October 10, 2016

Mountain West IRA Newsletter – October 10th, 2016

Jon Galane
5 min

Health Savings Account Beneficiary Procedures

Health Savings Account (HSA) owners have the option to designate beneficiaries, similar to any type of retirement account. Account owners and beneficiaries should be aware of the compliance requirements for the treatment of HSA assets when the owner passes away. Depending on whether your beneficiary is a spouse or non-spouse, will adjust how your HSA will be of benefit.

When the beneficiary listed on the Beneficiary Form is the account owner’s spouse, the Health Savings Account (HSA) has the option to be treated like it is the surviving spouse’s personal account. Qualified distributions may be exempt from federal income tax and penalties.

For a non-spouse beneficiary, the Health Savings Account (HSA) assets must be paid immediately to that person or entity. The account ceases to be an HSA on the date of the owner’s death. The non-spouse beneficiary will be required to include the HSA’s fair market value (FMV) in their gross income for that year. This distribution is therefore considered taxable income. However, the 20% penalty tax that normally accompanies a non-qualified HSA distribution may not apply.

Often, the account owner will have Primary and Contingent Beneficiaries on file. If there is not a beneficiary listed, or the named beneficiary is not living at the time of the owner’s death, a default beneficiary has to be determined and is usually the owner’s estate. Mountain West IRA will gladly review your beneficiaries, per your request. Please keep in mind you can always update your Beneficiary Forms.

If, by default, the estate becomes the beneficiary, the Health Savings Account (HSA) ceases to be an HSA on the date of the owner’s death. The employer identification number assigned to the estate is identified and the death benefits are then paid to the estate.

Health Savings Accounts (HSA) have the ability to be an astonishing medical, retirement, and estate planning tool. If your HSA self-directed benefits are maximized, your HSA can benefit your family in numerous ways. Designating a beneficiary for a Health Savings Account (HSA) is just one important step in planning for the future. Always seek professional advice from a Tax Professional if you have questions on your specific circumstances. Please visit Mountain West IRA’s website to learn more about Health Savings Accounts.

Individual 401(k) Plans

Sole-Proprietor business owners who only employ their spouses and/or business partners, ought to consider a Mountain West Individual 401(k). Individual 401(k) Accounts are a qualified plan for the sole-proprietor. As a business owner, you may not categorize saving for retirement as crucial, at this point in your business, however establishing an Individual 401(k) Account can potentially benefit you personally and your business.

An Individual 401(k) has two opportunities to contribute, employer portion and employee portion. You may think because you are the employer and the employee you can only do one, however that is not true.

  1. Employer Portion: Your Company may contribute up to 25% of compensation with a maximum of $35,000.
  2. Employee Portion (under 50 years old): 100% of income with a maximum of $18,000
  3. Employee Portion (over 50 years old): 100% of income with a maximum of $24,000

Individual 401(k) accounts have key benefits to maximize your retirement saving opportunities:

  • Larger annual contributions can be made
  • Roth Options available for the Employee Portion
  • Potential tax benefits for the Employer Portion and/or Employee Portion
  • Participants have the option to borrow from their plan and pay the loan back over a period of time with interest
  • Your company compensation can be less, compared to a SEP IRA.

To be eligible for an Individual 401(k), the investor must meet two requirements:

  1. The presence of self-employment activity
  2. The absence of full-time common law employees

Self-employment activity can be ownership and operation of a sole proprietorship, Limited Liability Company, C Corporation, S Corporations, and Limited Partnership where the business intends to generate revenue for profit and make significant contributions to the plan.

Who should consider an Individual 401(k)?

  • Someone who is a sole proprietor with no employees other than their spouse, partner, and the partners’ spouses.
  • Someone looking for the largest potential contribution for a business without common law employees.
  • Someone who wants the capability of borrowing from their retirement plan.
  • Someone who may want to maximize their retirement, but not make enough for a SEP IRA
  • Someone who would like a ROTH option to their employer plan

If you meet the requirements and wish to have the ability to self-direct your retirement account, Please contact Mountain West IRA about by opening an Individual 401(k) plan.

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