax year Rollover contributions It is the account holder s responsibility to keep records to support distributions and to complete IRS Form 8889 and attach it to IRS Form 1040. This information is available to you on our website and within your online access. Rollover contributions to an HSA are permitted as long as the source of the rollover funds is qualified. A rollover of HSA or MSA funds must be completed within 60 days from the date of constructive receipt to avoid taxation. Only one rollover every 12 months is permitted. When account holders make a rollover contribution, they must certify to the trustee, in writing, that they are making a rollover contribution. Once made, the certification is irrevocable. Contributions that exceed the maximum contribution limit for the year or that are made by an ineligible individual are considered excess HSA contributions. If the individual makes the excess contribution, it may not be deducted from the individual s income on the tax return. Contributions made by employers that exceed the allowable limit must be added back to gross income (by the employee) on the individual s tax return. It is not the employer s responsibility to add such Excess HSA contributions amounts retrospectively (as income) to the employee s W-2. However, an employee must make every reasonable effort to notify his or her employer prospectively that employer contributions will exceed the allowable limit so that the employer can make the necessary changes to the contribution. An excise tax of 6 percent for each tax year is imposed on the account holder for these excess individual or employer contributions. If, however, the excess contributions for a tax year and the net income Deadline for establishment/contributions The HSA must be established and the HSA contributions must be made by the individual s tax return due date for the year, not including extensions. For calendar year taxpayers the deadline for contributions to an HSA is April 15 (or the first day after April 15 that is not a Saturday, Sunday, or legal holiday) following the year for which the contributions are made. This deadline applies regardless of whether the contributions are made by the account holder (individual/ employee), the employer, or both. attributable to these excess contributions are paid to the account holder before the tax return deadline, including extensions, then the excise tax does not apply. The distribution of the excess contribution is not taxed. However, the net income attributable to the excess contribution is included in the account holder s income for the tax year in which the distribution is made. Page 13

Tax treatment of an eligible individual s HSA contribution Contributions made by an eligible individual to an HSA are deductible in computing adjusted gross income. The contributions are deductible whether or not the individual itemizes deductions. Tax treatment of an employer s contribution to an HSA Employer contributions to HSAs on behalf of employees are allowed as a tax deduction to the employer for the taxable year in which contributions are made. Contributions made by the employer or by the employee through a cafeteria plan are excludable from gross income, are not subject to withholding for income tax, and are not subject to other employment taxes (for example, Social Security tax). Even though not taxable to the employee, employers are required Tax treatment of earnings on amount in an HSA Earnings on amounts contributed to an HSA are not taxable to the HSA holder prior to distribution. If all HSA contributions and earnings attributable to the A self-employed person s HSA contributions are subject to SECA taxes (the Social Security taxes applicable to the selfemployed). to report the amount of the HSA contribution on the employee s W-2. Because the eligibility requirements and contribution limits for HSAs are determined on a month-to-month basis, rather than on an annual basis, an employee who elects to make HSA contributions under a cafeteria plan may start or stop the election or increase or decrease at any time as long as the change is effective prospectively (i.e., after the request for the change is received). contributions are used for qualified medical expenses, then neither the contributions nor the earnings are ever taxed. Distributions from an HSA There is no restriction on when and how often an account holder may take distributions from the HSA. When an account holder or dependent incurs a qualified medical expense, a distribution form the HSA may be made to reimburse the account holder for the expense. Nonqualified distributions Distributions that are not for qualified medical expenses are always included in the individual s gross income. In addition, distributions are generally subject to an additional 20 percent penalty, unless the distribution is made after death, disability, or attainment of age 65. Transfer of an HSA in a divorce The transfer of an individual s interest in an HSA to that individual s spouse or former spouse under a divorce or separation will not be considered a taxable transfer. The recipient spouse or former spouse may continue to avoid taxation on the account as long as it maintained as an HSA. Page 14

