Health Savings Accounts (hsa): The Basics
What are the general features of an HSA?
Your own HSA voluntary contributions are tax-deductible. Your own HSA contributions are either tax-deductible or pre-tax (if made by payroll deduction). See IRS Publication 969 .
Interest earned on your account is tax-free
Tax-free withdrawals may be made for qualified medical expenses
Unused funds and interest are carried over, without limit, from year to year
You own the HSA and it is yours to keep - even when you change plans or retire
Your HSA is administered by a trustee/custodian
How will an HSA plan save me money?
An HSA plan may save you money through lower premiums, tax savings, and money deposited in your account that can be used to pay your deductible and other out-of-pocket medical expenses in the current year or in the future.
What is a qualified medical expense?
Generally qualified medical expenses will be determined by the plan in conformance with FEHB law and Section 213. See IRS Publication 502 for a list of qualified medical expenses. Please note some insurance premiums cannot be paid for by HSA funds.
Please clarify with examples: "Tax-free withdrawals for qualified medical expenses."
The IRS defines qualified medical expenses. See IRS Publication 502 for a list of eligible expenses. However, not all insurance premiums are qualified medical expenses even though they are stated in the IRS Publication 502.
Does the money in my HSA earn interest?
Yes. Your HSA funds are invested. Depending on which HSA plan you are enrolled in, the interest rate and payment of interest will vary. Your earnings are tax free.
Can the unused funds in my HSA be rolled over each year?
Yes. Your funds will accumulate without a maximum cap. However, the annual limit you can contribute to the HSA may not exceed the maximum contribution amount set by the IRS plus "catch up" contributions for those ages 55 to 65.
What happens to my HSA if I leave my health plan or job or switch to a traditional plan?
You own your account, so you keep your HSA, even if you change health plans or leave Federal Government. However, if your HSA was fully funded and you leave the HDHP during the year, then you will have to withdraw some of the contribution from the account. You must pay income tax on your excess contributions and income tax on any earnings of the excess contribution. There is no 10% penalty on excess contributions.
If you no longer are enrolled in an HDHP you are not eligible to make contributions to your HSA, but you may request withdrawals for qualified medical expenses.
Are there any fees associated with the Health Savings Account?
Yes, there are administrative fees that can vary by plan.
What is the process for setting up an HSA?
First, you must elect a high deductible health plan. Generally, once the plan receives your enrollment, the plan will mail you an information packet that includes banking forms for you to complete and return to the plan. When the plan receives the completed forms, the plan will notify its administrator of the HSA. The HSA administrator will then set up your account and your health plan will deposit "premium pass through" payments into the account. You are not required to use the bank offered by insurance company, you can go with any bank you like.
by: Matrixia
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