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A Prescription for Health and Wealth

Did you know that Health Savings Accounts (HSAs) provide a triple tax break? Contributions to your HSA are an above-the-line deduction; the growth in the account is tax deferred, and all withdrawals from the account for eligible medical expenses are tax-free. The list of eligible medical expenses includes insurance deductibles, vision expenses, dental expenses and some insurance premiums for you and your tax dependents.

Learn more about HSAs here:(download DOC of questions and answers)

  • What is a Health Savings Account (“HSA”)?
  • What Is a “High Deductible Health Plan” (HDHP)?
  • Benefits of An HSA
  • Should You Have An HSA?
  • How do You Get started?
  • Who is eligible for a Health Savings Account?
  • What are the tax benefits of an HSA?
  • Does tax filing status Joint vs. separate) affect my contribution?
  • What happens if I don’t use the money in the HSA for medical expenses?
  • So what exactly is a “qualified” medical expense?
  • Can I use my HSA to pay for medical expenses incurred before I set up my account?
  • Can I use the money in my HSA to pay for medical care for a family member?
  • Can I use my HSA to pay for medical services provided in other countries?
  • I have an HSA but no longer have HDHP coverage. Can I still use the money that is already in the HSA for medical expenses tax-free?
  • What happens to the money in my HSA if I lose my HDHP coverage?
  • Do unused funds in a Health Savings Account roll over year after year?
  • What happens to the money in a Health Savings Account after you turn age 65?
  • Can I borrow against the money in my HSA?
  • What happens to the money in my HSA when I die?
  • Can I roll the money in a Health Savings Account over into an IRA?
  • Can I rollover funds from an IRA into an HSA?


















    What is a Health Savings Account (“HSA”)?
    A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their healthcare. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account. You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.

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    What Is a “High Deductible Health Plan” (HDHP)?
    You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
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    In order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,100 (self-only coverage) or $2,200 (family coverage). Account limits, individual: $2,900 and family: $5,800. The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,600 (self-only coverage) or $11,200 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and copays and coinsurance) for non-network services.

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    Benefits of An HSA
    Generally the premiums for the high deductible Health Plan (HDHP) insurance required by the HSA regulations are significantly lower than the more traditional health care plans. Now you can invest money you would have been sending to the insurance company. And these savings can accumulate. Any funds in your account that you don’t use remain in the account and continue to grow, just as an IRA would. Finally, there is no mandatory withdrawal age. This means you can let your HSA compound tax-deferred until you really need it in your later years. Just keep any receipts you have for current medical expenses.
    The annual contribution limits for HSAs are tied to the medical consumer price index. Each year they increase. For tax year 2009 taxpayers with individual healthy coverage may contribute up to $3,000; families (two or more people on the insurance plan) can contribute up to $5,950. In addition, those account holders who are age 55 or older are eligible to contribute an additional $1,000 to their account.

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    Should You Have An HSA?
    Generally these plans are ideal for healthy individuals or families. Those folks that only visit the doctor for their annual preventative care. We have also seen many instances where individuals with chronic conditions and high prescription costs can benefit from an HSA.
    Health savings accounts are also ideal for people who want to build savings for future medical expenses and those who are looking for tax-advantaged means to supplement their retirement income.

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    How do You Get started?
    There are some eligibility requirements that must be met. Primary among those is coverage by a qualified high-deductible health plan. You cannot be covered by any non HDHP including Medicare, Tricare, or a spouse’s medical flexible spending account (FSA). Child care accounts are fine. Insurers and employers are moving more and more to the combination high deductible insurance and health savings accounts. Three million households are already saving money and becoming better health care consumers. Call us to learn if an HSA is a good fit for you.
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    Who is eligible for a Health Savings Account?
    Anyone who is:
  • Covered by a HSA-qualified High Deductible Health Plan (HDHP).
  • Not covered by other health insurance that is not an HDHP. (Including a plan your spouse may have where he/she HSA selected family coverage)*
  • Not enrolled in Medicare Part A or Part B.
  • Not enrolled in Medicaid.
  • Not eligible to be claimed as a dependent (child) on another’s tax return.

    There are exceptions: Insurance coverage for accidents, dental care, disability, long-term care, and vision care do not disqualify you from opening an HSA.

    If you have worker’s compensation benefits, specified disease or fixed indemnity coverage, you can also open an HSA.

    How much can I contribute to my HSA each year?
    The maximum amount you can deposit into your account for 2007 is $2,850, if you have single coverage and $5,650 for family coverage, even if your policy’s deductible is less than that. These amounts will be increased for inflation in future years. If you are age 55 or older, you can also make additional “catch-up” contributions (see below).

    What would my allowed contribution amount be if I became eligible for an HSA mid-year?
    Any eligible individual who becomes covered under a HDHP in a month other than January is allowed to make the full HSA contribution for the year. Even if you become an eligible individual during the last month of a taxable year, for purposes of computing the amount that may be contributed, you are considered eligible during every month of the taxable year.

    Do my HSA contributions have to be made in equal amounts each month?
    No, you can contribute in a lump sum or in any amounts or frequency you wish. However, your account trustee/custodian (bank, credit union, insurer, etc.) can impose minimum deposit and balance requirements.

    Can my employer contribute to my HSA?
    Contributions to HSAs can be made by you, your employer, or both. If your employer contributes some of the money, you can make up the difference.