Tax treatment of an HSA after death of an account holder The tax treatment of an HSA after the death of the account holder depends on whether a spouse or nonspouse is designated as beneficiary or the account. Spouse beneficiary If the deceased account holder s designated beneficiary is a spouse, the HSA is treated as the surviving spouse s own HSA. Distributions to the surviving spouse for qualifying medical expenses would be tax free. Nonspouse beneficiary If a nonspouse beneficiary is named, the HSA ceases to be an HSA as of the date of death. The nonspouse beneficiary includes the balance of the HSA in his or her income for the year of the death. Note: This same rule applies if the account holder names the estate or fails to designate beneficiary. In this case the value of the HSA is taxable to the estate of the account holder. The IRS has stated that HSA contributions and distributions are reportable transactions. Tax deductions are generally available either to the eligible individual or the employer; hence the IRS wants to track contributions. Distributions from HSAs, if for qualified medical expenses, will Regardless of whether HSA contributions are made by the account holder or the employer, these contributions must be reported on the individual The employer is required to report employer HSA contributions to the IRS on the tax return that is filed by the employer. Employer Reporting requirements Account Holder Employer avoid income tax consequences to the recipient. For this reason the IRS requires the reporting of these distributions. To facilitate these reporting requirements, the IRS has released forms to be used by the parties involved. tax return of the account holder. Contributions to and distributions from HSAs are reported by the account holder on Form 8889. To help you with account management you will have access to your own HSAToday Claims Vault TM EBAS will service the HSA for each account holder and process the claims accordingly. Our system has a unique Claims Vault TM feature which allows for an account holder to have options within their account for recordkeeping purposes. This technology is not supported by most banks. It is offered by few Plan Service Providers who are HSA contributions are also reported on the W-2 for each employee receiving a contribution for the year as non-taxable wages. committed to assist the account holder with recordkeeping of qualified or non qualified claims. The platform for the Claims Vault TM allows the account holder options to meet their personal needs. EBAS, as the Plan Service Provider, can offer up to three options to the account holder to assist them with their personal needs: cont. on next page Page 15

Option 1 This option allows individuals to store their own claims and recipts in the Claims Vault TM and self attest the validity of their claims OR request personal assistance from EBAS for verification of the claims. Option 2 This option provides greater integrity of the data being stored in the Claims Vault TM. EBAS serves as a true service oriented client advocate by providing certification on all claims entered by the account holder. This certification provides the account holder with the peace of mind of knowing their information is accurate when it comes time to file taxes or if the account is ever audited. Besides peace of mind, here are other reasons the services by EBAS are beneficial: There is a 20% penalty plus applicable Federal and State taxes if the withdrawal from the HSA is deemed non-qualified. EBAS can help avoid these penalties. Relief from the worry of having to track and keep up with receipts. Copies of the receipts are readily available whenever needed. Account holders can see the status of their Requests for Withdrawal and Claim Receipts online, anytime. Option 3 Employer groups set up by the EBAS under Option 3 will not be activated for the Claims Vault TM. Because claims storage and certification services are not provided, EBAS will teach account holders to maintain a record of their personal expenses. Online Access Gives Complete Account Management At Your Fingertips A secure online account management tool empowers clients with the tools and information they need to make wise and informed decisions about their healthcare. This web portal gives you and your clients 24/7 access to: Account Balances and History Online Claims Storage Through the Claims Vault TM Deposit & Withdrawal Capabilities Important Forms & Documents Up-to-Date Payment History Recent News and Benefits Updates Account Statements Page 16

Part VI: Health Savings Account Investment Options The HSAToday Investment Program offers qualified account holders a diverse range of investment alternatives to choose from, along with four professionally managed model portfolios that support varied investment objectives and risk tolerance. What Are the Benefits of Investing? Many Americans will depend on personal savings and investments during retirement. Utilizing an HSA as a long-term investment vehicle is an excellent way for your clients to add to their retirement strategy. Here are just a few reasons why: Tax-Free Investments All contributions and earnings in an HSA are considered tax-free by the IRS and will not be taxed unless withdrawn for non-medical reasons. Portability There is no use-it-or-lose-it rule associated with HSAs. HSAs are owned by the account holder and roll over year after year. Even if your clients change jobs, the money in the account is theirs to keep. Flexibility Account holders can change the amount they want to invest and the way the funds are invested. And they can always access the money in their account if the need arises. Multiple Investment Options Account holders can pick from one of four investment models or create their very own custom investment portfolios. If you want to use these options all you need to do is select one of the investment account options within your health savings account as your health savings account balance grows. If you don t want to assume the risk of loss that comes with investing in the market, you can leave your entire health savings account balance at National Advisors Trust (your Base Balance) where it may earn interest at rate(s) National Advisors Trust establishes from time to time. The investment options are self directed. For Fund information log into www.myhsatoday.com. Page 17

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EBAS Employee Benefits Administration Services, LLC Your Benefits Solutions Partner Contat EBAS today to establish your HSAToday Plan Toll Free: 1.866.341.3227 www.ebasllc.com