A Health Savings Account (HSA) is a
smart alternative to conventional health coverage.
The HSA provides a vehicle for
tax-advantaged savings. Invest in your HSA,
and your contributions are tax-deductible. Withdraw
the funds and accumulated interest to pay for
qualified medical expenses and the withdrawals are
tax-free.
All
administration with our HSAs are feeless and
seamless with extensive online tools and resources
for participating members.
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What is an
HSA?
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Who is
Eligible to have an HSA?
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What is a
"high-deductible health plan" that makes someone
eligible for an HSA?
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Who can
underwrite the high-deductible health plan?
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Who can
provide the high-deductible health plan?
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What kinds
of other health coverage makes an individual
ineligible for an HSA?
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What other
kinds of health coverage may an individual
maintain without losing eligibility for an HSA?
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Are HSAs
allowed under a cafeteria plan?
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How does an
eligible individual establish an HSA?
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Who is a
qualified HSA trustee or custodian?
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Who may
contribute to an HSA?
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How much may
be contributed to an HSA?
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What is the
tax treatment of HSA contributions?
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What is the
tax treatment of earnings on amounts in an HSA?
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When is an
individual permitted to receive distributions
from an HSA?
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How are
distributions from an HSA taxed?
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What medical
expenses are eligible for tax-free
distributions?
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Can HSA
funds be used to purchase LTC insurance?
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How do HSAs
differ from Flexible Spending Accounts (FSAs),
Health Reimbursement Accounts (HRAs) and Medical
Savings Accounts (MSAs)?
What is an HSA?
An HSA
is a tax-exempt trust or custodial account
established for the purpose of paying medical
expenses in conjunction with a high-deductible
health plan. The HSA cannot stand alone -- it can
only be combined with a high-deductible health
insurance plan. A number of the rules that apply to
HSAs are similar to rules that apply to individual
retirement arrangements (IRAs).
For
example, like an IRA, an HSA is established for the
benefit of an individual, and is "portable." Thus,
if the individual is an employee who later changes
employers or leaves the work force, the HSA does not
stay behind with the former employer, but goes with
the individual. However, because HSAs differ from
IRAs in some important respects, taxpayers cannot
use an IRA as an HSA, and cannot combine an IRA and
an HSA into a single account.
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Who is Eligible to have an
HSA?
An
individual is an eligible individual if such
individual:
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is
covered under a high deductible health plan, and
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is
not, while covered under a high deductible plan,
covered by any other health plan
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which is not a high deductible health plan,
and
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which provides coverage for any benefit
which is covered under the high deductible
health plan.
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is
not entitled to Medicare
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may
not be claimed as a dependent on another
person's tax return
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What is a "high-deductible
health plan" that makes someone eligible for an HSA?
A high
deductible plan is a health plan with an annual
deductible of at least $1,000 in the case of
individual coverage and at least $2,000 in the case
of family coverage.
Who can underwrite the
high-deductible health plan?
A
high-deductible health plan may be offered by a
variety of entities, including insurance companies
and health maintenance organizations (HMOs).
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Who can provide the
high-deductible health plan?
An
employer or an individual may provide the
high-deductible plan.
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What kind of other health
coverage makes an individual ineligible for an HSA?
An
individual is ineligible for an HSA if the
individual is covered under a health plan (whether
as an individual, spouse, or dependent) that is not
a high-deductible health plan (including being
covered as a beneficiary under Medicare).
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What other kinds of health
coverage may an individual maintain without losing
eligibility for an HSA?
An
individual remains eligible for an HSA if, in
addition to a high-deductible health plan, the
individual has coverage (whether provided through
insurance or otherwise) for accidents, disability,
dental care, vision care, long-term care, insurance
for a specified disease or illness, insurance that
pays a fixed amount per day (or other period) of
hospitalization; or insurance under which
substantially all of the coverage provided relates
to liabilities from workers' compensation laws,
torts, or Membership or use of property (such as
automobile insurance).
Are HSAs allowed under a
cafeteria plan?
Yes.
Section 125(d) has been amended to allow HSAs to be
offered under cafeteria plans.
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How does an eligible
individual establish an HSA?
Beginning January 1, 2004, any eligible individual
can establish an HSA with a qualified HSA trustee or
custodian, in much the same way that individuals
establish IRAs with qualified IRA trustees or
custodians. No permission or authorization from the
Internal Revenue Service (IRS) is necessary to
establish an HSA.
Who is a qualified HSA trustee
or custodian?
Any
insurance company or any bank (including a similar
financial institution as defined in Internal Revenue
Code section 408(n)) can be an HSA trustee or
custodian.
Who may contribute to an HSA?
Contributions to an HSA can be made by individuals,
employers, or rollovers from Archer Medical Savings
Accounts (MSAs).
How much may be contributed to
an HSA?
The annual contribution limit is $2850 for individuals and $5,650 for families regardless of your deductible. For example, if your family deductible is $4,000 you may still contribute $5,650 in your HSA tax free.
There is no pro-rating for your HSA contributions, which means you may contribute the maximum allowed anytime during the year.
|
2007 - $600 |
2008 - $900 |
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2006 - $700 |
2009 &
thereafter - $1,000 |
What is the tax treatment of
HSA contributions?
Individual contributions are deductible whether the
individual itemizes or not. Contributions constitute
an adjustment to adjusted gross income -- in other
words "above-the-line". Employer contributions are
tax-free to employees.
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What is the tax treatment of
earnings on amounts in an HSA?
Earnings
on amounts in an HSA are not taxable prior to
distribution from the HSA.
When is an individual
permitted to receive distributions from an HSA?
An
individual is permitted to receive a distribution
from an HSA at any time.
How are distributions from an
HSA taxed?
Distributions from an HSA are excludable from gross
income if used for medical expenses of the HSA
account holder and the account holder's family, with
certain exceptions, and are includible in gross
income if used for any other purpose. If included in
gross income, distributions generally are subject to
an additional 10 percent tax. However, if
distributions that are included in gross income are
made after the account holder turns age 65, becomes
disabled or dies, the additional 10 percent tax does
not apply.
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What medical expenses are
eligible for tax-free distributions?
Medical
expenses are defined under section 213 of the Code,
but do not include expenses for insurance other than
long-term care insurance, premiums for COBRA-type
health care continuation coverage, or premiums for
health care coverage while an individual receives
unemployment compensation.
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Can HSA funds be used to
purchase LTC insurance?
Tax-free
HSA withdrawals can be used to purchase the
age-based amount of "Qualified" Long-Term Care
Insurance, but not to purchase other health
insurance.
Health Savings Accounts
