HSA Frequently Asked Questions

What is a Health Savings Account (HSA)?
An HSA is a special, tax-advantaged account -- meaning money goes in tax free, earns interest tax free and is not taxed when it's withdrawn to pay for qualified expenses.
- You, your employer or an eligible family member may make contributions to your HSA.
- Your HSA dollars earn interest, tax free.
- At the end of the year, any money remaining in your HSA rolls over to the next year.
- You own your HSA, so you keep the funds even if you change jobs or health insurance plans.
- You can withdraw money directly from your HSA, by using either a debit card or check, to cover qualified expenses. Or, allow the account to grow over time and use it to help pay for future health-related expenses - like long-term-care insurance premiums, COBRA premiums and certain retiree expenses.

Is there an annual "cap" or maximum amount that may be contributed to my HSA?
HSA contributions are limited to the annual deductible you choose, or $2,650 for an individual and $5,250 for a family (2005 maximums), whichever is less. If you participate in a HDHP for less than the entire taxable year, the limit is prorated on a monthly basis. These limits will be adjusted for inflation in future years.

Who is eligible for an HSA?
To be eligible, you must be covered by a "high-deductible" health plan (a deductible of at least $1,000 for individuals and $2,000 for families - 2005 figures, adjusted each year for cost of living). You cannot have other health insurance coverage (including a spouse's plan) that is NOT a "high-deductible" plan. You may not contribute to an HSA once you are eligible for and enrolled in Medicare.

What happens to any remaining money in my HSA at the end of the year?
At the end of the year, any money remaining carries over to the next year.

Are contributions to my HSA tax deductible or not tax-deductible?
If contributions to your HSA are made with pre-tax dollars(money that has not been subject to income tax), those contributions are not considered taxable income and therefore are not tax-deductible. If contributions to your HSA are made with post-tax dollars (money that has already been subject to income tax), those contributions are tax-deductible. NOTE: Check with your employer and/or tax advisor for details about how contributions are made to the plan.

Does the money in my HSA earn interest?
Yes--your HSA can grow over time! Your funds earn interest tax free. There is no minimum balance required to earn interest.

What happens to my HSA if I leave my health plan or job?
You own your account, so you keep your HSA, even if you change health insurance plans or jobs. If you no longer are enrolled in a high-deductible health plan, you are not eligible to make new contributions to your HSA, but you can continue to withdraw funds for qualified expenses.

What are the survivor benefits associated with my HSA?
Your HSA may transfer to your surviving spouse tax free, if you name them as your beneficiary. If you do not name a beneficiary, or if you name someone other than your spouse as your beneficiary, then the distribution will be taxable.

How do I contribute to my HSA?
You may contribute to your account through payroll deductions (if available), authorizing funds to be deducted form your designated bank account through electronic funds transfer (EFT), or you may make a lump sum contribution at any time, in any amount up to the maximum limit. Depending on your plan design, your contributions may be made before taxes and taken from your paycheck. If not, you can claim your total amount contributed for the year as a tax deduction when you file your income taxes. You receive tax advantages in any case. You have until April 15 of the following year to make HSA contributions for the current year.

When will contributions to my account be available for withdrawal?
HSA contributions will be available for withdrawal when funds are deposited. HSA contributions made by payroll deduction are pro-rated over the course of the plan year on payroll schedules. HSA contributions may also be made on a lump sum basis at any time during the plan year. The availablity of funds is dependent upon how funds are contributed (payroll deduction or periodic, lump sum contributions) and varies by individual.

What expenses can I pay for with my HSA?
Your HSA can be used to pay for most "qualified expenses," as defined by IRS Code 213(d). These expenses include, but are not limited to, medical plan deductibles, diagnostic services covered by your plan, health insurance premiums if you are receiving federal unemployment compensation, over-the-counter drugs, LASIK surgery and some nursing services.

When you become age 65, you can use the amount to purchase any health insurance other than a Medigap policy. You may not, however, continue to make contributions to your HSA once you are enrolled in Medicare.

For the complete list of IRS-allowable expenses, you can request a copy of IRS Publication 502 by calling 1-800-829-3676 or visit the IRS website at www.irs.gov and click on "Forms and Publications".

Can I use my HSA to pay for non-health-related expenses?
Yes. You may withdraw money from your HSA for items other than qualifed expenses, but it will be subject to income tax (unless you are age 65 or disabled) and an additional 10 percent penalty tax on the amount withdrawn.

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