If you don’t know what an HSA is, read the information below and also watch our HSA video presentation. Learn how you can save over 50% on your health insurance premiums when purchasing one of these great plans.
What is a Health Savings Account (“HSA”)?
A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.
You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.
What Is a “High Deductible Health Plan” (HDHP)?
You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
For 2008, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,100 (self-only coverage) or $2,200 (family coverage). The annual out-of-pocket (including deductibles and co-pays) for 2008 cannot exceed $5,600 (self-only coverage) or $11,200 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and copays & coinsurance) for non-network services.
How can I get a Health Savings Account?
Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.
How much does an HSA cost?
An HSA is not something you purchase; it’s a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA. However, HSA trustees often will charge fees for their services.
HSAs are similar to IRAs, but even better:
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Pre-tax money is deposited each year into an HSA and can be easily withdrawn at any time with no penalty or taxes to pay for qualified medical expenses. Withdrawals can also be made for non-medical purposes, but will be taxed as normal income and are subject to a 10 percent penalty if done prior to age 65. |
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Any HSA funds not used each year remain in the account, and earn interest tax-free to supplement medical expenses at any time in the future. |
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Like an IRA, the account belongs to you, not your employer. But unlike an IRA, your employer CAN contribute to your HSA. |
** The 2010 annual contribution limits are $3,050 for self-only and $6,150 for family coverage. A catch-up contribution is available for taxpayers 55 and older of $1,000.
How much can I contribute to my HSA?
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| IRS Requirements for 2008 |
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Single Plan |
Family Plan |
| Minimum Deductible |
$1,100 |
$2,200 |
| Maximum Out-of-Pocket |
$5,600 |
$11,200 |
| Contribution Limit |
$2,900 |
$5,800 |
| Catch-Up Contribution (55 or older)* |
$900 |
$900 |
| * If a spouse is also 55 or older, a second HSA must be established and a second contribution of $900 could be made to that account. |
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| IRS Requirements for 2009 |
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Single Plan |
Family Plan |
| Minimum Deductible |
$1,150 |
$2,300 |
| Maximum Out-of-Pocket |
$5,800 |
$11,600 |
| Contribution Limit |
$3,000 |
$5,950 |
| Catch-Up Contribution (55 or older)* |
$1,000 |
$1,000 |
| * If a spouse is also 55 or older, a second HSA must be established and a second contribution of $1,000 could be made to that account. |
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HSA ExceptionsIf an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed will be included in income and subject to a 10 percent additional tax.Example:
You established a qualified health plan in December 2008 and contributed the maximum allowed. Then in January 2009 you contributed the maximum contribution for that tax year.
Scenario 1: You maintained coverage through December 31, 2009. You are eligible for the maximum contribution for both 2008 and 2009.
Scenario 2: You ended coverage April 1, 2009. Eleven-twelfths of the December 2008 contribution must be treated as income, plus a 10% penalty on that amount must be paid. Nine-twelfths of the funds deposited in January must be taken out of the account as an excess contribution (and treated as income) but no 10% penalty is incurred. |
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Are contributions prorated by the number of months the health plan is in place?Pro-rating of contributions occurs when the status of an HSA changes from family to single, or if the HSA qualified health plan is terminated.Examples:Coverage Beginning Mid-year
If you have a new HDHP and coverage begins in July, 2008, you will be eligible to contribute the maximum amount as determined by the IRS ($2,900 for individual coverage and $5,800 for family coverage.)
Health Plan Status Change
If you have family coverage beginning January 1, 2008 and switch to single coverage July 1, 2008, you will be eligible to contribute 6/12 of $5,800 plus 6/12 of $2,900 or $4,350.
HSA Qualified health plan terminated
You have a qualified family health plan January 1, 2008 and terminate coverage April 1, 2008. You are eligible to contribute 3/12 of $5,800 or $1,450. |
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| Can I roll over unused funds from an FSA or HRA?Yes, regulations now allow you to roll over unused funds from an FSA or HRA on a one-time basis. Please talk to your employer or third-party administrator for specific details. |
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| Can I transfer funds from an IRA to my HSA?Yes, regulations allow a one-time rollover from an IRA to an HSA, up to the annual HSA contribution maximum. Prior to transferring funds, please consult your tax advisor to discuss the benefits and tax reporting requirements. |
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| Is my money safe? |
| Funds in an HSA are held in a trust and are administered by a bank, insurance company, or other approved Trustee. |
Funds in your HSA are invested at your discretion. Typically an HSA will allow you to choose from the following options:
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Interest-bearing account |
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CDs |
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Money market funds |
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Mutual funds |
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| If you are looking to minimize your investment risk, you may want to consider an interest-bearing account; these accounts are FDIC insured. On the other end of the spectrum, mutual funds may provide a greater return, but are more risky, and are not FDIC insured. |
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| How do I use the funds in my HSA? |
Using funds in your Health Savings Account is easy:
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Typically an HSA will provide you with a checkbook or debit card. When you pay for a qualified medical expense, use the debit card or check to make the payment. |
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You do not need to get approval from the HSA administrator when you use funds in your account. |
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You do not need to submit receipts to the HSA administrator, although you should save them just as you keep receipts for other items that are deducted from your taxes. |
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NOTE: You must establish the HSA before you incur medical expenses otherwise the expenses will not qualify.
| How do the tax savings work? |
HSAs make it easy to save on your taxes:
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At the end of each year, you will be sent a statement showing the amount you contributed to your HSA that year. You can deduct this amount provided it is less than or equal to the maximum allowable contribution. |
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Much like an IRA, HSA deductions are “above-the-line” and thus can be taken even if you do not itemize. |
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If you are self-employed, in addition to deducting your HSA contributions, you may be able to deduct 100% of your health insurance premiums, provided that:
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You are not eligible to participate in a subsidized health plan offered by an employer or your spouse’s employer. |
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The deduction does exceed the amount of net income from your business. |
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