Health Savings Accounts – Questions and Answers
A Health Savings Account (HSA) is an alternative to traditional health insurance that offers consumers a different way to pay for their health care. HSAs enable you to pay for current and future health expenses on a tax-free basis, while an attached high-deductible insurance policy protects you against catastrophic expenses.
Here are answers to some common questions concerning HSAs:
Can anyone open an HSA?
To be eligible for an HSA, you must be under 65 years old, and covered by a qualified high-deductible health policy (QHDHP).You are ineligible if covered by another health insurance policy (except coverages such as cancer, dental, disability, long-term care or vision insurance) that isn’t a qualified high-deductible plan.
Where can I open an HSA?
Accounts can be established with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for its employees as well.
What is a QHDHP?
To qualify the policy must meet current IRS requirements. For 2009 the requirements are as follows:
- The deductible must be at least $1,150 for individuals or $2,300 for families.
- The annual out-of-pocket expenses cannot be greater than $5,800 for an individual or $11,600 for a family. These figures include the deductible and any co-insurance, but not the premiums.
How much can I contribute to an HSA?
Limits are updated annually by the IRS. For 2009, the contribution limits are $3,000 for singles and $5,950 for families. However, if you are 55 or older, you can contribute an extra $1,000.
What happens to unused funds at the end of the year?
The unused balance in an HSA automatically rolls over year after year. You won’t lose your money if you don’t spend it within the year.
How do I receive the tax benefits?
If you have an HSA through your employer, you may be able to make pre-tax payroll contributions. Otherwise, your contributions will be deductible when you file your taxes, even if you don’t itemize. Also, you are eligible to make a full contribution regardless of income unlike IRAs.
What is a qualified medical expense?
Qualified medical expenses are defined in IRS Publication 502, Medical and Dental Expenses (available at www.irs.gov).
Can my HSA be used to pay for a family member’s medical care?
Yes, you may withdraw funds to pay for the qualified medical expenses of yourself, your spouse or a dependent without tax penalty. This is one of the great advantages of HSAs.
Can I pay health insurance premiums with an HSA?
You can only use your HSA to pay health insurance premiums if you are collecting unemployment benefits or you have COBRA continuation coverage through a former employer.
Can I use the money for non-medical expenses?
Yes, but you’ll be hit with a 10% penalty plus income tax on the amount of your distribution. However, after age 65 the 10% penalty is waived on non-qualified distributions which enables your HSA to effectively serve as a retirement supplement.
I have an HSA but no longer have HDHP coverage. Can I still use the HSA?
Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.
With an HSA can I still contribute to an IRA?
Absolutely, your HSA contributions won’t affect your ability to contribute to an IRA in any way.