What exactly is a Health Savings Account (HSA)?
Health Savings Accounts (HSAs) are tax-exempt accounts where funds grow to pay for medical expenses they were created to help give control back to consumers and lower healthcare costs. HSAs provide a financial incentive for consumers to select a High Deductible Health Plan (HDHP), HDHPs have lower monthly premiums than traditional plans The HSA/HDHP combination provides consumers with more incentive to shop carefully for healthcare services.
Who Can Have an HSA?
Any adult can contribute to an HSA if they:
- Have coverage under an HSA-qualified “High Deductible Health Plan” (HDHP).
- Have no other first-dollar medical coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted).
- Are not enrolled in Medicare
- Cannot be claimed as a dependent on someone else’s tax return.
High Deductible Health Plans
In order open an HSA, you must have a qualified High Deductible Health Plan. The IRS determines the guidelines for qualified HDHPs.
2016 offers individuals and families additional opportunities to save for current and future health care with a Health Savings Account (HSA):
- HSA holders can choose to save up to $3,350 for an individual and $6,750 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,350 for an individual and $7,750 for a family) – and these contributions are 100% tax deductible from gross income.
- Minimum annual deductibles are $1,300 for self-only coverage or $2,600 for family coverage.
- Annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) cannot exceed $6,550 for self-only coverage and $13,100 for family coverage.
Here are some key points about contributions:
- Contributions cannot exceed your HDHP deductible or the IRS Contribution Limit, whichever is lower.
- Contribution limits are prorated based on the start date of your HDHP.
- Anyone can make a contribution to your HSA.
- Your contributions are tax deductible.
- If your employer contributes to your HSA, that contribution is done on a pre-tax basis
- Any pay-roll deductions through Section 125 for your HSA are also on a pre-tax basis
Here are some key points about distributions:
- You can use your money tax-free at any time for eligible medical expenses.
- When you turn 65, you can use the money for non-eligible medical expenses. The money is subject to income tax, and there are no IRS penalties.
- If you are under age 65 and use your money for non-eligible medical expenses, you will be subject to income tax and a 20% tax penalty.