FAQs

Health Savings Accounts

Q: What are Health Savings Accounts (HSAs)?

A: An HSA is a tax-advantaged medical savings account that allows you to accumulate savings to pay for current and future qualified medical expenses. The account must be used in conjunction with an HSA-qualified High Deductible Health Plan (HDHP), and you cannot be enrolled in Medicare or eligible to be claimed as a dependent on someone else's tax return. You 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). Please confirm with your health insurance company that you have a HSA-qualified HDHP.

Q: What is a High Deductible Health Plan (HDHP)?

A: A high deductible health plan is a health insurance plan with a minimum deductible of $1,200 (self) or $2,400 (family) for 2011 & 2012. In addition, the annual out-of-pocket costs, including deductibles and co-pays, cannot exceed $5,950 (self) for 2011 & $6,050 for 2012 or $11,900 (family) for 2011 & $12,100 for 2012. The limits may be adjusted annually to allow for cost-of-living adjustments. Confirm with your Health Insurance Provider that you have a HSA-Qualified HDHP.

Q: What expenses are qualified medical expenses?

A: These expenses are defined under Section 213 of the IRS Code. See IRS Publication 502: Medical and Dental Expenses. To order IRS Publication 502, call 800-TAX-FORM (800-829-3676) or www.irs.gov.

Q: What are the tax advantages of an HSA?

A: Potential triple tax savings may include:

• Tax deductions when you contribute to your account (check with tax advisor for qualified federal & state tax deductibility).
• Tax free earnings.
• Tax free withdrawals for qualified medical expenses.

Q: What are the contribution rules?

A: The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you became an eligible individual, and the date you cease to be an eligible individual. You may contribute up to $3,050 for 2011 & $3,100 for 2012 if you have self-only HDHP or $6,150 for 2011 & $6,250 for 2012 if you have family HDHP. Similar to an IRA, contributions can be made until tax filing deadline, normally is April 15 of the following year. The limits may be adjusted annually to allow for cost-of-living adjustments.

Individuals age 55 and older can make additional catch-up contributions. The maximum annual catch-up contributions are $1,000. A married couple can make $1000 (2011 & 2012) catch-up contributions into their own HSA as long as both spouses are at least 55 years old and meet eligibility requirements to contribute.

Q: My employer offers an FSA, can I have both an FSA and an HSA?

A: You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a "limited purpose" (limited to dental, vision or preventive care) or "post-deductible" (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

Q: How do distributions work?

A: Distributions from an HSA are tax free if taken for a qualified medical expense permitted under federal tax law, including:

• COBRA continuation coverage.
• Health plan coverage while receiving federal or state unemployment benefits.
• Qualified long-term care insurance premiums.
• Medicare premiums.

The distribution is also tax free if taken for the person covered by the high deductible health plan (HDHP), the spouse of the individual and any dependent of the individual. Spouse and dependents do not need to be covered by the HDHP.

If the distribution is not used for a qualified expense, then the amount is included in income along with an additional 20% tax penalty. The 20% tax penalty does not apply if taken due to reaching age 65, death or disability of the individual, or if the individual enrolls in Medicare.

The account holder is encouraged to keep his/her receipts in the event they may someday be asked to prove to the IRS that the distributions were for medical expenses.

Q: What happens to the HSA in the event of death?

A: If your spouse becomes the owner of the account, your spouse can use it as if it were their own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).

The information above is not intended and should not be construed as legal, tax or investment advice. For such advice, including advice on how this information applies to your individual circumstances please contact your attorney, tax advisor or other appropriate professional.

More information provided in Publication 969 at www.irs.gov.

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