FAQ’s for Your HSA Benefits
A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. An HSA will enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSA. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.
You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.
Sometimes referred to as a catastrophic health insurance plan or consumer driven health plan, a HDHP has a minimum individual deductible of $1,300. You must have an HDHP if you want to open an Health Savings Account (H.S.A.). Your HSA is available to help you pay for higher upfront out-of-pocket expense (deductible) you have under the HDHP.
HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and copays & coinsurance) for non-network services.
For 2018, the maximum annual contributions are $3,450 for Employees and $6,900 for Employees + Dependents. Additional annual “catch-up” contributions are allowed for up to $1,000 for employees age 55-64.
An HSA is not something you purchase; its a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA. However, HSA trustees often will charge fees for their services.
To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP. Certain types of insurance are not considered health insurance (see below) and will not jeopardize your eligibility for an HSA.
You are only allowed to have automobile, dental, vision, disability and long-term care insurance at the same time as an HDHP. You may also have coverage for a specific disease or illness as long as it pays a specific dollar amount when the policy is triggered. Wellness programs offered by your employer are also permitted if they do not pay significant medical benefits.
No, the policy does not have to be in your name. As long as you have coverage under the HDHP policy, you can be eligible for an HSA (assuming you meet the other eligibility requirements for contributing to an HSA). You can still be eligible for an HSA even if the policy is in your spouses name.
At this time, Tricare does not offer an HDHP option so you are not eligible for an HSA.
You are not eligible for an HSA after you have enrolled in Medicare. If you had an HSA before you enrolled in Medicare, you can keep it. However, you cannot continue to make contributions to an HSA after you enroll in Medicare.
You can have both types of accounts, but only under certain circumstances. General Health Reimbursement Arrangements (HRAs) 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) HRA, then you can still be eligible for an HSA. If your employer contributes to an HRA that can only be used when you retire, you can still be eligible for 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 post-deductible (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.
Yes, if you have coverage under an HDHP. You do not have to have earned income from employment in other words, the money can be from your own personal savings, income from dividends, unemployment or welfare benefits, etc.
You cannot contribute to an HSA if your spouses FSA or HRA can pay for any of your medical expenses before your HDHP deductible is met.
No, you cannot establish separate accounts for your dependent children, including children who can legally be claimed as a dependent on your tax return.
There are no income limits that affect HSA eligibility. However, if you do not file a federal income tax return, you may not receive all the tax benefits that an HSA may offer.
The most you can put into your account for 2024 is the $4,150 if you have single HDHP coverage and $8,300 if you have family HDHP coverage. These amounts may be increased for inflation in future years.
Yes, you are still eligible for an HSA. Your dependents non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP.
Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Your annual contribution depends on your HDHP coverage. If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However if you cease to be an eligible individual during the following year, the excess over the prorated contribution is included in income and subject to a 10 percent additional tax. The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.
No, you can contribute in a lump sum or in any amounts or frequency you wish. However, your account trustee/custodian (bank, credit union, insurer, etc.) can impose minimum deposit and balance requirements. If you are enrolled in your employer’s sponsored HSA, your employer will have their own administrative policy for contributions to the plan.
Your personal contributions offer you an above-the-line deduction. An “above-the-line” deduction allows you to reduce your taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. Contributions can also be made to your HSA by others (e.g., relatives). However, you receive the benefit of the tax deduction.
Contributions to HSA’s can be made by you, your employer, or both. All contributions are aggregated to determine whether you have contributed the maximum allowed.
If your employer contributes some of the money, you can make up the difference.
If your employer offers a salary reduction plan (also known as a Section 125 plan or cafeteria plan), you (the employee) can make contributions to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). If you can do so, you cannot also take the above-the-line deduction on your personal income taxes for the amount contributed through the 125 plan.
If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).
Yes, individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional catch-up contributions to HSA allowed is $1,000.
You may be able to claim the medical expense deduction even if you contribute to an HSA. However, you cannot include any contribution to the HSA or any distribution from the HSA, including distributions taken for non-medical expenses, in the calculation for claiming the itemized deduction for medical expenses.
Yes, if both spouses are eligible individuals and both spouses have established an HSA in their name. If only one spouse has an HSA in their name, only that spouse can make a catch-up contribution.
If you had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have HDHP coverage for the full year, you must pro-rate your catch-up contribution for the number of full months you were eligible, i.e., had HDHP coverage. However, if you are covered on December 1, you are treated as an eligible individual for the entire year and get the full contribution.
Yes, you are still eligible for an HSA. Your dependents non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP. You can contribute up to the statutory limit to your HSA.
HSA funds can pay for any qualified medical expense, even if the expense is not covered by your HDHP. For example, most health insurance does not cover the cost of over-the-counter medicines, but an HSA can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.
HSA funds can pay for any qualified medical expense, even if the expense is not covered by your HDHP. For example, most health insurance does not cover the cost of over-the-counter medicines, but an HSA can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.
You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions during an audit.
Yes, as long as these are deductible under the current rules. For example, cosmetic procedures, like cosmetic dentistry, would not be considered qualified medical expenses.
