Health Savings Account
A Health Savings Account (HSA) is like a medical IRA. Money can be deposited into these accounts and used for medical expenses today or saved for the future. There are many advantages to putting money into these accounts, including favorable tax treatment. HSAs were signed into law in December of 2003.
Who can open an HSA?
Any adult can contribute to an HSA if they:
- Have an HSA-compatible high-deductible health insurance plan
- Have no other comprehensive health insurance coverage
- Are not enrolled in Medicare
- Cannot be claimed as a dependent on someone else’s tax return
Contributions can be made by the employee, employer or both. The total contributions are limited annually. The IRS sets these maximum contributions by June 1st of each year and they are indexed to inflation. Individuals age 55 and older, who are not on Medicare, can also make additional “catch-up” contributions. The IRS determines the catch-up contribution every year. Contributions can be made as late as April 15th of the following year, and applied to the prior years’ maximum contribution amount.
Additionally, there is a provision for FSA and HRA rollovers. Strict IRS regulations apply to the rollovers, as do limitations. These rollovers are allowed until 2011. They are once-in-a-lifetime and on top of the annual maximum contribution allowed. IRA rollovers are also allowed once-in-a-lifetime. The IRA rollover is a “trustee to trustee” transfer and is limited to the annual maximum contribution amount that is allowed.
Using your HSA
You can use the money in the HSA account for any “qualified medical expense” permitted under Federal law. This includes medical, dental, and vision care. Once an individual elects Medicare, contributions must stop. However, the money in the account can be used to pay for medical, dental and visions expenses, tax free. Some state taxes may apply. The money may also be used to pay for three types of premiums: Medicare (Parts B, C and D), Long-Term Care, and COBRA. You can use the money in your HSA account to pay for expenses for yourself and your dependents, even if they are not covered under your health insurance plan.
Any money used to pay for any expenses that are not “qualified medical expenses” are taxable income and subject to a 10% tax penalty. After you turn age 65, the 10% tax penalty no longer applies. If you become disabled, or enroll in Medicare, the account can be used for other purposes without paying the 10% penalty, as well.
Advantages of an HSA
Security—Your high-deductible health plan and HSA protect you against high or unexpected medical bills.
Control—You make all the decisions on how to use the money in your HSA, how much money to put into the HSA, how to invest the money, and which expenses to pay from your HSA.
Affordability—Your health insurance premiums should be lower by switching to a high-deductible health plan.
Flexibility—You can use the funds in your HSA for those things that are important to you. You can pay for medical, dental, and vision expense including such things as acupuncture, chiropractic or lasik surgery.
Savings—You can save the money in your account for expenses today or grow your balance through investment earnings, all tax advantaged on a Federal level.
Portability—Accounts are completely portable, meaning you take the HSA with you if you leave your employer, change medical coverage, become unemployed, move to another state, or change your martial status.
Ownership—No “use it or lose it” rules apply. Funds in your HSA remain in the account from year to year, just like an IRA.
Tax Savings—An HSA provides you with triple tax savings; tax deductions when you contribute, tax free earnings on investments, and tax free withdrawals for qualified medical expenses. Some state taxes may apply.
What happens to my HSA when I die?
If your spouse is the beneficiary, your spouse can use it as if it were his or her own HSA. If the beneficiary is a non-spouse, the account will no longer be treated as an HSA upon your death. The account will pass to the beneficiary or your estate and be subject to applicable taxes.
Opening your HSA
Open your account today by giving us a call at 800-416-6117 and a customer service representative will assist you.
