Health Savings Accounts (HSA’s)

What is a Health Savings account (H.S.A.)?

A Health Savings Account is a medical savings account that is available to United States taxpayers enrolled in a High Deductable Health Plan. Funds put into a Health Savings Account (HSA) are not subject to federal income tax at the time of deposit.

Funds in the account can be used for qualified medical expenses at any time without federal tax liability. Unused funds in an H.S.A. can be rolled over to the following year. It acts similarly to an I.R.A. in that the person who is enrolled can withdraw from the fund at retirement age for any reason. Like IRA money withdraws from the account prior to retirement, a penalty will be assessed.

Facts, Questions and Answers about HSAs

What are the benefits of an H.S.A.?

  • Funds in account roll over year to year.
  • Tax benefits on contributions, earnings, and distributions
  • Funds used for approved medical expenses are always tax free even if the High Deductable Health Plan coverage ends
  • Account is portable so that if you leave an employer or Health Plan your account goes with you.
  • It is a long term investment opportunity
  • H.S.A.’s encourage savings for future health care expenses.

What is covered or, what can I use my Health Savings Account funds for?

  • Routine Medical visits
  • Treatment and diagnosis of disease or ailment
  • Prescriptions drugs
  • Some non-prescription drugs
  • Eye care including glasses, contacts
  • Dental care including braces and dentures
  • COBRA premiums
  • Acupuncture
  • Braille Books
  • Midwife services
  • Transportation costs associated with healthcare
  • Seeing-eye dogs
  • Qualified long term care services

What preventative care benefits can a plan offer?

  • Periodic health evaluations
  • Routine prenatal and well-child care
  • Immunizations
  • Tobacco cessation programs
  • Obesity weight loss programs
  • Screening services

How much money can I put into a Health Savings Account?

For 2009, these amounts increase to $3,000 for single HDHP coverage and $5,950 for family HDHP coverage. These amounts will be increased for inflation in future years

Are there income limits on who can have an H.S.A. account?

There are no income limits that affect HSA eligibility. However, if you do not file a federal income tax return, you may not receive all the tax benefits HSAs offer.

Is a Health Savings Account the same as a Flexible Spending Arrangements (FSA) or a Health Reimbursement Arrangement (HRA)?

No, generally Health Savings Accounts is the only type of health saving plan that can roll over from year to year. It also allows the enrollee to take the account with them regardless of where the enrollee goes to work.

HSAs, HRa, FSAs
Who can contribute to a H.S.A.?

  • Accountholder
    • Individual
    • Self-Employed
    • Employee
  • Employer

Additional HSA Funding Option

  • IRA funds may be rolled to an HSA on a one-time basis
  • Subject to the annual HSA contribution maximum
  • Only traditional IRAs qualify at this time
  • Individuals must remain covered by a qualifying HDHP until the last day of the 12th month following the month of rollover to avoid tax penalties

When can distributions be taken from an HSA?

  • HSA dollars can always be used to pay for qualified expenses on a tax-free basis, regardless of age or healthcare coverage
  • If HDHP coverage ends, contributions cannot be made to an HSA, but distributions to pay for qualified expenses are always allowed.
  • If reimbursing expenses from previous years, sufficient records must be maintained to prove the expense was not previously reimbursed.
  • HSA dollars can be withdrawn for any non-qualified expense prior to age 65, subject to a 10% penalty and regular income tax.
  • After age 65, withdrawals can be made to pay for any non-qualified expense, subject to regular income tax

Tax Saving example:

Tax Savings Example
Tax Treatment and Advantages for Employees/Accountholders

  • Contributions are either pre-tax through a cafeteria plan (via paycheck) or tax-deductible
  • Earnings
  • Interest and investment income are also tax-free or tax-deferred
  • HSAs grow in the same tax-deferred manner as IRAs
  • Distributions
  • Withdrawals for qualified medical expenses are always tax-free. After age 65, funds may be withdrawn for any reason without penalty, subject to regular income tax.

How do I set up a Health Saving Account?

Call Murray Insurance today at 1-800-388-9908 or contact us by email

Additional resources:

United States Department of Treasury/ HSA’s

Wikipedia

National Conference of State Legislatures

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