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Considering a Health Savings Account? (HSA)

What is a Health Savings Account?

A Health Savings Account, or HSA, is a tax-exempt trust or custodial account set up with a qualified HSA trustee to pay or reimburse you for qualified medical expenses on a tax-free basis. Various programs, such as HSAs, are designed to give individuals tax advantages to offset health care costs.

A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for people to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

What insurance plans are HSA-compatible?

In order to have a Health Savings Account, you must get an HSA-compatible health insurance plan. This type of insurance plan is often referred to as a High Deductible Health Plan, and typically has lower premiums than plans with lower deductibles.
 
A health insurance plan must meet the following criteria to be considered HSA-compatible:

  • The health insurance plan must have an annual deductible of at least $1,200 for individuals and at least $2,400 for families.
  • The sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than premiums) does not exceed $5,950 for individuals and $11,900 for families.

Who is Eligible?

  • Individuals covered by an HSA-Compatible Health Plan AND
  • Not be covered by any other non HSA-compatible health plan
  • Not be claimed as a dependent on another person’s tax return (*excluding spouses per IRS)
  • Not enrolled in Medicare

Advantages of an HSA

  • Funds roll over from year to year - No “use it or lose it” provision
  • Tax benefits on contributions, earning, and distributions
    • Contributions are either pre-tax (via paycheck) or tax deductible
  • Portability
    • Funds follow you
    • Tax-free withdrawals for Qualified Medical Expenses even if qualifying coverage ends
  • Long-term investment opportunities (*Not FDIC Insured)
  • Control over healthcare dollars

Eligible Medical Expenses

HSA’s can be used to pay for a wide range of eligible medical expenses for you and your family. Funds used to pay for eligible medical expenses are always tax-free and you can continue to use your HSA funds even if you are no longer covered by a HSA-compatible plan.

  • Doctor & Hospital Visits
  • Medical Equipment
  • Dental Care including braces & dentures
  • Vision Care including glasses & contacts
  • Prescription Meds
  • Long Term Care Premiums
  • COBRA Premiums
  • Insurance Premiums while receiving Unemployment Compensation
  • Premiums for individuals over age 65

*To see a full list of Qualified Medical Expenses, please visit: http://www.irs.gov/publications/p502/

IRS Limits and Guidelines

Each year, the IRS establishes guidelines for HSAs and qualified high deductible health plans (HDHPs) based on individual and family coverage:

Maximum contribution limit represents the maximum amount of tax-free savings you can contribute to your HSA each year. If you exceed this amount, you have until the tax-filing deadline to remove excess funds by submitting Excess Contribution Removal Form ($25 fee applies). If excess funds are not removed by the tax-filing deadline, you may be subject to tax penalties and/or IRS fees.

Catch-up contributions of an additional $1,000 can be made by accountholders who meet the qualifications noted below.

  • Health Savings accountholder
  • Age 55 or older (regardless of when in the year an accountholder turns 55)
  • Not enrolled in Medicare (if an accountholder enrolls in medicare mid-year, catch-up contributions should be prorated)

Minimum deductible is the deductible requirement for an HSA-compatible high-deductible health plan (HDHP).

Maximum out-of-pocket is the annual maximum amount of out-of-pocket expenses an HSA-compatible HDHP can require before paying out benefits.

2013 IRS Limits

  • Single Plan Family Plan
  • Maximum Contribution Limit $3,250 $6,450
  • Minimum Deductible $1,250 $2,500
  • MaximumOut-of-Pocket $6,250 $12,500
  • Catch-up Contribution (55+) $1,000 $1,000


2014 IRS Limits

  • Single Plan Family Plan
  • Maximum Contribution Limit $3,300 $6,550
  • Minimum Deductible $1,250 $2,500
  • MaximumOut-of-Pocket $6,350 $12,700
  • Catch-up Contribution (55+) $1,000 $1,000


Other important IRS guidelines include:

A one-time rollover from an IRA is allowed up to the annual IRS maximum amounts. Contact your tax advisor to discuss the benefits and tax reporting requirements.

Prorated HSA Contributions

If you do not have HSA-compatible health coverage for an entire calendar year, you must prorate your HSA contributions to avoid tax penalties.

Mid-year Coverage
If your HSA-compatible coverage begins in July, you can contribute the maximum amount for that year provided you maintain coverage until December 31st of the following year.

Health Plan Status Change
If you begin the year with family coverage and switch to single coverage in July of that year, you are eligible to contribute half of the family coverage contribution maximum and half of the individual coverage contribution maximum.