A Health Savings Account (HSA) is an alternative to traditional Life Insurance that offers consumers a different way to pay for their health care. HSAs enable you to pay for current and future health expenses on a tax-free basis, while an attached high-deductible insurance policy protects you against catastrophic expenses.
Here are answers to some common questions concerning HSAs:
Can anyone open an HSA?
To be eligible for an HSA, you must be under 65 years old, and covered by a Qualified High-Deductible Health Policy (QHDHP).You are ineligible if covered by another Health insurance policy (except coverages such as Cancer, Dental, Disability, Long-Term Care or Vision insurance) that isn’t a qualified high-deductible plan.
Where can I open an HSA?
Accounts can be established with banks, credit unions, insurance companies, and other approved companies. Your employer might also set up a plan for its employees as well.
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What is a QHDHP?
To qualify the policy must meet current IRS requirements. For 2009 the requirements are as follows:
- The deductible must be at least $1,150 for individuals or $2,300 for families.
- The annual out-of-pocket expenses cannot be greater than $5,800 for an individual or $11,600 for a family. These figures include the deductible and any co-insurance, but not the premiums.
How much can I contribute to an HSA? What happens to unused funds at the end of the year?
Limits are updated annually by the IRS. For 2009, the contribution limits are $3,000 for singles and $5,950 for families. However, if you are 55 or older, you can contribute an extra $1,000.
The unused balance in an HSA rolls over automatically year after year. You won’t lose your money if you don’t spend it within the year.
How do I receive the tax benefits?
If you have an HSA through your employer, you might be able to make pre-tax payroll contributions. Otherwise, your contributions will be deductible when you file your taxes, even if you don’t itemize. Also, you are eligible to make a full contribution regardless of income unlike IRAs.