Health Savings Accounts (HSA) provide a tax-free incentive for employers and individuals to save for medical, dental and vision expenses. A HSA works like a traditional deductible IRA with pre-tax contributions and tax deferred growth. A major difference and benefit is withdrawals for qualified health-related expenses are tax free!
Anyone under age 65 who is enrolled in a ‘qualified high deductible’ health plan is eligible for an HSA. The concept is to ‘self insure’ for small expenses with the savings from a lower cost, higher deductible health policy. HSAs are not always cost effective for anyone with high ongoing medical costs.
There are two parts to a HSA; the high deductible insurance policy and the funding account. Each part has criteria which must be met in order to qualify. The requirements will change each year and for 2016 are as follows:
|Maximum Out of Pocket Amount. (In-network)||$6,550||$12,800|
â–º Tax-deductible contributions are allowed up to the maximum limit, regardless of
which deductible is selected.
â–º Contributions may be made either by the individual or by an employer.
â–º Minimum contributions are generally $25 per month.
â–º Individuals over age 55 can make an additional annual $1,000 contribution.
â–º HSA funds are not subject to ‘use it or lose it’ penalty. You control the account.
â–º Non-qualified withdrawals are subject to a 10% penalty plus ordinary income tax.
â–º Non-qualified withdrawals after age 65 are only subject to ordinary income tax.
â–º Qualified expenses (IRS Section 213d) include doctors, drug (prescription only),
dental & vision care and long-term care insurance premiums.