What is VEBA (Voluntary Employees' Beneficiary Association Plan)?
Written by True Tamplin, BSc, CEPF®
Updated on July 10, 2021
Voluntary Employees’ Beneficiary Association Plan (VEBA) Definition
A Voluntary Employees’ Beneficiary Association Plan, or VEBA, is a tax-exempt trust used by its members and certain dependents to pay for eligible medical expenses.
This plan is funded by an employer and does not require employee contributions, however the employee must be covered by an employer-sponsored health plan to qualify for VEBA membership.
Are VEBA Withdrawals Taxable?
Unlike a 401(k), for example, withdrawals from a VEBA plan are not taxable if made before age 59 ½.
Withdrawals are also not required to begin at age 70 ½.
Funds in a VEBA plan accumulate tax-free and there are no penalties placed upon employees who take distributions for qualified medical expenses, which include copays, coinsurance, and deductibles, as well as vision and dental expenses.
Are VEBA Accounts Exclusive to Retirement?
Although these accounts are often used as savings vehicles for post-retirement medical expenses, employees can still take advantage of their VEBA while working.
While VEBA plans are subject to some parts of the Employee Retirement Income Security Act, or ERISA, that are not considered qualified retirement plans.