Health Savings Account (HSA)
The Health Savings Account was created to help individuals save for qualified medical and retirement expenses on a tax-free basis.
- Individuals under the age of 65 are eligible to contribute to an HSA if they have a qualified health plan.
- For self-only policies, a qualified health plan must have a minimum deductible of $1,000 with a $5,000 cap on out-of-pocket expenses (indexed annually)
- For family policies, a qualified health plan must have a minimum deductible of $2,000 with a $10,000 cap on out-of-pocket expenses (indexed annually).
Contributions are allowed upto 100% of the health plan deductible. The maximum annual contribution for 2005 is $2,650 for self-only policies and $5,250 for family policies (indexed annually).
Individuals age 55 — 65 may make additional catch- up” contributions of up to $600 in 2005, increasing to $1 000 annually in 2009 and thereafter. A married couple can make two catch- up contributions as long as both spouses are at least 55. Catch-up contributions will help individuals accumulate assets for retirement health expenses.
Contributions may be made by individuals, family members and employers. Contributions are limited to 1/12th the annual limit for each month the participant is, or plans to be, covered by the QHDHP.
Contributions made by individuals and family members are tax-deductible (for the account beneficiary) even if the account beneficiary does not itemize.
Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers will be allowed to offer HSAs through a cafeteria plan.lnvestment earnings accumulate tax-free
Contribution deadline is April 15 of the year following the contribution year. I.E., for 2004 contributions, the deadline is April 15th, 2005.
HSA distributions are tax- free if they are used to pay for qualified medical expenses, such as:
- Amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease
- Qualified long-term care services and long-term care insurance
- Continuation coverage required by Federal law (i.e., COBRA)
- Health insurance for the unemployed
- Medicare expenses (but not Medigap)
- Retiree health expenses for individuals age 65 and older (Note: retiree health plans would not have to meet the $1 ,000/$2,000 minimum deductible requirements.)
Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty is waived in the case of death or disability. The 10% penalty is also waived for distributions made by individuals age 65 and older.
Treatment Upon Death
Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
Eligible Medical Expenses (pdf)
HSA Tax FREE Solutions (pdf)
Ready to apply online?
Call Lawrence Kohlman
HSA Tax Benefits Specialist