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Up My HSA | Contribution Limits
What are they?
 HSAs
offer many benefits, but the most noticeable are the tax savings,
lower heath insurance premiums and a single deductible for an
entire family.
In the most generic terms, an HSA is an IRA with a kick –
namely, the ability to draw pre-tax dollars from your HSA to pay
for all qualifying medical expenses. Like an IRA, any money you
contribute to your HSA is “pre-tax” funds. Those funds
stay in your own personal account until withdrawn for either qualifying
medical expenses or as ordinary income once you’ve reached
the qualifying age of 59 ½. However, funds are not required
to be withdrawn at any certain age, and they can be used to fund
medical expenses during retirement with the same tax advantages.
HSA’s consist of two components:
- A high deductible health plan that must be labeled as an
HSA qualified plan.
- A separate savings account that is typically independent
of the Health plan, the account must be labeled as an HSA account.
To realize the tax benefits that HSA’s offer you must have
both components in place. For example, you are not eligible for
HSA tax savings without have a medical plan in place that is labeled
as an HSA qualified health plan.
Created by the Medicare bill in December 2003; an HSA allows
individuals to save for current and future qualified medical expenses
on a tax-free basis. However there are a few rules. See section
213(D) of the internal revenue code for complete details. Or view
the U.S. Treasury Department website at http://www.treas.gov/offices/public-affairs/hsa/
What are qualifying medical expenses?
Deductibles, prescription drugs, dental care, braces, crutches,
chiropractic, psychiatric care, vitamins (by prescription), oxygen
and related equipment, optical treatment including eyeglasses
and contacts, Lasic eye surgery and even some long term care and
COBRA premiums. The complete list of qualifying expenses can be
seen in IRS
Publication 502.
Benefits
Savings
HDHP (High Deductible Health Plans) typically cost less than a
low deductible plan while limiting your over-all out of pocket
expenses. This allows you to have your HDHP provide catastrophic
medical coverage, while allowing you to use the premium savings
to fund your HSA account.
Reduced Taxes
Any contributions made to an HSA, whether used in the year deposited
or not, reduce your taxable income by the amount of the contribution
for both federal & state taxes.
Build Tax-Favored Savings
HSA contributions grow in a pre-tax environment for as long as
you keep the money in the account. With your HSA, the money stays
in your account, growing year after year, either by accruing interest
or by being invested in mutual funds. See the section titled Set
up my HSA for your different investment options.
What Are The Rules?
Anyone can qualify for a HSA, and unlike Medical Savings Accounts
you DO NOT have to be self-employed. You must
however have a qualifying HDHP (High Deductible
Health Plan). HDHP are defined as having a minimum $1000 annual
deductible for individuals and a singe deductible of $2000 for
a family. Annual out-of-pocket expenses are not to exceed $5000
for an individual or $10,000 for a family.
Qualifying HDHP plans do not offer first dollar coverage such
as doctor office co-pays or prescription drug co-payments. However,
some qualifying HDHP do offer discount prescription drug programs.
Doctor office visits and prescription drugs are included benefits,
usually at 100%, once the deductible is met. Prior to the HDHP
deductible being met, you can pay for these expenses with funds
from your HSA.
To be eligible, you cannot be covered by another health plan
although there are certain exceptions, be enrolled in or eligible
for Medicare, or be claimed as a dependent on someone else’s
tax return. There are no income limits or minimum income requirements.
Anyone between the age of 55 and 65 is eligible for make-up contributions.
This page is for informational purposes only. INSURERS
OF IDAHO does not guarantee the accuracy of this information please
consult a tax advisor for complete details.
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