A Health Savings Account (HSA) is an account you can put money into to save for future medical expenses. It is owned by an individual, the funds can roll over from year to year, and it has significant tax advantages. In many respects, an HSA operates similarly to an IRA. Money in an HSA (contributions, earnings and distributions) is exempt from federal taxes when used for qualified medical expenses for the HSA owner, spouse, and dependents. An HSA can only be established if the individual has a high deductible health plan, also known as catastrophic insurance.
 

Who can open an HSA?

Eligible individuals must 

1. Must be covered by a high deductible health plan (HDHP),
2. Cannot be covered by any medical plan that is not an HDHP (dental, vision, and long-term care plans are not included in this restriction)
3. Cannot be enrolled in Medicare, and 
4. Cannot be eligible to be claimed as a dependent on another individual’s tax return.
    

What is a high deductible health plan (HDHP)?

It is insurance that does not cover first dollar medical expenses. For 2010, the minimum annual deductible must be $1,200 for individuals and $2,400 for family coverage. For 2010, the maximum out-of-pocket expenses are $5,950 for individuals and $11,900 for families (including deductibles and co-pays, but not including premiums). These amounts are adjusted annually for inflation. You are urged to consult with your insurance provider to determine whether your insurance qualifies as an HDHP.
 

When can I open an HSA?

After your HDHP becomes effective and after completing an HSA application at Old Hickory Credit Union.

Can I establish an HSA and pay for medical expenses I have previously incurred?

No. Distributions may only cover expenses incurred after the HSA has been established.
 

How are HSAs funded?

Anyone, including your employer, may contribute to your HSA. All individual contributions are tax-deductible by the HSA owner as long as they’re under the annual dollar limit allowed.
 

Can I withdraw funds from my IRA to fund my HSA?

Yes. You can make a one-time tax-free transaction. 
 

If my employer makes an HSA contribution to my account, can I deduct it from my taxes?

No, but it is not included in your taxable wages, and the business may deduct it as a business expense.
 

How much can I contribute to my HSA each year?

You may make a contribution to your HSA each year that you’re eligible, and your eligibility is determined by the effective date of your HDHP coverage. You can contribute no more than $3,050 for an individual and $6,150 for a family (2010 amounts). These amounts are adjusted annually for inflation. If you are 55 or older by the end of your taxable year and not enrolled in Medicare, you may make an additional contribution catch-up of $1,000 (2010 amount). 
 

Who is responsible for determining eligibility for an HSA contribution?

The individual HSA owner is responsible for determining his contribution eligibility. Guidance from a tax or legal professional may be necessary for proper determination.
 

What happens to any money leftover in my HSA at year-end?

It remains in the HSA for future use.
 

What is the “triple tax advantage” of HSAs?

1. employee contributions are tax-deductible
2. interest and investment earnings are tax-free
3. withdrawals for qualified medical expenses are tax-free.
   

What happens to my HSA if I change jobs?

Nothing. You own your HSA.
 

What happens to my HSA when I die?

If you’re married, your spouse becomes the owner of the HSA. If you’re not married, the account will no longer be an HSA, but the funds will pass to your beneficiary or become part of your estate and be subject to any applicable taxes.
 

How may I access funds in my HSA?

By check, transfer, or by cash withdrawals. Receipts of all expenditures should be maintained to prove withdrawals were for qualified medical expenses in case of an IRS audit.
 

What are “qualified medical expenses”?

They’re defined by IRS code 213(d). They include doctor visits, hospital expenses, prescription or over-the-counter drugs, hearing aids, wheelchairs, organ transplants. A full list is found in IRS Publication 502.
 

Are health insurance premiums considered qualified medical expenses?

Only under certain circumstances: (1) any health plan coverage while receiving federal or state unemployment (2) COBRA continuation coverage after leaving a company that offers health insurance coverage (3) qualified long-term care insurance (4) Medicare premiums and out-of-pocket expenses including deductibles, copays, and coinsurance.
 

Can I withdraw money from my HSA for other expenses?

Yes, but you must report the amount as taxable income + you must pay a 10% tax penalty if you’re under the age of 65.
 

Do I need to itemize on my federal tax return? How do I report my HSA?

You do not have to itemize to receive the tax deduction, but you must file IRS Form 8889 with your federal income tax return. This forms details your total deposits and withdrawals for your HSA for the tax year. 
 

What happens to the money in my HSA after I turn 65?

You may continue to use the funds tax-free for qualified medical expenses; you may not continue depositing funds. When you enroll in Medicare, you can use the funds to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare.

You can also use the funds to pay for other expenses that are not medical expenses. If used in this way, the withdrawn amount will be considered taxable income.
 

What tax forms must Old Hickory Credit Union provide to the IRS and the HSA owner?

• IRS Form 5498-SA stating the contributions made to the HSA and IRS Form
• 1099-SA summarizing any HSA distributions.