how a veba plan works
vebas allow employers to provide benefits to employees on the condition that they abide by the following requirements 1vebas can cover a wide range of benefits eligible medical expenses are determined by the irs and each plan can vary in what it covers from this list and when payouts are made vebas are subject to some aspects of the employee retirement income security act erisa however they are not considered to be qualified retirement plans 1 as mentioned above beneficiaries must be employees their dependents or their designated beneficiaries 3 also veba benefits normally end when the employee leaves the company or labor union with which the veba is associated not every veba plan is the same some may be available for current eligible expenses others meanwhile may only reimburse vision and dental costs or just cover medical costs incurred after you leave the job or retire taxation of veba plansveba rules state that employers must first obtain a letter of determination from the irs for their plan to be considered a veba for federal income tax purposes 4 these plans are considered to be welfare benefit plans under federal tax law and are tax exempt under section 501 c 9 of the internal revenue code 5employer contributions made to a veba plan are tax deductible and have no limit however benefits paid out to employees may or may not be taxable depending on the type of benefit 5unlike in 401 k or 403 b plans for example participant withdrawals from a veba are not taxable if made before age 59 withdrawals from a veba are not required to begin at age 72 cashing out of a vebafunds in a veba grow tax free and there are no tax penalties levied upon employees or veba members who take distributions from a veba for qualified medical expenses which often include co pays co insurance and deductibles as well as dental and vision payments these expenses are defined in section 213 d of the internal revenue code 6 members can also use veba plans to fund post retirement health insurance premiums even though these accounts are usually used as savings vehicles to fund healthcare expenses in retirement employees can use money from their vebas to pay for qualified medical expenses while working if account holders don t use money in their veba plans for a given year then that amount rolls over to the next year s balance this means that a veba is not a use it or lose it plan unlike a flexible spending account fsa a veba is not a use it or lose it plan if account holders don t use money in their plans for a given year then that amount rolls over to the next year s balance types of veba plansa veba plan can also act as a type of health reimbursement arrangement hra a post deductible veba plan for example is designed to reimburse vision and dental expenses until a member meets their health plan deductible after the deductible is met members can be reimbursed for non health plan related medical expenses a limited veba plan however can reimburse only medical and vision expenses meanwhile money in a post employment veba plan can be used only after an individual has retired or left employment with the veba s sponsor 