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insurancebrochure HSA Health Insurance Health Savings Account Rules

Reasons to have a Qualifying Plan (continued from prior page)

Money paid out of the health savings account for qualified expenses is never taxed.

Although health insurance premiums are not payable out of the account, after the age of 65, Medicare Part B premiums and employer retiree health insurance become additional qualified expenses that can be paid for out of the account.

Set up the health savings account any time you want, or not at all. It is not mandatory to have a health savings account just because you have HSA health insurance that qualifies for it. These are fine plans with or without a health savings account.

A health savings account could also be used as an additional retirement vehicle if other retirement plans are not enough to handle all the retirement contributions you want to make. The tax deduction and tax free compounding are there and any medical expenses could be paid out of non-HSA funds to maximize the amount of tax-free compounding.

Savings are not limited to interest bearing accounts. They can be in a brokerage account or mutual funds depending on the institution providing the account (see link to banks at top). Even though your HSA health insurance is with a particular insurance company, the bank account can be with any authorized financial institution.

So there is great flexibility with HSA qualifying health insurance. Have an account or don't have an account. Save or don't save. Save towards meeting the deductible or towards retirement or save nothing. Contribute only when there is an expense to pay, and otherwise keep a low balance, or not. Within the specified annual limits, contribute whatever you want whenever you want. Have an interest-bearing account or have a brokerage account, or whatever. It's your choice.

You can maintain a minimum balance and wait until there is a significant qualifying expense and only then deposit the amount of the expense. When the bill is paid, your account returns to the minimum balance required by the institution where you have the account. The qualifying policy and account must be in effect before the expense is incurred to be able to pay for it out of the account.

insurancebrochure Health Insurance HSA Health Savings Account Rules

Health Savings Account Rules

These HSA health insurance HSA health savings account rules are a brief summary only. More detail is in the U.S. Treasury and I.R.S. links at the bottom of the page.

Eligible:  Anyone under age 65, not covered by other comprehensive health insurance, not entitled to Medicare, and insured by a high deductible health plan that qualifies you for a health savings account.

Allowable health insurance plan deductibles and maximum contribution amounts are adjusted annually for inflation.

For year 2008:
Deductible for an individual: The plan must have a minimum deductible of $1,100, with a maximum out-of-pocket including deductible, of $5,600 in-network. (out-of-network may have additional deductible and coinsurance).
Contributions by an individual: Up to $2,900 for the calendar year irrespective of what the deductible is.

Deductible for a family: The plan must have a minimum deductible of $2,200, with a maximum out-of-pocket including deductible, of $11,200 in-network. (out-of-network may have additional deductible and coinsurance).
Contributions for a family: Up to $5,800 for the calendar year irrespective of what the deductible is.

For year 2009:
Deductible for an individual: The plan must have a minimum deductible of $1,150, with a maximum out-of-pocket including deductible, of $5,800 in-network. (out-of-network may have additional deductible and coinsurance).
Contributions by an individual: Up to $3,000 for the calendar year irrespective of what the deductible is.

Deductible for a family: The plan must have a minimum deductible of $2,300, with a maximum out-of-pocket including deductible, of $11,600 in-network. (out-of-network may have additional deductible and coinsurance).
Contributions for a family: Up to $5,950 for the calendar year irrespective of what the deductible is.

If over age 55, an individual may contribute an additional amount of $900 for year 2008 to a health savings account. For 2009, the additional contribution allowed is $1,000.

Contribution Deadlines

If your tax year is the calendar year, then provided you have an HSA-qualified plan in effect by December 1, you are entitled to make the maximum contribution for that calendar year.

The Department of the Treasury says this about contributions:
... For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However if you cease to be an eligible individual during the following year, the excess over the pro rated contribution is included in income and subject to a 10 percent additional tax.

  The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.

  ...If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). HDHP means "high deductible health plan".

The law does not mandate a minimum contribution, but the financial institution where you open the account may require a minimum and may charge a minimum monthly service charge if your balance is below a certain figure. Shop around until you find what you want.

Health Insurance HSA health savings account quote

For any given year, contributions can be made at any time, in any amount, up to the date the tax return is due with no extension, e.g., April 15 of the following year for most taxpayers.

Under the Internal Revenue Code, the account does not have to be funded, but the financial institution may have initial setup fees, maintenance fees, and may impose a minimum balance. The financial institutions listed in the link at the top of this page have different rules, some with no fees at all.

Any minor who is claimed as a dependent on the tax return of another is not eligible to have an HSA account. Any person with an HSA account can pay for the qualified expenses of an immedicate family member out of the account.

More information

U.S. Dept of Treasury: HSA Health Savings Accounts FAQS   Health Savings Account Basics

US Dept. of Treasury explanation   I.R.S. Publication 969 explanation

I.R.S. Publication 502 qualified expenses for itemization. The health care expenses listed here are mostly the same as for an HSA but there are differences, e.g., premium for health insurance can be itemized but can not be paid for out of an HSA account (for exceptions, see FAQS link above, then see 'Using Your HSA').