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FAQ: Health Savings Accounts (HSAs)

The most frequently asked questions about Health Savings Accounts.

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Q. What is an HSA?

A. An HSA is an account that you can put money into to save for future medical expenses. Created by the Medicare Act of 2003, these accounts allow individuals to make tax-deductible contributions for out-of-pocket medical expenses and invest their money in virtually any asset.

You may use the money in the account to pay for any “qualified medical expense” permitted under federal tax law (IRC Sec. 213). Eligible expenses include most medical care services, dental services and vision care. Also, over-the-counter drugs such as aspirin are covered.

Your HSA will cover eligible expenses for you and your entire family (spouse and dependent children) even if they are not covered by your high deductible health plan (HDHP). If you change jobs, your HSA goes with you. And, unlike your Flexible Spending Account (FSA), your money rolls over every year. There is no "use it or lose it" requirement.

An HSA, like an IRA, is a personal account. You may save and invest your tax-deductible HSA contributions for retirement in a tax deferred account. Unlike an IRA, however, you may also choose to spend HSA money for eligible medical expenses.

What are the contribution limits for 2014?
The maximum amount that may be contributed to an HSA for 2014 is:

  • $3,300 for an individual;
  • $6,550 for a family

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Q. Who can have an HSA?

A. The following people may contribute to an HSA:

  • You must be covered by a high deductible health plan (HDHP).
  • You may not be covered by any other first-dollar medical insurance plan.
  • You may not be enrolled in Medicare.
  • You may not be claimed as a dependent on someone else’s tax return.

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Q. What are the benefits of having an HSA?

A. Current Income Tax Savings and Tax Free Growth
You may contribute money to your account on a tax-deductible basis for future medical expenses and your account will grow tax free. If you do not use your money for eligible medical expenses, you will be required to pay taxes.

Flexibility
You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs such as:

  • Health insurance or medical expenses if unemployed
  • Medical expenses after retirement (before Medicare)
  • Out-of-pocket expenses when covered by Medicare
  • Long-term care insurance and associated expenses

Control
You make all the decisions about:
How much money to put into the account
Whether to save the account for future expenses or pay current medical expenses
Which medical expenses to pay from the account
Whether to invest any of the money in the account and which investments to make

Portability
Accounts are completely portable, meaning you can keep your HSA even if you:

  • Change jobs
  • Change your medical coverage
  • Become unemployed
  • Move to another state
  • Change your marital status

Affordability
High Deductible Health Plans tend to cost less than traditional HMOs and first dollar insurance plans. Because the premium cost is less, you may have extra money to save in your HSA plan for the future.

Long-Term Security in Retirement
The Plan allows you to spend money from your account on eligible medical expenses. Having such an account at retirement will certainly provide advantages to those people who are drawing retirement only from pensions and 401(k) plans. If you don’t have medical expenses in retirement, you may always use the money from your HSA plan as a supplemental source of income. You will pay taxes on the dollars you draw for income purposes.
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