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Health Savings Account Guidelines
A Health Savings Account (HSA) can be established in conjuction with a qualified High Deductible Health Plan (HDHP) to help individuals save for qualified medical and retiree health expenses on a taxfree basis.
To be eligible to make deposits to an HSA an individual:
- Must be currently enrolled in an HSA-qualified health plan
- May not be enrolled in any other non-HSA qualified health insurance plan*
- May not have, or be eligible to use, a general purpose flexible spending account (FSA)**
- Cannot be claimed as a dependent on another person’s tax return
- May not be enrolled in Medicare, Medicaid or Tricare
- Must not have used VA benefits for anything other than preventative services in the past three months
**Limited purpose flexible spending accounts are allowed for Vision, Dental, or Dependent Care.
Your insurance professional will help you determine whether your health insurance plan is an HSA qualified plan. The following are the minimum deductibles and maximum out of pocket amounts for High Deductible Health Plans for 2013 and 2014. The amounts are indexed annually.
Contributions are allowed up to the maximum statutory limit and are indexed annually. The following are the maximum annual HSA contribution limits for 2013 and 2014:
These limits apply even for participants entering the plan mid-year*. Prior year contributions may be made through April 15th of the following year.
An individual age 55 and over may make an additional “catch-up” contribution. A married couple can make two catch-up contributions as long as both spouses are eligible and at least 55 years of age. The catch-up contribution for the spouse must be placed in a separate HSA in their name.
Individuals, family members, and employers may make contributions. Contributions from all sources must not exceed that person’s contribution limit for that calendar year. Contributions made by individuals and family members are tax deductible for the account owner even if the account owner does not itemize. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers are allowed to offer HSAs through a cafeteria plan.
Individuals are allowed to make a one-time contribution to an HSA from an IRA or Roth IRA, tax-free. The amount transferred counts as part of that individual’s maximum contribution limit for that calendar year. Both accounts must be in the same person’s name. The transferred amount may be subject to an IRS testing period if the individual does not remain an eligible individual from the month the contribution is made through the last day of the 12th month following that month.
Investment earnings accrue tax-free.*If you make the full-year contribution for a year in which your HDHP takes effect later than January 1st, you may be subject to an IRS Testing Period and could owe tax and a penalty on part of that contribution if you do not remain an eligible individual through December 31st the following year. You may also need to pro-rate your contribution if you drop or reduce the level of your coverage mid-year.
HSA distributions are tax-free if they are used to pay for qualified medical expenses, such as:
- Qualified long-term care services and long-term care insurance
- Continuation of coverage required by Federal law (i.e., COBRA)
- Health insurance for the unemployed
- Medicare expenses (but not Medigap)
- Retiree health expenses for individuals age 65 and over
- Distributions made for any other purpose are subject to income tax and a 20% penalty. The 20% penalty is waived in the case of death or disability. The 20% penalty is also waived for distributions made by individuals age 65 and over.
Treatment at Death
Upon death, HSA ownership may transfer to the spouse on a tax-free basis, or to another named beneficiary as estate income.
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