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Health Savings Accounts (HSA)

Health Savings Accounts (HSA) were an important provision in the 2003 act of Congress that extended prescription drug coverage to Medicare recipients. Here are the main provisions (consult with your tax advisor for applicability to you):

  • Individuals can contribute $2,600 annually. Families can contribute $5,150. These amounts will be indexed (increased) for inflation in future years.
  • Contributions made by individuals can be deducted from taxable income.
  • Contributions made by companies on behalf of employees are not taxable income.
  • Withdrawals do not trigger penalties or tax if they pay for qualified medical expenses (as defined by the law and subsequent U.S. Treasury regulations).
  • As with an IRA, investment income grows tax-deferred.
  • If you have an unspent balance at the end of the year, you keep that balance.
  • After age 65, you can withdraw funds in excess of what you need to pay for qualified medical expenses, but you must pay income tax on that excess.
  • You are eligible to open an HSA only if you have a qualified High Deductible Health Insurance Plan. In general, your minimum annual deductible must be $1,000. Curiously, you are not eligible if your total out of pocket expenses are not capped at $5,000 for an individual or $10,000 for a family.
  • You can have no other health coverage (with exceptions for injury, accident, disability, dental, vision or long term care plans), you cannot be eligible for Medicare and you cannot be eligible to be claimed as a dependent.

Other things to note:

  • Conflicts between state laws on health insurance and the federal legislation are being reconciled, so HSA accounts still may be difficult to find in you area.
  • Many insurers, fearing liability, will not certify whether or not they offer qualified High Deductible Insurance Plans. This prevents you from staying with one of these insurers and opening an HSA elsewhere, such as with a bank.
  • Some employers are planning to let their employees choose a combination of an HSA and a High Deductible Health Insurance Plan.

As a service to you, we are experimenting with providing additional product information:
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