Unfortunately, we cannot provide a definitive list of qualified medical expenses. A partial list is provided in IRS Pub 502 (available at www.irs.gov). There have been thousands of cases involving the many nuances of what constitutes “medical care” for purposes of section 213(d) of the Internal Revenue Code. A determination of whether an expense is for “medical care” is based on all the relevant facts and circumstances. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. The determination often hangs on the word “primarily.”
Yes.
Yes, if you have tax-qualified long-term care insurance. However, the amount considered a qualified medical expense depends on your age. See IRS Publication 502 for the amounts deductible by age.
Funds deposited into your HSA remain in your account and automatically roll over from one year to the next. You may continue to use the HSA funds for qualified medical expenses. You are no longer eligible to contribute to an HSA for months that you are not an eligible individual because you are not covered by an HDHP. If you have coverage by an HDHP for less than a year, the annual maximum contribution is reduced; if you made a contribution to your HSA for the year based on a full years coverage by the HDHP, you will need to withdraw some of the contribution to avoid the tax on excess HSA contributions. If you regain HDHP coverage at a later date, you can begin making contributions to your HSA again.
You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or Medigap policy.
Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 20% penalty on the amount withdrawn.
It is your responsibility to keep track of your deposits and expenditures and keep all of your receipts. If you run out of HSA funds (and therefore need to use your HDHP), you may need to send those receipts to your insurer.
Your account trustee/custodian will determine what you need to do, which may include completing and processing appropriate paperwork, and making a minimum deposit.
No, you must establish your HSA with an approved institution.
If you are still covered by your HDHP and have not met your policy deductible, you will be responsible for 100% of the amount agreed to be paid by your insurance policy to the physician. Your physician may ask you to pay for the services provided before you leave the office. If your HSA custodian has provided you with a checkbook or debit card, you can pay your physician directly from the account. If the custodian does not offer these features, you can pay the physician with your own money and reimburse yourself for the expense from the account after your visit.
If your physician does not ask for payment at the time of service, the physician will probably submit a claim to your insurance company, and the insurance company will apply any discounts based on their contract with the physician. You should then receive an “Explanation of Benefits” from your insurance plan stating how much the negotiated payment amount is, and that you are responsible for 100% of this negotiated amount. If you have not already made any payment to the physician for the services provided, the physician may then send you a bill for payment.
The differences between a custodian and a trustee are minor. A trust is a legal entity under which assets are actually owned and held on behalf of a beneficiary. The trustee has some level of discretionary fiduciary authority over the assets of the fund. The trustee must exercise that authority in the best interests of the beneficiary. A custodial arrangement, on the other hand, is like a trust, but the custodian simply holds the assets on behalf of the owner of the assets. Other than holding the assets and doing as the owner orders, the custodian has no fiduciary obligations to the owner. The determination of what constitutes a trust or custodial arrangement is a determination made under state law.
Insured banks and credit unions are automatically qualified to handle HSA’s. Any bank, credit union or any other entity that currently meets the IRS standards for being a trustee or custodian for an IRA or Archer Medical Savings Account (MSA) can be an HSA trustee or custodian. The law also allows insurance companies to be HSA trustees or custodians.
If both husband and wife are eligible to contribute to an HSA, they are both eligible to establish separate HSA’s. However, if both spouses want to make catch-up contributions when they are age 55+, they must establish separate accounts.
You can complete all the paperwork and make a minimum deposit to your account prior to the effective date of your HDHP coverage. However, your account is not officially established until your HDHP coverage begins. But completing the necessary steps before your coverage begins ensures that your HSA will be established as early as possible. This is especially important when your HDHP coverage is effective on a non-business day.
Yes, you can invest the funds in your HSA. The same types of investments permitted for IRAs are allowed for HSA’s, including stocks, bonds, mutual funds, and certificates of deposit. Consult your HSA administrator to verify if there are minimum balance requirements and for investment options.
No. You may not borrow against it or pledge the funds in it. For more information on prohibited activities, see Section 4975 of the Internal Revenue Code.
You cannot directly roll funds in a 401(k) or other retirement plan into an HSA. A qualified HSA funding distribution may be made from a traditional IRA under § 408 or a Roth IRA under § 408A, but not from an ongoing SIMPLE IRA under § 408(p) or an ongoing SEP IRA under § 408(k). For this purpose, a SIMPLE IRA or SEP IRA is treated as ongoing if an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which the qualified HSA funding distribution would be made. After the death of an IRA or Roth IRA account owner, a qualified HSA funding distribution may be made from an IRA or Roth IRA maintained for the benefit of an IRA or Roth IRA beneficiary. This distribution will be taken into account in determining whether the required minimum distribution requirements of §§ 408(a)(6), 408(b)(3), and 408A(c)(5) have been satisfied.
What happens depends on how the HSA is designed. If your spouse is designated as the beneficiary by you, your spouse becomes the owner of the HSA when you die. If you provide that it goes to your estate or other entity, the value of the HSA at death is income to the estate or other entity.