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Health Savings Account Q&A
Article contributed by Affinity Federal Credit Union from their quarterly magazine, Affinity Connections. For more information about Affinity or to view Affinity Connections in its entirety, visit www.affinityfcu.org/ connections. |
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Health Savings Accounts are a new type of tax-free financial account designed to help individuals save for healthcare expenses.
The Q&A below will help you to better understand how HSAs work.
What is a Health Savings Account?
Health Savings Accounts (HSAs) are savings accounts that allow you to set aside money, on a tax-favored basis, to be used for future healthcare costs such as qualified medical care and services, dental and vision care as well as over-the-counter drugs. Health Savings Accounts are part of a new wave in “consumer-driven” healthcare which is a notable departure from the “managed-care” systems of the 1990s.
Who can open an HSA?
You may establish an HSA if you:- Obtain coverage under an “HSA-Qualified” High Deductible Health Plan (HDHP). HDHPs are health insurance policies that provide a minimum deductible of $1,100 single/$2,200 family for 2007.
- Are not covered by another health plan, such as a spouse’s plan.
- Are under age 65.
- Are not enrolled in Medicare.
- Are not claimed as a dependent on another person’s tax return.
How do HSAs differ from flexible spending accounts?
Unlike flexible spending accounts where you need to use up the money in the account each year or you lose it, unused HSA balances roll over from one year to the next, so you won’t lose what you’ve accumulated. Moreover, HSAs are portable so you can keep your HSA even if you change jobs or become unemployed. After the age of 65 you may withdraw funds (on a taxable basis) for purposes other than those that are health related if you so choose.
How are contributions made?
Contributions to your HSA can be made by you, your employer, or both.- Employer contributions are not taxable to employees so the employee pays no income or payroll taxes.
- Individual contributions can be deducted from taxable income when computing income taxes.
What are the contribution limits?
The maximum contribution amounts for 2007 are $2,850 for single coverage and $5,650 for family coverage. Individuals over 55 up to age 64 can also make additional catch-up contributions.
Sources: Affinity Federal Credit Union and the Henry J. Kaiser Family Foundation (www.kaiseredu.org).
September 14, 2007
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