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Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are like personal savings accounts, but the money in them is used strictly to pay for you and your family’s health care expenses. You — not your employer or insurance company — own and control the money in your HSA, which is held in a tax-exempt trust or custodial account set up with a qualified HSA trustee. The account is funded with pre-tax dollars and is not taxed upon withdrawal for qualified expenses. Both you and your employer can make contributions to your HSA. To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible health plan (HDHP). Your insurance agent or Hysjulien and Associates accountant can help determine if you are eligible to participate in an HSA.
Is an Health Savings Account (HSA) right for me?
Like any health care option, HSAs have advantages and disadvantages. As you weigh your options, think about your budget and what health care you’re likely to need in the next year.
If you’re generally healthy and want to save for future health care expenses, an HSA may be an attractive choice. Or if you’re near retirement, an HSA may make sense because the money in the HSA can be used to offset costs of medical care after retirement. On the other hand, if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option.
Qualifying for an HSA
To be an eligible individual and qualify for an HSA, you must meet the following requirements:
• You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
• With certain exceptions, you must have no other health coverage
• You are not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else’s 2014 tax return.

Benefits of an HSA
• You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
• Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
• The contributions remain in your account until you use them.
• The interest or other earnings on the assets in the account are tax free.
• Distributions may be tax free if you pay qualified medical expenses.
• An HSA is “portable.” It stays with you if you change employers or leave the work force.
What are some potential disadvantages to health savings accounts?
• Illness can be unpredictable, making it hard to accurately budget for health care expenses.
• Information about the cost and quality of medical care can be difficult to find.
• Some people find it challenging to set aside money to put into their HSAs. People who are older and sicker may not be able to save as much as younger, healthier people.
• Pressure to save the money in your HSA might lead you to not seek medical care when you need it.
• If you take money out of your HSA for nonmedical expenses, you’ll have to pay taxes on it.
Who can set up an HSA?
Your employer may offer an HSA option or you can start an account on your own through a bank or other financial institution. To qualify, you must be under age 65 and carry a high-deductible health insurance plan (HDHP). If you have a spouse who uses your insurance as secondary coverage, he or she also must be enrolled in a high-deductible plan (HDHP).
This high-deductible health plan (HDHP) must be your only health insurance — you can’t be covered by any other health insurance. However, having dental, vision, disability and long-term care insurance doesn’t disqualify you from having an HSA.

Minimum Annual Deductible And Maximum Annual Deductible And Other Out-Of-Pocket Expenses For HDHPs For 2015.

 Self-only CoverageFamily Coverage
Minimum annual deductible$1,300 $2,600
Maximum annual deductible and other out-of-pocket expenses$6,450$12,900

How much money can I deposit annually into an HSA?
The Internal Revenue Service sets the contribution limits for HSAs. For 2014, the limits are $3,300 for individuals and $6,550 for family coverage. For 2015, the limits are $3,350 for individuals and $6,650 for family coverage. In addition, If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000!
How do I use pretax money to fund an HSA?
If your employer offers a high-deductible insurance plan, you may be able to deposit money into an HSA on a pretax basis. If you open an HSA on your own, you can deduct your deposits when you file your income taxes.
Can my employer also contribute to my HSA?
Yes, your employer can contribute to your HSA. But the total of your employer’s contribution plus your contribution still must be within the contribution limits.
Are HSAs similar to Flexible Spending Accounts?
Yes, but there are a couple of key differences. One difference is the ability to roll over unspent money each year. You can’t do that with a flexible spending account (FSA).
Another difference is that the money you put into an HSA is yours and you can take it with you if you switch jobs or retire. You can’t take money from an employer-sponsored FSA with you if you quit or change jobs. Finally, it’s important to know that in most cases you can’t have both an HSA and an FSA.
Can I withdraw money from an HSA for nonmedical expenses?
Yes, but if you withdraw funds for nonmedical expenses before you turn 65, you have to pay taxes on the money and a 20 percent penalty. If you take money out after you turn 65, you don’t have a penalty, but you must still pay taxes on the money.

March 26th, 2015

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