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HSA Frequently Asked Questions

What is a Health Savings Account (HSA)?

A Health Savings Account allows individuals to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. They are partnered with a qualified high deductible health insurance plan.

Who is eligible for an HSA?

To be eligible for a Health Savings Account, an individual must be covered by a qualified High Deductible Health Plan (HDHP), must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care), is not enrolled in Medicare, and can't be claimed as a dependent on someone else's tax return.

What qualifies as a High Deductible Health Plan (HDHP)?

A HDHP is a health insurance plan with minimum deductible of $1,200 (self-only coverage) or $2,400 (family coverage). The annual out-of-pocket maximum cannot exceed $5,950 (self-only coverage) or $11,900 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and higher out-of-pocket for non-network services.

Who can be a custodian of an HSA?

Any bank, credit union, or financial institution that is a custodian for an IRA is automatically eligible to be the custodian for an HSA. Other non-bank entities may apply to the IRS to become a custodian. Custodians are not responsible for ensuring that expenses paid under the account are qualified medical expenses. The account holder is responsible for verification of account uses and contribution levels even when an employer makes partial contributions.

Who can contribute to an HSA?

Contributions to HSAs can be made by either the employer or the individual, or both. If contributions are made by the individual, it is an "above-the-line" deduction. If contributions are made by the employer, it is not taxable to the employee (excluded from income). Contributions can also be made by others on behalf of an eligible individual and deducted by the individual. All contributions are aggregated.

How much can I contribute to an HSA?

The maximum contribution is $3,050 for individuals or $6,150 for family coverage (in 2010). These dollar limits will be adjusted for inflation each year.

Do Health Savings Account funds roll over year after year and get invested?

Yes, the money deposited in a Health Savings Account rolls over year after year and some financial institutions permit you to invest the funds after they accumulate to a certain amount.

Who has control over the money invested in an HSA?

The individual who opened the account will have control over the assets. Upon death, HSA ownership may transfer to the spouse on a tax-free basis.

Can I roll the money in a Health Savings Account over into an IRA?

You cannot roll the HSA funds over into an IRA, however, funds can be rolled from an IRA into an HSA in certain circumstances.

For what can distributions from the HSA be used?

HSA distributions are tax-free if they are used to pay for qualified medical expenses.

Are dental and vision care qualified medical expenses under a Health Savings Account?

Yes, as long as these are deductible under the current rules. For example, cosmetic procedures, like cosmetic dentistry, are generally not deductible and would not be considered qualified medical expenses.

What is the definition, or eligibility criteria, for qualified preventive health care expenses covered by HSA policies?

Treasury and IRS has issued guidance on this topic. Click here.

Can anyone make catch-up contributions to a Health Savings Account?

Individuals 55 and older who are covered by an HDHP can make additional catch-up contributions. They may make contributions anticipating medical expenses that will not be covered under Medicare -- such as a portion of prescription drug costs or Medicare Part A & B premiums.

For individuals age 55 and older, an additional $1,000 "catch-up" contribution to HSA is allowed. If both spouses are 55 and older then both may make catch-up contributions by establishing separate HSA accounts. Contributions must stop once an individual enrolls for Medicare.

What happens to the money in a Health Savings Account after I turn age 65?

Once you are 65 and enrolled in Medicare, you may no longer contribute to an HSA; however, the funds remaining in the account may be used for health expenses and to pay certain insurance premiums like Medicare Part A, B & D, Medicare HMO and the employee's share of retiree medical insurance premiums. They cannot be used to purchase a Medigap policy. If used for medical expenses, the disbursements come out of the account tax free. If used for non-medical expenses, the amount withdrawn will be taxable, but no penalty will be assessed.

How can I get an HSA qualified insurance plan and set up the account?

You must start with a qualified insurance plan. To get a quote, click here.

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HSA Resources: HSA Toolbox, HSA Spending Tips, HSA Frequently Asked Questions, Contributions to an HSA, Distribution of Funds from an HSA, Advantages of HSAs, HSA Blog,
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