Health Savings Accounts that Make Sense

Structure of an HSA

A Health Savings Account has two components:

• You must participate in a high deductible health plan (HDHP). The IRS specifies a minimum annual deductible and a maximum limit for out-of-pocket expenses.
• Your HDHP must meet these dollar limits. Once your HDHP is in place, you may open a tax-advantaged account with specific contribution limits and withdrawal guidelines.

Benefits

They provide significant advantages:

• By participating in a HDHP, you can enjoy relatively affordable health insurance premiums.
• You retain control over the account. You can decide how to use the money, and where to invest it.
• Your HSA is completely portable, meaning you can keep the account even if you change jobs, change your medical coverage or become unemployed.
• There is no “use it or lose it” provision. The funds roll over from year to year.

Qualified Medical Expenses

You can make tax-free, penalty-free withdrawals if the funds are used for certain qualified medical expenses. Generally, this includes expenses that qualify for the medical and dental income tax deductions as listed in IRS Publication 502.

Non-qualified distributions of HSAs are subject to taxation and a 20 percent penalty unless the HSA owner is age 65 or older, dies, or is disabled.

Contribution limits, qualification criteria and other terms and conditions relating to these accounts can change at any time. Before you open your account, consult your tax advisor for current IRS laws and regulations associated with these types of accounts and whether they are a suitable investment for your financial situation.

Eligibility

You are eligible for a HSA for any month if you:

• Are covered under an HDHP on the first day of such month.
• Are not also covered by any other health plan that is not an HDHP (with limited exceptions).
• Are not enrolled in Medicare, and
• Are not eligible to be claimed as a dependent on someone else’s tax return.

Contribution Limits

The total amount you or your employer may contribute to a HSA depends on whether you have self-only or family coverage under your HDHP.

If you are 55 by the end of the year, you may qualify for an additional “catch-up” contribution of $1,000. Medicare coverage or partial year HSA participation may reduce your allowable contributions.

Tax Savings

Even more beneficial thanks to favorable tax treatment:

• Your contributions can be pre-tax or tax deductible.
• Contributions made by your employer can be excluded from your income.
• HSA earnings are tax-deferred.
• If used for qualified medical expenses, withdrawals can be tax-free.