Health Savings Accounts

Mar 12, 2015

Healthcare_Stethascope2The rising cost of health care has contributed to the growing popularity of health savings accounts (HSAs). An HSA is a tax-favored account that can be used to pay out-of-pocket medical expenses.

To be eligible for an HSA, an individual must be covered under a high deductible health plan, either personally or through an employer. The plan must have certain provisions, including a specified minimum annual deductible and a dollar cap on the expenses required to be paid out of pocket for covered benefits. Additional health coverage is generally prohibited, although there are certain exceptions.

From a federal income-tax standpoint, an HSA offers several benefits.

  • Within limits, HSA contributions are tax deductible (or pre-tax under an employer’s cafeteria plan).
  • Earnings on HSA investments accumulate tax-deferred.
  • HSA withdrawals used to pay qualified medical expenses are tax-free.

Withdrawals not used for qualified expenses are taxable, and a 20% penalty also may apply. Any unspent HSA funds can simply accumulate in the account for future use.

HSA Contribution Limits

High Deductible                       Health Plan Coverage 2015

Self-only                                                         $3,350

Family                                                             $6,650

Individuals age 55 or older as of the last day of the year who aren’t enrolled in Medicare may make additional “catch-up” contributions of up to $1,000 annually.

Categories: Healthcare & Dentistry