Health Savings Accounts: What You Need to Know

Thinking about contributing to a Health Savings Account (HSA)? Get a full understanding of its benefits before you begin.

Who Qualifies for an HSA?

  • Must be covered under a high deductible health plan on the first day of the month
  • Cannot be enrolled in Medicare
  • Cannot be claimed as a dependant on another tax return
  • Cannot have any other health coverage except
    • Prescription drug plans
    • Limited purpose FSA or HRA
    • Suspended HRA
    • Post- deductible health FSA or HRA
    • Retirement HRA

What are the Tax Benefits?

  • They are tax-exempt trust or custodial account
  • Receive a tax deduction for contributions made even if you are not itemizing
  • Contributions made by employer may be excluded from gross income
  • Interest or other earnings in the account are tax free
  • Distributions may be tax free if they are qualified medical expenses

What are Qualified Medical Expenses?

  • Normal medical or dental expenses
  • Drugs are considered qualified if they are prescribed, over the counter that are prescribed, and insulin
  • Only in specific circumstances are insurance premiums counted

Other Benefits

  • Contributions remain in your account until they are used
  • They are “portable”- stays with you if you change employers or leave the work force
  • Can be established by self-employed or unemployed
  • At age 55 or older an additional $1,000 is added to the contribution limit