HSA FAQ:

What is an HSA and who is eligible?
An HSA is a health savings account. You are allowed to make contributions to an HSA if you are covered under a qualified High Deductible Health Plan, are not covered by another health plan that is non-qualified, are not enrolled in Medicare, and you cannot be claimed as a dependent on another person’s tax return. If you have received any health benefits from the Veterans Administration or one of their facilities, including prescription drugs, in the last three months, you are not eligible for an HSA.

What is a High Deductible Health Plan?
Only qualified high deductible health plans qualify you to open an HSA. For 2010, a high deductible health plan is defined as a having at least a $1,200 deductible for individual plans or a $2,400 deductible for family plans, with a maximum out of pocket of $5,950 for individuals and $11,900 for families.

Can I pay my health insurance premium out of my HSA?
No, you are not allowed to pay your health insurance premium out of your HSA.

My employer offers an FSA. Can I have both an FSA and an HSA?
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 “postdeductible” (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

Where can I establish an HSA?
Most banks and credit unions, including some online institutions, offer HSAs.

When should I establish an HSA?
You should establish an HSA as soon as you are eligible under your health insurance plan so that you can maxmize the contributions made by you and your employer.

How do I distribute funds from an HSA?
You are able to write checks from the account or you can use a debit card if your financial institution provides them. You are also allowed to add a cosigner, such as a spouse to your account.

Are there tax advantages to having an HSA?
Yes. Contributions to the HSA are 100% tax deductible up to annual limits defined by the IRS. The funds within the HSA grow on a tax deferred basis, and any funds used for qualified medical expenses are tax free. Once you turn 65, funds withdrawn for non-medical purposes are taxed as ordinary income.

Can I withdraw funds for non-medical purposes before I turn 65?
Yes, but there are financial consequences for doing so. Similar to an IRA, any funds that are withdrawn before age 65 for non-medical purposes are subject to a 10% penalty and income tax.

How is my HSA activity reported for tax purposes?
The financial institution acting as the custodian of your HSA reports contributions and distributions to the IRS. In addition to this, you must also file the IRS form 8889 with your income tax return to show your HSA activity. Your employer will have other reporting requirements as

What is the maximum that can be contributed annually to my HSA?
The maximum for 2010 is $3,050 for an individual or $6,150 for a family.

What are the catch-up contributions if I am over the age of 55?
If you are age 55 or older, you can contribute $1,000 for yourself, and $1,000 for your spouse for 2010 if your spouse is also 55 or older.

What happens if I contribute more than the IRS limit in one year?
Contributions in excess of the IRS limit are subject to tax penalties. It is important to ensure that the combination of your contributions and any employer contributions does not exceed the annual IRS limits.

Are contributions to my HSA made by an employer mine to keep?
Yes. Contributions made to your HSA by your employer are yours to keep even if you no longer work for that employer.

What types of expenses are considered qualified medical expenses for an HSA?
We recommend consulting the IRS guidelines for a description of qualified medical expenses. You will find that the IRS guidelines are less restrictive than what is covered by your health insurance plan. For instance, Lasik eye surgery and over-the-counter drugs, including aspirin, are qualified medical expenses. You can visit the IRS website at www.irs.gov.

Where can I find detailed information on HSAs?
Financial institutions that offer HSAs can give you more detailed information. We also suggest visiting the Treasury Department and IRS websites for more information. The Treasury Department’s website is www.treas.gov.