Health Savings Accounts
Health Savings Accounts (HSAs) are intended to help consumers control their health care expenses and save money tax-free. Health Savings Accounts are specifically designed to be used to pay for qualified medical expenses and are used concurrently with high deductible health insurance policies.
High Deductible Health Plans and Health Savings Accounts
Health Savings Accounts are only compatible with high deductible health plans. While a high deductible health plan might not sound like a great option, they actually offer lower monthly premiums and still provide the benefits you need.
In addition, funds in Health Savings Accounts can pay for qualified medical expenses.
Eligibility for Health Savings Accounts
If you are under 65 years of age and you purchase a qualifying high deductible health plan with an HSA deductible, you can open a Health Savings Account with a bank, credit union, or other federally-approved institution.
Your high deductible policy will qualify if it meets IRS requirements. During 2010 and 2011, your policy will qualify if it has an annual deductible of at least $1,200 for an individual or $2,400 for a family. Additionally, you can only qualify for an HSA if you are not enrolled in Medicare and as long as you are not claimed as a dependent on someone else’s tax return.
Qualified Expenses for Health Savings Accounts
The IRS determines what medical services are qualified expenses used by a Health Savings Account. There are many medical services that are qualified like ambulance services, crutches, acupuncture, eye glasses, and more. See other HSA qualified expenses.
If you use any of the money from a Health Savings Account for non-qualifying purposes, the amount is subject to income tax as well as a 10 percent tax penalty. Note: This penalty will increase to 20% in 2011.
Money withdrawn from an HSA to pay for qualified medical expenses is tax free. Upon reaching the age of 65 the money in your HSA can be withdrawn for any reason without penalty. Distributions for other than qualified medical expenses will, however, be subject to regular income taxes.
Contributions to Health Savings Accounts
For an individual, the maximum amount of money you can contribute annually to your Health Savings Account for 2010 and 2011 is $3,050, and for families this amount is $6,150. If you are between 55 and 65 years of age, you can contribute an additional $1,000 every year as a form of catch-up.
The money you deposit into the account is tax-deferred, and any leftover money in the account can roll over year after year and earn interest. Aside from earning interest tax-free, another benefit of HSA accounts is that any money up to a certain amount that is deposited into the account is income tax-exempt.
Flexibility with Health Savings Accounts
One very beneficial aspect of Health Savings Accounts is that they are portable — even if you change jobs, become unemployed, move to another state, or change your medical coverage, you can keep your HSA.
Interested in opening a Health Savings Account? Find out more from our preferred health savings account provider — First Horizon Msaver.