1. What is a HSA?
A HSA is a savings product that allows individuals to pay for current and future
qualified medical expenses on a tax-free basis.
2. What are the tax advantages of a HSA?
There are several main tax advantages in connection with having a HSA:
- Ownership. Unused funds in your HSA roll over from year to year.
There is no “use it or lose it” requirement.
- Tax Savings. Tax deductions for your contributions; tax-free earnings
through the investment, and tax-free withdrawals for qualified medical expenses.
- Flexibility. You can use the funds in your account to pay for current
qualified medical expenses that your insurance may not cover, save the money for
future medical expenses, pay health insurance or medical expenses if unemployed,
pay medical expenses after retirement (before Medicare) or long term care expenses.
- Affordability. You may be able to lower your health insurance premiums
by switching to higher deductible coverage.
- Security. Your high deductible insurance and HSA protect you against
high or unexpected bills.
- Control. You determine all the decisions regarding how much you
put into the account, whether to save the funds in the account for future expenses
or pay current medical expenses; which medical expenses to pay for with the account,
and which bank will hold the account.
- Portability. You own your HSA even if you change jobs, change your
medical coverage, become unemployed or retire.
3. How can I open a HSA?
Consumers can sign up for HSAs with banks and an employer may also set up a plan
for employees, in which case, the employer will generally arrange the HSA for the
5. What is a High Deductible Health Plan (HDHP)?
A HDHP is a health insurance plan with lower premiums and higher deductibles than a traditional health plan. In order to qualify for a HSA covering tax year 2014,
your minimum deductible must be at least $1,250 for self-only coverage or $2,500 for family coverage. The annual “out-of-pocket” expenses (including deductibles and co-pays)
for 2014 cannot exceed $6,350 for self-only coverage or $12,700 for family coverage. These minimum deductibles and maximum out-of-pocket amounts are subject to change annually by the IRS.
6. Does the HDHP policy have to be in my name to open a HSA?
No. The policy does not have to be in your name. As long as you have coverage under
the HDHP policy, you can be eligible for a HSA as long as you meet the other eligibility
requirements for contributions to a HSA. You can still be eligible for a HSA even
if the policy is in your spouse’s name.
7. Can couples establish a “joint” HSA and both make contributions to the account,
including “catch-up” contributions? Must couples open separate acounts?
“Joint” HSAs are not permitted. Each spouse should consider establishing an account
in their own name. This allows both individuals to make catch-up contributions to
the account when each spouse is 55 or older. If both husband and wife are eligible
to contribute to a HSA, they are both eligible to establish separate HSAs. However,
if both spouses want to make “catch-up” contributions when they are age 55 or older,
they must establish separate accounts.
8. Does my contribution depend on when I establish my HSA or when my HDHP coverage
Your eligibility to contribute to a HSA is determined by the effective date of your HDHP coverage.
If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). If you are covered on December 1, you are treated as an eligible individual for the entire year.
9. How much can I contribute to my HSA each year?
The table below outlines the amounts that may be contributed for 2014:
|Health Savings Accounts
||Total Contribution Limit if Age 55 or Older for 2014
|Minimum Annual Deductable
|Out-of-Pocket Expense Cap
under Health Savings Account for more information
10. Who can make contributions to my HSA?
Contributions to HSAs can be made by the employer, the individual or both. If contributions
are made by the individual, it is an “above-the-line” deduction. If contributions
are made by the employer, it is not taxable to the employee (meaning that it is
excluded from income). Contributions can also be made by others on behalf of an
eligible individual and deducted by the individual. Please note that if contributions
come from more than one source, they are aggregated.
11. Do my HSA contributions have to be made in equal amounts each month?
No. You can contribute in a lump sum or in any amount or frequency; however, your
bank may impose minimum deposit and balance requirements.
12. Are there deadlines for making HSA contributions?
HSA contributions must be made for a specific year on or before the due date (without extensions) for filing tax returns for that same year. For example, for 2014, contributions must be made on or before April 15, 2015.
13. What happens if I contribute more to my HSA than the maximum allowable amount?
Contributions made by an individual to a HSA are not deductible to the extent that
they exceed the maximum limits. Excess contributions by an employer generate taxable
income to the employee. In addition, a 6% excise tax is imposed on the excess funds.
The excise tax and any net income attributable to excess contributions are avoided
if the excess contributions are paid to the HSA owner prior to the federal income
tax deadline for the year at issue.
14. Will my bank notify me if I’ve exceeded my allowable contribution amount?
No. It is your sole responsibility to keep track of the amounts deposited and spent
from your account, just like a normal savings or checking account.
15. What can distributions from the HSA be used for?
Distributions can be used for either qualified medical or other expenses. If the
amount distributed is used for qualified medical expenses, then the distribution
is tax free. A description of qualified HSA expenditures can be found in IRS Publication
502 and is located at the following website:
Publication 502 provides a list of examples, but it is not the definitive list.
If the amount distributed is used for expenses other than qualified medical expenses,
the amount distributed will be taxed and for individuals who are not disabled or
over age 65, subject to a 10% tax penalty.
16. What if I made a distribution for something I thought was a qualified medical
For withdrawals that were made for something you thought were qualified medical
expenses, but are not qualified medical expenditures, the distribution can be returned
to the HSA if there is clear and convincing evidence that the expenditure was a
mistake of fact. Such repayment to the HSA must be made on or before April 15th
of the year following when the individual knew, or should have known, the expenditure
was a mistake.
17. Who will be the “bookkeeper” for my HSA?
It is your responsibility to keep track of your deposits and expenditures along
with medical receipts. If you run out of HSA funds (and therefore need to use your
HDHP), you may need to send those receipts to your insurer.
18. Can I borrow against the money in my HSA?
No. You may not borrow against it or pledge the funds in it. For more information
on prohibitive activities, see Section 4975 of the Internal Revenue Code.
19. What happens to the money in my HSA after I turn 65?
You can continue your account tax free for out-of-pocket expenses. When you enroll
in Medicare, you can use your account to pay Medicare premiums, deductibles, copays
and coinsurance under any part of Medicare. If you have retiree health benefits
through your former employer, you can also use your account to pay for your share
of retiree medical insurance premiums. The one expense you cannot use your account
for is to purchase a Medicare supplemental insurance or “Medigap” policy.
Once you turn age 65, you can also use your account to pay for things other than
medical expenses. If used for other expenses, the amount withdrawn will be taxable
as income but will not be subject to any other penalties. Individuals under age
65 who use their accounts for non-medical expenses must pay income tax and a 10%
penalty on the amount withdrawn.
20. What happens to the money in my HSA when I die?
What happens will depend on how the HSA is designed. If your spouse is designated
as the beneficiary by you, your spouse becomes the owner of the HSA when you die.
If you provide that the HSA goes to your estate or other entity, the value of the
HSA at death is income to the estate or other entity.