Are HSAs allowed under a Section 125 Cafeteria Plan?

An HSA can be offered as part of a Section 125 Cafeteria Plan to allow employees to make pre-tax payroll contributions to their HSAs. Once an employer allows employees to make pre-tax contributions, the Section 125 non-discrimination testing rules apply instead of the HSA comparability rules. The non-discrimination testing generally requires that the benefit is offered to all eligible individuals and that the contributions do not favor highly compensated and key employees.

The employer's plan document should be amended to indicate that HSA contributions are allowed and provide information on how often employees may change their payroll deduction. Unlike other reimbursement accounts, the HSA contribution can be changed during the year for any reason. According to the Cafeteria Plan rules, this must be allowed no less than monthly.

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HSAs are available to help pay for current qualified medical expenses as well as to save for future expenses, all in a tax-exempt account.

HSA FAQ Resource

Find answers to your most common HSA questions in our comprehensive HSA FAQs section.