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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
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CCH® PENSION AND BENEFITS 12/26/06

Mental health parity provisions extended in year-end tax bill passed by Congress

In the final hours of the 109th Congress, the House and Senate passed the Tax Relief and Health Care Bill of 2006 (H.R. 6111), which includes a provision extending the Mental Health Parity Act from December 31, 2006 to the end of 2007 under the Internal Revenue Code, ERISA, and the Public Health Service Act (PHSA). President Bush is expected to sign the measure.

The legislation also includes about three dozen provisions that make substantive changes to the tax law beyond simply extending existing provisions. These changes include a major overhaul of the contribution rules for health savings accounts (HSAs) and new reporting requirements with respect to the issuance of stock under incentive stock option plans.

One-time rollover from IRA to HSA allowed

The legislation would allow a one-time contribution to an HSA of amounts distributed from an IRA, effective for taxable years beginning after December 31, 2006. The contribution would have to be made in a direct trustee-to-trustee transfer. Amounts distributed from an IRA would not be includible in income to the extent that the distribution would otherwise be includible in income. In addition, such distributions would not be subject to the 10% additional tax on early distributions.

The amount that can be distributed from the IRA and contributed to an HSA would be limited to the otherwise maximum deductible contribution amount to the HSA computed on the basis of the type of coverage (i.e., self-only or family) under the high deductible health plan (HDHP) at the time of the contribution. The amount that could otherwise be contributed to the HSA for the year of the contribution from the IRA would be reduced by the amount contributed from the IRA.

Only one distribution and contribution could be made during the lifetime of the individual. However, if a distribution and contribution are made during a month in which an individual has self-only coverage as of the first day of the month, an additional distribution and contribution could be made during a subsequent month within the taxable year in which the individual has family coverage. The limit would apply to the combination of both contributions.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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