Frequently asked questions

Q: What is a Health Savings Account (HSA)?

A: An HSA is like an IRA for medical care. Individuals and employers can contribute money pre-tax into an HSA; it grows tax-free and can be used to pay for qualified health care expenses, tax-free. In addition, HSAs roll over from year to year and are fully portable if an individual changes jobs.

Q: Who can open an HSA?

A: In order to open and contribute to an HSA, a consumer must be covered by a high-deductible health plan (HDHP). For 2007, the government has defined an HDHP as one with an individual deductible of $1,100 or more ($2,200+ for family coverage), which offers no coverage (except for preventive care) until the deductible is met. There are also total out-of-pocket limits for HDHPs as well.

In order to open an HSA:

• The consumer cannot have any other comprehensive coverage
• The consumer cannot be enrolled in Medicare
• The consumer cannot be a dependent on someone else’s taxes

Q: What are the qualified HDHPs, and how much can I contribute to my HSA?

A: Qualified HDHPs must meet specific coverage amounts. In addition, depending on your HDHP, there are specific maximum amounts you can contribute to your HSA each year. The amount that can be contributed to an HSA is the lesser of your deductible or the maximum HSA contribution allowed (provided by law).

If you turn 55 during the calendar year, you may also be eligible for catch-up contributions. The Maximum HSA Contribution includes any contributions, including employer contributions, to your HSA. At the end of each year, the IRS calculates the values for the qualified HDHPs and maximum HSA contribution levels for the following year.

Q: How do I know if I am eligible for catch-up contributions to my HSA?

A: For individuals (and their spouses covered under the HDHP) who turn 55 during the calendar year and are also not enrolled in Medicare, the HSA contribution limit is increased by specified amounts in each calendar year. The amount in 2007 is $800. This catch-up amount will increase in $100 increments annually, until it reaches $1,000 in calendar year 2009. Once enrolled in Medicare, contributions, including catch-up contributions, cannot be made to an individual’s HSA.

Q: If I am only eligible to contribute to an HSA for a portion of a calendar year, can I still contribute the full, calendar-year maximum allowed?

A: No. You can only contribute for the full calendar months that you are eligible to contribute. For example, if you are covered under an HDHP for only six months, then you will only be able to contribute half of the total maximum calendar year amount.

Q: How frequently can I contribute to an HSA?

A: You can contribute to an HSA in monthly increments, in a lump sum, or at any time during the year. Your total contributions cannot exceed the maximum amount allowed during the calendar year.

Q: What tax advantages can I expect if I contribute to an HSA?

A: Your personal contributions offer you an “above-the-line” deduction. An "above-the-line" deduction allows you to reduce your taxable income by the amount you contribute to your HSA. Other people can also make contributions to your HSA (e.g. relatives); however, you receive the benefit of the tax deduction. If your employer makes a contribution to your HSA, the contribution is not taxable to you, the employee; the amount is excluded from income. Moreover, earnings on amounts in an HSA also are not taxed.