Health Savings Accounts
- What is a Health Savings Account?
- Am I eligible for an HSA?
- What is a High-Deductible Health Plan (HDHP)?
- What is the maximum amount I can contribute annually?
- What are the tax and rollover benefits of an HSA?
- What are qualified medical expenses?
What is a Health Savings Account?
A Health Savings Account (HSA) is a special, tax-advantaged account that is used with a high deductible health plan (HDHP), and allows you to pay for qualified medical expenses. You contribute money to your HSA, where it earns interest tax-free. Funds are not taxed when withdrawn to pay for qualified medical expenses.
- Must first be covered by an HDHP,
- Cannot have other health insurance coverage, such as a spouse's plan, that is not an HDHP,
- Cannot be claimed as a dependent on another person's tax return, and
- Cannot open a new HSA or contribute to an existing HSA once you're eligible for Medicare.
Federal regulation details the HDHP limits each year. For 2014, the minimum deductible amount for an HDHP is $1,250 for self-only coverage, and $2,500 for family coverage.
What are the tax and rollover benefits of an HSA?
The money you contribute to your HSA is tax-dedutible and can be used to pay for qualified medical expenses for not only yourself, but also for your spouse and tax dependents. You can maximize your tax savings by contributing up to the maximum annual amount allowed by the IRS. Your HSA balance plus earnings carry over from year to year- tax free. States taxes may still apply.
All unused funds in your HSA carry over into the next year and continue to accrue interest.The HSA belongs to you as an individual. Unlike other programs such as a Flexible Spending Account, you do not lose the balance in your HSA at the end of the year.
What are qualified medical expenses?
Qualified medical expenses include covered expenses that apply toward your high deductible health plan (HDHP) annual deductible. In addition, you can pay for qualified medical expenses that your health plan might not cover, such as vision care (eyeglasses and contact lenses), dental and orthodontic services, and even long-term care insurance. To be more specific, "qualified medical expenses" are the fees you pay for the diagnosis, care, mitigation, treatment or prevention of disease or illness. Examples include:
- Prescription drugs
- Eye exams, eyeglasses, contact lenses, and solutions
- Orthodontia, dental cleanings and fillings
- Laser eye surgery
- Hearing aids
- Diabetic supplies
- Physical therapy, speech therapy, and chiropractic expenses
- Specialized equipment and devices for disabled persons
- Transportation expenses related to medical care
- Weight reduction programs for physician- diagnosed obesity
Remember, you must comply with HSA spending regulations. You can find detailed information about qualified medical expenses in Section 213(d) of the Internal Revenue Code and IRS Publication 502.