Health Savings Accounts (HSA) are designed to help you build tax-free savings for healthcare throughout your lifetime. The accounts encourage you to save so you have funds to pay your medical deductible and other out-of-pocket expenses.
You can even use the funds to cover costs beyond your healthcare plan for medical expenses such as vision care, dental services, and even long-term care insurance. You, your employer, or anyone else can put money in the account. Money contributed through payroll deductions at work goes in tax-free, earns interest tax-free, and can be used tax-free for IRS-approved expenses. If you’re not employed, you can deduct the amount you contribute when you prepare your taxes. The account is in your name, just like your personal checking or savings account, so you can take the money with you if you change jobs – even money your employer adds. So if you choose to purchase an HSA-qualifying health insurance plan, you can then go to a financial institution to open your own HSA account
The HSA gives you control over how you save, invest, and use your healthcare dollars:
You can set up an HSA through your insurance company, bank, or other IRS-approved HSA trustee. To contribute to an HSA, you first have to enroll in a High Deductible Health Plan – that’s an IRS name for a certain type of health insurance plan. With these types of plans, premiums are lower than standard health insurance policies, but the deductible is higher.
You cannot have an HSA if any of the following are true:
HSA funds can be used for IRS-approved expenses such as:
1.HSA money is federal tax-free forever. You never pay taxes on HSA money – when it’s deposited, as it grows, or when it’s used – as long as you contribute within IRS rules and spend the money on eligible expenses.
2.To contribute to an HSA, you need to have a High Deductible Health Plan and meet other eligibility rules.
3.You, your employer, and anyone else can put money in your HSA.
4.There are limits to the amount you can save. Each year the Internal Revenue Service (IRS) sets the yearly maximum amount of contributions you can make to an HSA account. If you’re under age 55, the maximum amount is your plan’s deductible or the yearly IRS maximum, whichever is less. In 2013 the IRS maximum is $3,250 for an individual and $6,450 for a family. If you’re 55 and older, HSA holders can save an extra $1,000, which means $4,250 for an individual and $7,450 for a family . Example: Joe Smith’s family has a High Deductible Health Plan. The deductible is $5,000. Even though the IRS maximum contribution for a family is $6,450, the most Joe can contribute is $5,000 – the amount of his deductible -- which is less.
5.You can spend HSA money on IRS-approved expenses, such as medical, dental, prescription medications, and vision costs.
6.If you don’t spend all your HSA money during the plan year, the money stays in your account – you may even invest unused money in mutual funds.
7.If you leave your current employer, you can keep all the money in your account – including any money your employer put in.“For 2013, Higher Limits for HSA Contributions and Out-of-Pocket Expenses for High-Deductible Plans,” Society for Human Resource Management (accessed 25 Feb. 2013)
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This information is only a high-level summary of certain provisions of the health care law. This information does NOT attempt to summarize all provisions of the health care reform law. This information is not and should NOT be used as legal or tax advice; it should not be used as a basis for decisions regarding how the health care reform law will affect you and/or your business. Should you have any questions on how the health care reform law (including the high level summary of certain provisions of health care reform) will affect you and/or your business, you should seek professional advice from attorneys or other advisors.
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