A Health Savings Account (HSA) is an account set up for the exclusive purpose of paying qualified medical expenses for you and your family. Any eligible individual may establish an HSA and can make fully deductible contributions, and take tax-free distributions for qualified medical expenses.

Eligibility for an HSA

An eligible individual is someone who is:

• Covered under a High-Deductible Health Plan (HDHP)* on the first day of the month for which a contribution is made,
• Not covered by another health plan that is not an HDHP,
• Not enrolled in Medicare, and
• Not eligible to be claimed as a dependent on another individual’s federal income tax return.

If you are unsure of your eligibility, consult with your tax professional for guidance.

*A HDHP is a plan with an annual deductible of at least $1,000 for individual coverage or $2,000 for family coverage. The HDHP must also limit out-of-pocket expenses.

Contribution Limits

The maximum annual contribution amount is the lesser of 100% of the annual deductible under the HDHP, subject to cost-of-living adjustments (COLAs) or the standard limit.

A “Catch-Up” contribution is available for eligible individuals who have attained age 55 by the end of their taxable year, but have not attained age 65.

Contributions

Contributions to an HSA are fully deductible, the earnings grow tax deferred, and distributions for qualified medical expenses are tax free. Consult with your tax professional for guidance.

If you meet the eligibility requirements for an HSA, you, your employer, or your family members may contribute to your HSA. Self-employed individuals can contribute to an HSA and are often ideal for candidates for an HSA.

Contributions made by you, or by family members on your behalf, are deductible by you when determining your adjusted gross income for your federal income tax return. Contributions made by an employer on your behalf are not included in your income, and are not deductible on your federal income tax return.

Distributions

Distributions from your HSA used to pay qualified medical expenses for you, your spouse, or your dependants are excluded from gross income. Any other distributions are included in your gross income and are subject to an additional 10% tax on that amount, except in the case of your death, disability, or attaining age 65.

HSA custodians/trustees are not required to determine whether HSA distributions are used for qualified medical expenses.

Qualified medical expenses may include:

• Actual medical expenses, including doctor visits, prescriptions, transportation to obtain medical care, and dental care,
• Qualified long-term care insurance,
• Healthcare coverage when employed,
• Qualified continuation-of-benefit health coverage, and
• Certain health insurance after age 65.

As with contributions, if you require assistance in determining your qualified medical expenses, consult with your tax professional. Upon death, any balance remaining in the HSA becomes the property of the individual named in the HSA agreement as the beneficiary of the account. If your spouse is the beneficiary of your HSA, the HSA becomes his/her HSA.

If your beneficiary is not your spouse, the HSA ceases to be an HSA as of the date of your death and will be included in the beneficiary’s gross income for the year of death.

To learn more about how to take advantage of our Health Savings Accounts, contact one of our knowledgeable Customer Service Representatives for additional details.