H.S.A. Frequently Asked Questions
What is an HSA?
A Health Savings Account (HSA) is a special account owned by an individual used to pay for current and future medical expenses. HSAs are used in conjunction with a “High Deductible Health Plan” (HDHP). A HDHP is an insurance that does not cover first dollar medical expenses except for preventive care. It can be an HMO, PPO or indemnity plan, as long as it meets the requirements.
Who can get an HSA?
Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You cannot be covered by another health insurance policy that is not a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long term care policies.
How much can I contribute annually to an HSA?
In 2009, you can contribute up to $3,000 to an HSA if you have self-only coverage or up to $5,950 for family coverage. If you're 55 or older, you can contribute an extra $1,000 in 2009.
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Can any high-deductible health insurance policy qualify for an HSA?
Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. In 2009, the deductible must be at least $1,150 for individuals or $2,300 for families and the annual out-of-pocket expenses cannot exceed $5,800 for an individual or $11,600 for a family, including the deductible and co-payments (but not premiums). Individuals can buy high-deductible policies on their own or through their employers.
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How and where can I open a health savings account?
It depends on if you're buying coverage on your own or getting it through your employer.
- On your own. Let us help you! CBC has experts that can identify the right HSA plan to fit your needs.
- Through your employer. If you get health insurance through your employer, you may have seen an HSA-eligible option during last year's open-enrollment period (generally in the fall). If not, talk to your benefits manager to see if HSAs will be on your health insurance menu. Choosing an HSA could knock down your share of premiums significantly, and some employers may choose to fund all or part of the HSA for you -- perhaps even adding a 401(k)-style match.
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Would I fund an HSA with pre- or post-tax dollars?
If your employer offers a high-deductible health insurance policy, you may be able to make pre-tax contributions, like you would with a flexible-spending account. If you open the HSA on your own, your contributions will be deductable when you file your taxes, even if you don't itemize. You can now deduct your contributions up to the $3,000/$5,950 limit -- plus an extra $1000 if 55 or older -- regardless of the size of the deductible.
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Do the tax benefits phase out at certain income levels?
Unlike many other tax breaks, there aren't any income limits. Anyone under age 65 who buys a qualified high-deductible policy can open an HSA.
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What's the difference between the new HSAs and the flexible-spending accounts? It seems they are for the same purpose.
The tax benefits of both plans are quite similar, but there are several differences. The biggest and most important difference is that your HSA balances can roll over from year to year and continue to grow tax-deferred.
Money in your flex plan must be spent by the end of the plan year or you lose it. That may sound like a big negative, but flex plans can save you a lot of money even if you don't spend every nickel. Also, you can open a flexible-spending account only if the plan is offered by your employer, and you don't need to have a high-deductible health insurance policy.
Legislation passed by Congress December 9, 2006, will let you make a one-time transfer of funds tax-free from a flexible-spending account to an HSA. Changes to the law also will allow individuals to make a one-time, tax-free direct transfer of funds from an IRA to an HSA (up to the HSA annual contribution limit).
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If my employer offers both, can I fund my flexible spending plan, too?
No. You cannot have an HSA if you use a flexible-spending account to pay health-care costs or if you have other medical coverage (say, through a spouse's policy). However, if your flex plan restricts reimbursements to wellness care (such as annual physicals) and vision and dental care, you can have an HSA, too.
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If I set up an HSA through my employer, what happens if I switch jobs?
You can keep the money in an HSA account even after you leave that job, similar to a 401(k). But you will get stuck with a 10% penalty -- plus an income-tax bill -- if you use any of the money for nonmedical expenses before age 65.
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What happens if I want to withdraw the money for nonmedical expenses after age 65?
You won't be hit with the 10% penalty if you use the money for nonmedical expenses after age 65, but you would still have to pay income taxes on the money. Keep in mind that you can continue to withdraw money from the account tax-free for qualified medical expenses after age 65.
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Can a couple who is planning to retire early open an HSA?
Sure. Anyone under age 65 can contribute to an HSA if he or she buys a high-deductible health insurance policy, and you can contribute an extra $1000 in 2009 if you are 55 or older. You can't make new HSA contributions after age 65, but you can still use the money in your account tax-free for medical expenses at any age. You'll owe income taxes on the money -- but no penalty -- if you withdraw the money for nonmedical expenses after age 65.
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Do contributions to an HSA in any way affect one's ability to contribute to an individual retirement account?
No. Your HSA contributions won't affect your IRA limits -- $5,000 per year or $6,000 for those over 50. It's just another tax-deferred way to save for retirement.
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