About three years have gone by since health
savings accounts (HSAs) first became available,
and an estimated 4.5 million Americans have
opened them. But to many people, HSAs remain
something of a mystery. Sometimes described as a
401(k) for medical expenses, an HSA is a
tax-favored account that can be used to pay
out-of-pocket medical
expenses.
Required
coverage.
To be eligible for
tax-favored contributions to an HSA, an
individual has to be covered under a “high
deductible health plan” (HDHP) and generally
can’t have other health coverage. For 2008, the
plan’s deductible must be at least $1,100
(self-only coverage) or $2,200 (family
coverage). But the annual deductible plus any
other out-of-pocket expenses payable under the
plan (not including premiums) cannot exceed
$5,600 (self-only coverage) or $11,200 (family
coverage).
HSA Insider
offers an
Insurance Quote feature that will list
Insurance Agencies that provide HDHPs that meet
the qualifications for HSA Accounts.
Contributions.
Within limits, HSA
contributions are tax deductible. Alternatively,
if the HSA is offered through an employer’s
cafeteria plan, the plan can allow employees to
make paycheck contributions on a pretax basis.
In 2008, a maximum
contribution of $2,900 is generally allowed
($5,800 for those with family coverage).
Individuals age 55 and older can make additional
catch-up contributions. The 2008 catch-up limit
is $900.
Earnings.
All earnings on HSA
investments accumulate on a tax-deferred basis.
HSA Administrators.
There are several HSA Administrators to choose
from, each having their own features that they
offer.
Fifth Third Bank, US Bank and others offer HSA
Visa debit cards for participants to use when
making withdrawals.
A
list of HSA Administrators is available on
the HSA
Insider website.
Withdrawals.
HSA withdrawals used
to pay qualified medical expenses are free of
federal income tax. Withdrawals not used for
qualified expenses are taxable. A 10% penalty
will also apply to nonqualified withdrawals
unless they are made after the account
beneficiary’s disability or death or after the
beneficiary has reached the age for Medicare
coverage.