    I’m over 55 and would like to make catch-up contributions to my HSA, like I’ve done with my IRA. Is that possible?
    Yes, individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional “catch-up” contributions allowed to be made to an HSA are as follows:’

    2007 - $800
    2008 - $900
    2009 and after $1,000
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    • What are the tax benefits of an HSA?
    1. Cash contributions you make to an HSA during a tax year are deductible from your federal gross income. Contributions made through payroll deduction are made pre-tax. Contributions made by your employer also are not included in your gross income. Interest earnings are tax-deferred — and you will never pay federal taxes on them if you eventually spend the money on qualified medical expenses. Withdrawals from your HSA for qualified medical expenses are free from federal income tax.
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    Does tax filing status Joint vs. separate) affect my contribution?

    Tax filing status does not affect your contribution.
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    What happens if I don’t use the money in the HSA for medical expenses?

    If the money is used for other than qualified medical expenses, the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 10% tax penalty.
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    So what exactly is a “qualified” medical expense?
    It is an expense for medical care as defined by IRS Code Section 213(d), which states that the expense must be primarily to alleviate or prevent a physical or mental defect or illness. Many expenses for medical care will fall under this Code Section. IRS Publication 502 also provides information on eligible expenses:
    Examples of appropriate qualified expenses:
    • Prescription Drugs
    • Physician office visits
    • Durable medical equipment
    • Physical Therapy
    • Birth Control Pills
    • Chiropractor services
    • Vision and dental care
    • However, some expenses do not qualify. For example:
    • Surgery for purely cosmetic reasons
    • Health club dues
    • Illegal operations or treatment
    • Maternity clothing
    • Toothpaste, toiletries, cosmetics

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    Can I use my HSA to pay for medical expenses incurred before I set up my account?
    No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as possible.

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    Can I use the money in my HSA to pay for medical care for a family member?
    Yes, you may withdraw fund to pay for the qualified medical expenses of yourself, your spouse or a dependent without tax penalty. back to questions















































    Can I use my HSA to pay for medical services provided in other countries?
    Yes.

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    I have an HSA but no longer have HDHP coverage. Can I still use the money that is already in the HSA for medical expenses tax-free?
    Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. There is no time limit on using the funds.

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    What happens to the money in my HSA if I lose my HDHP coverage?
    Funds deposited into your HSA remain in your account and automatically roll over from one year to the next. You may continue to use the HSA funds for qualified medical expenses. You are no longer eligible to contribute to an HSA for months that you are not an eligible individual because you are not covered by an HDHP. If you have coverage by an HDHP for less than a year, the annual maximum contribution is reduced; if you made a contribution to your HSA for the year based on a full year’s coverage by the HDHP, you will need to withdraw some of the contribution to avoid the tax on excess HSA contributions. If you regain HDHP coverage at a later date, you can begin making contributions to your HSA again.

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    Do unused funds in a Health Savings Account roll over year after year?
    Yes, the unused balance in a Health Savings Account automatically rolls over year after year. You won’t lose your money if you don’t spend it within the year.

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    What happens to the money in a Health Savings Account after you turn age 65?
    You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums Medicare HMO premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy. Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 10% penalty on the amount withdrawn.

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    Can I borrow against the money in my HSA?
    No. You may not borrow against it or pledge the funds in it. For more information on prohibited activities, see Section 4975 of the Internal Revenue Code.

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    What happens to the money in my HSA when I die?
    If married, your spouse becomes the owner of the HSA when you die. If unmarried, the HSA becomes part of your taxable estate.

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    Can I roll the money in a Health Savings Account over into an IRA?
    You cannot roll the HSA funds over into an IRA. They will stay in the HSA or be rolled into another HSA. back to questions























    Can I rollover funds from an IRA into an HSA?
    There is a provision which allows for a one-time contribution to an HSA distributed from an IRA. The contribution must be transferred directly from trustee to trustee. This one-time distribution from an IRA is not includible in income. In addition, such distributions are not subject to the 10 percent additional tax on early distributions. The distributions amount is limited to the maximum contribution allowed to the HSA under a HDHP in the year the distribution is made. The allowed amount that would otherwise be contributed to the HSA in the year or an IRA distribution is thus reduced by that IRA distribution. No tax deduction is allowed for the amount distributed from an IRA to an HSA. The provision allows for only one distribution from an IRA to an HSA to occur during the lifetime of an individual. Examples of Qualified Medical Expenses
    • Prescription drugs, including birth control pills
    • Doctor visits, lab, x-ray and other diagnostic and treatment services
    • Car controls for the physically challenged
    • Christian Science practitioner services
    • Coinsurance costs for healthcare, prescription drug and dental plans
    • Dental x-ray, fillings, extraction and dentures
    • Orthodontia (such as braces)
    • Specially installed equipment if primary purpose is health care
    • Eyeglasses, contact lenses, and solution
    • Guide dog or other animal, including its maintenance
    • Hearing aids and batteries
    • In-vitro fertilization
    • Remedial reading lessons for a child with a severe learning disability
    • Laser eye surgery
    • Routine physical exams
    • Stop-smoking programs
    • Special school costs, including tutoring fees and tuition, for physically challenged or mentally impaired
    • Transportation to and from health care providers
    • Vitamin and mineral supplements that can be obtained only by prescription
    • Qualified long-term care services and long term care insurance
    • Medicare Part A and B premiums, Medicare HMO or Medicare Advantage premiums
    • Retiree health expenses for those 65 and older
    • COBRA premiums and health insurance for those on unemployment compensation
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    Registered Representative of and securities offered through QA3 Financial, Member FINRA (www.finra.org) /SIPC (www.sipc.org). Investment Advisor Representative of and Advisory services offered through QA3 Financial LLC, an SEC registered Investment Advisor. Fiduciary Solutions, LLC is independent of QA3.