A Health Savings Account ("HSA") is a combination of a tax-favored savings account and a qualified high deductible health insurance policy. The savings account can be used to pay for routine medical, dental, prescription drugs, eye-wear and other IRS qualified medical expenses. Major medical expenses are paid by the insurance policy.
What are the benefits of a Health Savings Account (HSA)?
- The interest or other earnings on the assets in your HSA are tax-free.
- You can invest your HSA as you would any other investment account.
- You pay much lower insurance premiums and can put the difference in your HSA.
- You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040.
- The contributions remain in your HSA from year to year until you use them.
- You can use your HSA funds for medical expenses at any time without paying taxes on the money. See the list of allowable medical expenses.
- Your HSA funds are available with checks or debit cards.
- HSA funds taken out after age 65 for purposes other than medical expenses are taxed as regular income.
- Discount programs are available for prescription drugs.
You must maintain an individual or family high deductible health plan (HDHP).
Limits - the table below shows the limits for annual deductibles and the maximum out-of-pocket expenses for high deductible health plans for 2009.
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Type of Coverage
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Plan Annual Deductible
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Maximum Out of Pocket
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Maximum Contribution
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Catch Up - Age 55
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Single
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$1,150
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$5,800
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$3,000
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$1,000
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Family
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$2,300
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$11,600
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$5,950
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N/A
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Making Contributions to a HSA
- Annual Deductible Limit - You can contribute and deduct from your taxes up to 100% of your annual health plan deductible.
Example: Plan $2,000 Single / $4,000 Family (Plan Annual Deductible)
I am a single employee. The maximum I can contribute to my plan is $2,000 annually. The employer as well as the employee can contribute to the plan.
Maximum Contribution Single: 100% of the deductible or $3,000 whichever is less. 55 or older add $1000.
Maximum Contribution Family: 100% of the deductible or $5,800 whichever is less.
All the contributions are pre-taxed.
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