What is a Health Savings Account (HSA)?
- An HSA is a tax-advantaged savings account, like an IRA, tied to a high deductible health insurance plan. The health savings account may be used to pay for deductibles, coinsurance and other qualified healthcare expenses (Section 213(d) of the Internal Revenue Code), on a tax-free basis.
- Unlike other types of health savings vehicles, HSA contributions and earnings carry over from year to year allowing you to build up your savings over time. If not used by age 65 you may also use the funds in your HSA to supplement your retirement income.
- Unlike most other employer sponsored savings plans, HSAs are portable and remain with you regardless of your employment status. You control your money.
Advantages of an HSA
- Tax-deductible Contributions: Contributions are tax deductible for individuals, the self-employed and employers.
- Tax-free: Withdrawals used to pay for qualified healthcare expenses are tax-free.
- Low Cost: Qualified HSA insurance plans cost less due to the high deductible regulations.
- Options: You also have the option of selecting from a variety of investment vehicles.
- Easy Access: If you select one of our recommended HSA banks/trustees/custodians, accessing your HSA savings is easy with a convenient Visa Check Card or checks that are included when you establish your HSA account.
How Do I Qualify for an HSA?
Most Americans qualify for HSAs. If you meet the following criteria, you qualify:
- You have a qualified high deductible health plan (our high deductible health plans qualify)
- You have no other health insurance (with a few exceptions: accident only, dread disease, etc.)
- You are not eligible for Medicare
- You cannot be claimed as a dependent on someone else's tax return
- You have gross income
Setting Up Your HSA
- The election of your HSA trustee (bank or financial institution approved by the IRS) is your choice. To simplify this process you will be provided materials and information from an approved trustee with your policy kit.
- If you select one of our recommended HSA trustees/custodians, all you need to do is fill out the forms and send them in to the trustee/custodian with a check with your initial deposit and fees. You do not need to set up an HSA or select one of our recommended HSA trustees to purchase our high deductible health insurance plan. These insurance plans are available with or without an HSA.
Funding Your HSA
- Individual Contribution Limit: 100% of your selected annual individual insurance deductible or $2,650, whichever is less.*
- Family Contribution Limit: 100% of your selected annual family insurance deductible or $5,250, whichever is less.*
- If you are 55 or older you are eligible to contribute an additional $600 in 2005, increasing by $100 each year until 2009.
- You, your employer and/or another interested individual can make contributions to your HSA. However, all contributions cannot exceed the annual contribution limit.
- And partial year that you participate in an HSA, the contribution is prorated for that year based on the effective or cancellation date of your insurance plan. Each month in the plan qualifies you for one twelfth of the total contribution limit.
- You have until April 15 or the tax-filing deadline to contribute the allowable limit for the previous tax year.
Examples of Qualified Tax-Free Medical Expenses
- Medical Expenses Not Covered by Your Insurance Policy
- Deductibles and co-insurance payments on your qualified health plan
- Prescription drugs
- Weight Loss Programs
- Eyeglasses and Contact Lenses
- Maternity Expenses, Prenatal Care
- Mental Health Care
- Alcoholism Treatments
- Dental Treatment
- Hearing Aids
- Long Term Care Insurance
- Podiatrist, Orthopedist, and Psychiatrist
- Healthcare Premiums When Unemployed
- Health Plan During Any Period of Continuation of Coverage Required Under Any Federal Law
* Annual deductibles and contributions are subject to annual cost of living adjustments as may be required by the Federal Government to coincide with the Consumer Price Index (CPI).
Steven D. Smith is a licensed life and health insurance professional and CEO of SDS Financial, LLC. He is also the author of the "2008 Guide to Choosing and Using Your Health Insurance Plan" and "Your Guide To Good Health Insurance". Other articles and books about Health Insurance written by Steven Smith can be found at his website http://www.prohealthquotes.com
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