Q1: What makes a high-deductible plan “qualified”?
A1: Qualified high-deductible health plans must meet federal guidelines that make them compatible with Health Savings Accounts (HSAs).
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Q2: What is a Health Savings Account (HSA)?
A2: An HSA is like a bank account that is funded with tax-deductible dollars that can be used to pay for qualified medical expenses. Remaining balances roll over from year to year and earn interest tax-free.
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Q3: Who can contribute to an HSA?
A3: Both you and/or your employer may contribute to an HSA.
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Q4: Who owns the HSA?
A4: If you are the account holder, then you own the HSA. Funds in the HSA are portable and move with you if you change jobs.
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Q5: How can HSA funds be used?
A5: You can withdraw funds from your HSA at any time and for any purposes, but taxes and some penalties apply if the funds are not used for qualified medical expenses.
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Q6: What is a “qualified” medical expense?
A6: Qualified medical expenses include the portion of costs associated with services typically covered by a health care plan, such as office visits, emergency room services, and hospitalization that are not reimbursed by insurance. These also include medical plan deductibles, coinsurance, prescription and many over-the-counter drugs, eyeglasses, contact lenses, and non-cosmetic dental expenses. Full details are defined by IRS code 213(d) and listed in IRS Publication 502.
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Q7: Is there a limit to the amount of HSA contributions?
A7: Yes. Contributions can be made up to the amount of the health plan deductible to a maximum of $2,650 single/$5,250 family for 2005. The maximum contribution amount is indexed each year.
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Q8: Who is responsible for keeping records on the HSA?
A8: If it is your HSA, you are responsible for maintaining all the paperwork for eligibility and expenses. You are also responsible for ensuring funds are used for qualified medical expenses or reporting other uses to the IRS.
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Q9: What happens to unused funds in the HSA?
A9: Unused funds roll over from year to year and may earn interest, tax-free.
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Q10: What if HSA funds are used to pay for items other than qualified medical expenses?
A10: If you use HSA funds for something other than a qualified medical expense, you need to report that amount as income when you file taxes. It will be taxed as regular income and, if you are under age 65, it will also be subject to a 10 percent tax penalty.
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Q11: How does a person set up an HSA?
A11: HSAs can be established through banks or financial institutions. We have financial partners to help. For details, talk with your broker or call us at 1-800-565-9140.
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