► Health Savings Accounts
A Health Savings Account (HSA) is a
tax-advantaged medical savings account available to taxpayers enrolled
in a qualified high-deductible health plan. The funds contributed are
not subject to federal income tax at the time of deposit. Qualified HSA
providers include any IRS-approved IRA fiduciary. All HSA deposits
become the property of the account holder. There is no deadline for
self-reimbursements of qualified medical expenses, and funds deposited
but not withdrawn each year carry over.
What happens to unused funds in an HSA depends upon whom you designate
as the account beneficiary. If your spouse is the designated
beneficiary, it will be treated as your spouse's HSA after your death.
If someone other than your spouse is the beneficiary, the account ceases
to be an HSA. The fair market value of the account becomes taxable to
the beneficiary in the year you die, and may be reported as unclaimed
property at some number of years determined by each individual state if
contact with the owner is lost.
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► Lost or Unclaimed
Individual Retirement Accounts
There is no limit to the
number of Individual Retirement Accounts that an individual can have. IRAs
may contain a variety of investments including bank accounts, certificates
of deposit, stocks, bonds, precious metals, commodities, and even real
estate; but half of all IRAs are administered by and invested in various
mutual funds. About one-third are held in brokerage accounts, while bank
deposits and life insurance annuities make up the remainder.
Earnings on Traditional IRAs grow on a tax-deferred basis until
withdrawals begin. About 15% of IRAs - totaling some $450 million - are
held by those aged 70 and above. The average account value is around
Due to the long term nature of this type of investment, each year large
numbers of owners and heirs - who may not be aware of a deceased family
member's IRA or rollover 401(k) - fail to claim accounts to which
While unclaimed 401(k) retirement plan assets are subject to federal
guidelines mandated by ERISA, the Employee Retirement Income Security
Act of 1974, most dormant and forgotten IRAs at banks, brokerages and
insurance companies are not.
They come under the purview of state
unclaimed property statutes, whereby a trustee takes custody of the
funds based on a legal doctrine known as ‘escheat.’ It’s important to
note, however, that in some cases 401(k) plan assets can lose their ERISA
pre-emption and become subject to state escheat.
The rules for determining how a dormant and unclaimed IRA is treated
depend on the type of account and the owner’s state of residence.
Generally speaking, a Traditional IRA is considered unclaimed if a
withdrawal is not made by age 70˝; the age at which non-withdrawal
triggers a 50% tax penalty under the IRS code. Both Traditional IRAs and
Roth IRAs may be considered abandoned if one or more distribution checks
remain uncashed, which can occur when the owner reaches age 59˝ or
before, if early withdrawal is taken.