IRS Form 5305-C – In today’s healthcare landscape, managing medical expenses efficiently is crucial. One powerful tool for this is a Health Savings Account (HSA), which allows eligible individuals to save pre-tax dollars for qualified medical costs. If you’re looking to set up an HSA as a custodial account, IRS Form 5305-C is the model agreement you need. This article explores what Form 5305-C is, its purpose, how to use it, and key updates for 2026, drawing from official IRS resources to help you make informed decisions.
What Is IRS Form 5305-C?
IRS Form 5305-C, titled “Health Savings Custodial Account,” is a model custodial agreement approved by the Internal Revenue Service under Section 223(a) of the Internal Revenue Code. It serves as a template for establishing an HSA with a qualified custodian, such as a bank or insurance company. Unlike other IRS forms, you don’t file Form 5305-C with the IRS—instead, it’s executed between you (the account owner) and the custodian, and kept with your records.
This form ensures your HSA is set up exclusively for paying or reimbursing qualified medical expenses for you, your spouse, and dependents. It’s designed for individuals covered by a high-deductible health plan (HDHP) who meet specific eligibility criteria. Recent legislative changes, including the One, Big, Beautiful Bill Act (OBBBA), have expanded HSA access, making it easier for more people to benefit from these accounts in 2026.
Purpose and Eligibility for Using Form 5305-C
The primary purpose of Form 5305-C is to create a tax-advantaged custodial account for HSA contributions. HSAs offer triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
To be eligible:
- You must be enrolled in an HDHP on the first day of the month.
- You cannot have other non-HDHP health coverage (with exceptions for preventive care, dental, vision, and certain permitted insurances).
- You must not be enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
Spouses must each establish their own HSAs if eligible. Custodians must be IRS-approved entities, like banks or those previously approved for IRAs or Archer MSAs. For 2026, expansions under OBBBA allow bronze and catastrophic plans on exchanges to qualify as HDHPs, and certain direct primary care arrangements won’t disqualify eligibility.
How to Complete and Use IRS Form 5305-C?
Completing Form 5305-C is straightforward and can be done anytime during the tax year. Here’s a step-by-step guide:
- Provide Personal Information: Enter your name, date of birth, address, and Social Security number (or EIN if applicable).
- Custodian Details: Include the custodian’s name and principal place of business.
- Initial Contribution: Assign an initial cash amount to the account.
- Sign and Date: Both you and the custodian must sign, with witnesses if required.
- Additional Provisions: Use Article XI for any extra terms, ensuring they comply with IRS rules.
Once executed, the HSA is established. Contributions can be made by you, your employer, or others. Remember, you represent your eligibility when signing, including HDHP coverage and no disqualifying factors.
Key Articles in Form 5305-C Explained
Form 5305-C outlines 11 articles that govern the account:
- Article I: Covers acceptable contributions, including cash, rollovers from other HSAs or Archer MSAs, and qualified distributions from IRAs or flexible spending accounts.
- Article II: Details annual contribution limits (updated annually; see below for 2026 figures) and catch-up contributions for those 55+.
- Article III: Requires you to notify the custodian of excess contributions for withdrawal.
- Article IV: Your interest in the account is nonforfeitable.
- Article V: Prohibits investments in life insurance or collectibles and commingling of assets.
- Article VI: Allows distributions for qualified medical expenses (tax-free); non-qualified ones are taxable with a 20% penalty (exceptions apply after age 65, disability, or death).
- Article VII: Handles death benefits—spousal beneficiaries can treat it as their HSA; others face taxation.
- Article VIII: Mandates reporting to the IRS.
- Articles IX-XI: Ensure compliance with laws, allow amendments, and provide space for additional provisions.
These articles ensure the account adheres to IRS standards, protecting its tax-advantaged status.
2026 HSA Contribution Limits and HDHP Requirements
For 2026, the IRS has adjusted limits due to inflation and OBBBA changes:
| Coverage Type | Contribution Limit | Catch-Up (Age 55+) | Min. Deductible | Max. Out-of-Pocket |
|---|---|---|---|---|
| Self-Only | $4,400 | +$1,000 | $1,700 | $8,500 |
| Family | $8,750 | +$1,000 | $3,400 | $17,000 |
Contributions must be in cash and can be made until your tax filing deadline (typically April 15, 2027, for 2026). Excess contributions incur a 6% excise tax unless withdrawn timely.
HDHPs can now provide $0 deductibles for telehealth (permanent under OBBBA), certain insulin products, preventive care (including expanded items like oral contraceptives and glucose monitors), and anti-surprise billing protections without losing qualification.
Benefits of Setting Up an HSA with Form 5305-C
Using Form 5305-C to establish your HSA offers numerous advantages:
- Tax Savings: Deduct contributions, enjoy tax-free growth, and withdraw tax-free for medical expenses.
- Flexibility: Funds roll over year-to-year, portable across jobs.
- Investment Potential: Many custodians allow investing in stocks, bonds, or mutual funds.
- Expanded Uses: Cover expenses like deductibles, copays, prescriptions, and even certain over-the-counter items (e.g., menstrual products).
- Long-Term Planning: Use for retirement healthcare after age 65, with only income tax on non-medical withdrawals (no 20% penalty).
With OBBBA, more individuals can access these benefits, including those with direct primary care or telehealth-focused plans.
Common FAQs About IRS Form 5305-C and HSAs
Do I need to file Form 5305-C with the IRS?
No, it’s a model agreement kept with your and the custodian’s records.
What if I make excess contributions?
Notify your custodian to withdraw them plus earnings before your tax deadline to avoid the 6% excise tax.
Can employers contribute to my HSA?
Yes, and their contributions are excluded from your income. They must be comparable for similar employees.
What happens to my HSA upon death?
If your spouse is the beneficiary, it becomes their HSA. Otherwise, it’s distributed and taxable to others.
Where can I download Form 5305-C?
Directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f5305c.pdf.
For more details, consult IRS Publication 969 or a tax professional.
Final Thoughts on IRS Form 5305-C
Setting up a Health Savings Custodial Account with IRS Form 5305-C is a smart way to prepare for medical expenses while enjoying significant tax advantages. With 2026 updates expanding eligibility and maintaining inflation-adjusted limits, now is an excellent time to consider an HSA. Always verify your eligibility and consult trusted sources like the IRS website or a financial advisor to ensure compliance. By planning ahead, you can build a robust safety net for your healthcare needs.