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Health Savings Account
Who Can Have an HSA?
Any adult can contribute to an HSA if they:
Contributions to your HSA can be made by you, your employer, or both. However, the total contribution is limited annually. Contributions are tax deductible even if deductions are not itemized when completing your federal income tax return.
Contributions to the account must stop once you are enrolled in Medicare. However, you may keep the money in your account and use it to pay for medical expenses tax-free.
High Deductible Health Plans (HDHPs)
You must have coverage under a HSA-qualified “high deductible health plan (HDHP) to open and contribute to an HSA. Generally, this is health insurance that does not cover first dollar medical expenses. Federal law requires that the health insurance deductible be at least:
In addition, annual out-of-pocket expenses under the plan (including deductibles, co-pays, and co-insurance) cannot exceed:
In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for “preventive care” services on a first-dollar basis (with or without a co-pay). “Preventive care” can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap spears, etc.
Finding HDHP CoverageAny company that sells health insurance coverage in your state may offer HDHP policies. Although we cannot recommend any specific names of companies selling these policies, you should be able to find a qualified policy by contacting your current insurance company, an agent or broker licensed to sell health insurance in your state or your state insurance department.
HSA ContributionsYou can make a contribution to your HSA each year that you are eligible. For 2013 you can contribute up to $3,250 if you have self-only coverage and $6,450 if you have family coverage.
Individuals older than 55 can also make additional “catch-up” contributions. The maximum annual catch-up contribution for 2011 and after is $1,000.
Using Your HSAYou can use the money in the account to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, and dental and vision care.
You can use the money in the account to pay for medical expenses of yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and your dependent children even if they are not covered by your HDHP.
You can generally not use the money for medical insurance premiums, except under specific circumstances, including:
Any amounts used for purposes other than to pay “qualified medical expenses” are taxable as income and subject to an additional 20% tax penalty. Examples include:
Exceptions to the Additional 20% Tax Penalty
Advantages of HSAs
What Happens to My HSA When I Die?If your spouse is the beneficiary they can use the account as if it were their own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).
Need More Information About HSAs?The U.S. Treasury’s website has additional information about Health Savings Accounts, including answers to frequently asked questions, related IRS forms and publications, technical guidance, and links to other helpful websites. The U.S. Treasury HSA website can be found through www.treas.gov. The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts and money-market deposit accounts.