A Health Savings Account (HSA) is an account designed to cover medical expenses incurred by you and your dependents.
What are the benefits of an HSA?
For qualified individuals, an HSA can provide tax benefits that relate to more than medical expenses, similar to the benefits of a tax-favored retirement plan. Benefits include:
- Contributions excluded from income
- Tax deferred earnings
- Assets never taxed if used for qualified medical expenses
- Unused assets may be used for retirement (subject to ordinary taxation)
- Upon death, a spouse may treat the assets as his or her own HSA
What are qualified medical expenses?
To retain the tax-free status of HSA assets, funds may only be withdrawn/used for certain expenses.
- Actual medical expenses (doctors, prescriptions, dental care)
- Long-term care insurance
- Healthcare coverage when unemployed
- Certain continuation-of-benefit healthcare coverage
- Certain health insurance after age 65
Who is eligible to participate?
For coverage to begin, eligible individuals must be covered under a high deductible health plan (HDHP) on the first day of the month and should not be enrolled for Medicare benefits or covered by another health plan that is not an HDHP. HSA account holders should not be claimed as a dependent on another person's tax return.
What is considered a high deductible health plan (HDHP)?
An HDHP is an insurance policy that meets certain dollar limits*. A self-only policy must have an annual deductible of $1,300 or more and out-of-pocket expenses cannot exceed $6,550. A family policy must have an annual deductible of $2,600 or more and out-of-pocket expenses cannot exceed $13,100.
Can self-employed individuals have an HSA?
Yes. Sole proprietors and the self-employed are often ideal candidates.
What are the HSA contribution rules*?
The total amount you or your employer may contribute to an HSA for any taxable year depends on whether you have individual or family coverage under a high deductible health plan. The maximum contribution is $3,400 for individual coverage and $6,750 for family coverage.
If you have attained age 55 before the close of the taxable year, you may also contribute a "catch-up" contribution of $1,000 for 2017.
*HDHP and contribution limits are revised each year for cost-of-living increases.
Amounts disclosed are based on 2017 limits.
Always seek the advice of a professional tax consultant.