A. An employee may withdraw money without penalty from his medical care savings account for a purpose other than payment of eligible medical expenses when the employee attains the age specified in Section 1811 of the Social Security Act. An employee may also withdraw money without penalty for payment of coverage for:

(1) a health plan during any period of continuation coverage required under any federal law;

(2) a qualified long-term care insurance contract as defined by Section 7702B(6) of the Internal Revenue Code of 1986; or

(3) a health plan during a period in which the person is receiving unemployment compensation under any federal or state law.

B. Except as provided in Subsection A of this section, if an employee withdraws money from the employee's medical care savings account that is not used exclusively to pay eligible medical expenses of the employee or a dependent, it shall be included in the gross income of the employee for taxation purposes.

C. Except as provided in Subsection A of this section, if an employee withdraws money from the employee's medical care savings account for a purpose other than a rollover to a new account administrator:

(1) the amount of the withdrawal shall be considered gross income to the employee and subject to taxation; and

(2) the administrator shall also consider as a withdrawal on behalf of the employee a penalty equal to fifteen percent of the amount of the withdrawal and shall consider this as gross income to the employee for taxation purposes.

D. If a person is no longer employed by an employer that participates in a program or if an employee chooses to cease participating in the program, the person or employee shall, within sixty days of his final day of employment or participation:

(1) request, in writing, the rollover of his savings account to a new account administrator;

(2) request, in writing, that the former employer's account administrator continue to administer the savings account, including in the request an agreement to pay the cost, if any, of account administration on that savings account; or

(3) withdraw the money from the savings account subject to the provisions of Subsection C of this section, if the withdrawal is not for the purpose of a rollover when within sixty days of the receipt of the funds they are placed with a new account administrator.

E. No more than sixty days after the date of notification by the employee pursuant to Subsection D of this section, the account administrator shall:

(1) transfer the savings account to a new account administrator as requested;

(2) agree, in writing, to continue to act as the account administrator for the savings account; or

(3) mail a check to the person or employee at his last known address for the amount in the account as of the day the check was issued.

F. Upon the death of an employee, the account administrator shall distribute the principal and accumulated interest of the savings account to the estate of the employee.

History: Laws 1995, ch. 93, § 6; 1997, ch. 243, § 30; 1997, ch. 254, § 5; 2001, ch. 194, § 3.

Cross references. — For Section 1811 of the federal Social Security Act, see 42 U.S.C. § 1395c.

For Section 7702B of the federal Internal Revenue Code, see 26 U.S.C. § 7702B. There is no subsection (6) of that section; the definition of "qualified long-term care insurance contract" appears in subsection (b)(1).

The 2001 amendment, effective June 15, 2001, in Subsection A, substituted "payment of " for "reimbursement of"; and substituted "person" for "individual" in Paragraph A(3), Subsection D and Paragraph E(3).

The 1997 amendment, effective April 11, 1997, substituted the language beginning "when the employee attains" for "when he reaches the age of fifty-nine and one-half" in Subsection A; rewrote Subsections B and C; substituted "rollover" for "transfer" in Paragraph D(1); added the language beginning "subject to the" at the end of Paragraph D(3); substituted "sixty days after the date of notification by the employee" for "thirty days after the expiration of the sixty-day period" in the introductory paragraph of Subsection E; and, in Paragraph E(3), deleted "excluding the applicable withdrawal penalty" following "issued" and the former second sentence relating to time for payment of the penalty.