Retirement Health Savings & IRS Rules
A retirement health reimbursement arrangement (HRA) is a method of saving tax-free money while you are working to pay for health care expenses once you retire. Contributions made to a retirement HRA are deducted from your income by your employer when you receive your W-2 statement at the end of the year or by yourself when you fill out your taxes.
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Retirement HRAs
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Your employer will fund an HRA in your name. The plan will reimburse you for your medical expenditures while you are working, but any unused balance can be rolled over into a retirement HRA at the end of each calendar year. Self-employed workers are not eligible for HRAs.
Contributions
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The contribution amount is up to your employer, and there is no limit on how much can be contributed. It is an employment benefit that will not show on your income. You do not have to pay taxes on the employer contributions to your HRA.
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Distributions
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When you use a retirement HRA to pay for your medical expenses, you will use a debit card to pay the bill. It can be used to pay for health insurance premiums, long-term care coverage, deductibles and co-pays. You will not be taxed on these distributions from your retirement HRA. If you use your retirement HRA to pay for anything other than a qualified medical expense, then that amount will be considered income for you during that year. You will need to pay taxes on the amount.
Beneficiaries
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You can name a beneficiary of any unused amount in your retirement HRA should you die. The beneficiary does not need to be your spouse or children. The distribution is made to the beneficiary and considered income for that person.
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References
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