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What is a Health Savings Account (HSA)?

An HSA is a tax-advantaged personal savings or investment account intended for payment of medical expenses that may be established in combination with an HSA- eligible high deductible health plan.

An HSA has two main components:

  • A high deductible health insurance plan – For 2009, the minimum individual deductible is $5,000 and the minimum family deductible is $10,000. A separate account is set up where funds are deposited and withdrawn to pay for qualified medical expenses. Funds can be deposited by the individual and/or family members. If the funds are deposited by the employer, the funds are fully vested to the employee when they are received. There is no “use it or lose it” provision. Regardless of who deposits the funds, as long as medical and health expenses are paid for out of the HSA, all expenses are tax-deductible.
  • HSA plans have a component that encourages employees to compare prices for some services or prescription drugs. The emphasis is on promoting competition within the healthcare market.

Maximum funding limits for HSA plans for 2009:

  • $3000 for an individual
  • $5950 for a family

“Catch-up” contributions are allowed for individuals 55 and older. The amount of catch-up is usually about $500/individual/year.

Please keep in mind that those on Medicare can no longer contribute to an HSA. If the funds are used prior to age 65 for expenses other than “qualified medical expenses” the funds are taxable as income and have an additional 10% penalty. After age 65, these funds can remain in the HSA to pay for medically related expenses or can be rolled into an IRA. Please contact our office if you have further questions related to HSAs.