Health Savings Accounts (HSA) essentially are a savings account that is available to US citizens to cover medical expenses. With this health insurance alternative the funds added to the account are not subject to federal income tax at the time of deposit nor is the interest earned. Here are some HSA facts and information.
People under the age of 65 that are enrolled in a qualifying High Deductible Health Plan (HDHP) can open an HSA. You may not be covered by another policy that isn’t a qualified high deductible health plan but other disability, dental, vision and long-term care is allowable.
A high deductible health plan is one that meets the following criteria as of the 2008 tax year:
1. Minimum deductible for a single person $1100
2. Minimum deductible for a family $2200
3. Max out of pocket expenses for a single person $5600
4. Max out of pocket expenses for a family $11200
If you meet the above requirements, you can open a health savings account at any time. The maximum amount you may deposit for the 2007 tax year is $2850 for an individual and $5650 for a family. All deposited funds are the property of the policyholder. Deposits also may be made through an employer (who could match) payroll deduction or by any individual. For taxpayers age 55 or over, an additional $800 may be deposited.
These funds may be withdrawn penalty free for qualified medical expenses incurred after the HDHP deductible is met. Unlike a Flexible Spending Account or similar any funds not withdrawn or used within the year is carried over to the next year. If you are young and in reasonably good health in a few years you could realize a sizable amount of money in a Health Savings Account. How much will depend on if your employer makes deposits, your age and of course your health. One good benefit of a HSA plan is their portability, when you leave your current employment you can keep your plan and same health savings account provider. Basically, tax free, you can build up a fund for your retirement medical expenses.
Qualified withdrawals include coinsurance and deductibles as well as other expenses not covered by standard medical insurance like dental, vision, durable medical equipment and chiropractic costs. You can even withdraw money form an HSA plan even if you don’t use it for medical expenses. If you’re under the age of fifty five, there is a ten percent penalty and ordinary income tax; at age sixty five and older all you would pay is ordinary income tax.
If you are opening an account on your own, you can find a list of providers offering Health Savings Account plans online. Policies in most states can be compared conveniently and quickly at the many reputable sites online. Alternatively, you could find a local agent who knows what is available in your area.
Whatever you do, be sure you do the homework and know what you are doing. Keep the documentation of expenses paid for through withdrawals from the account. Bottom line is that the IRS is watching. Also consider contacting a financial expert or insurance agent if you need more HSA – Health Savings Account information, it can’t hurt and may help.