Health Savings Account

Frequently Asked Questions

Q: Am I eligible for an HSA?
A: To qualify for an HSA, you must be covered by a High-Deductible Health Plan (HDHP). You are ineligible for an HSA if you are covered by any health insurance plan other than an HDHP, receive Medicare benefits or are claimed as a dependent on another person's tax return.

Q: Are there HSA income limits?
A: There are no income limits to qualify for an HSA. Any person or entity can make HSA contributions on behalf of any eligible individual.

Q: What is a High-Deductible Health Plan (HDHP)?
A: An HDHP is a type of health insurance that has lower monthly fees and higher annual deductibles than traditional health plans (a minimum of $1,200 for self and $2,400 for family coverage for 2010). Choosing an HDHP can reduce the amount you pay in premiums each year, and increase take-home pay. Annual out-of-pocket costs (including deductible and co-pays) cannot exceed $5,950 for self coverage and $11,900 for a family plan for the year 2010.

Q: What expenses can I cover with my HSA?
A: Any qualified medical expenses. To determine if your medical expense qualifies or not, visit www.ustreas.gov/offices/public-affairs/hsa

Q: What happens if I use my HSA for ineligible expenses?
A: The withdrawal will be subject to regular income tax (if you're under 65), as well as roughly 10% in penalty tax.

Q: What are the Contribution Rules?
A: The following maximum contributions may be made for 2010 as long as you remain eligible through 12/31/10:

• $3,050 (self-only coverage)
• $6,150 (family coverage)

Q: Can I make "catch-up" contributions at age 55?
A: If you're 55 or older, you can deposit additional funds each year to help your account "catch up" before retirement. The maximum annual catch-up contributions are:

• 2010 - $1,000

Q: Can I make pre-tax contributions through my employer?
A: If your employer provides a salary reduction plan (also called a "Section 125" or "cafeteria" plan), you can make contributions to your HSA on a pre-tax basis. Once you claim this tax advantage, you can no longer take the "above-the-line" deduction.

Q: Does the money in my HSA earn interest?
A: Yes. We pay competitive interest rates on the account. It is FDIC-insured and earnings are tax-free when used to pay for qualified medical expenses.

Q: Can my spouse be on my account?
A: Yes. The HSA can only be established as an individual account but you can assign your spouse to be a Power of Attorney on the account. However, you can use funds from your HSA to cover qualified medical expenses for your spouse and/or dependents

Q: Does my HSA roll over each year?
A: Yes. The money in your HSA is always yours to keep, with no "use it or lose it" rules. Funds are allowed to grow year after year, with no maximum cap.

Q: What happens to my HSA when I turn 65?
A: You can continue to use the account tax-free for eligible out-of-pocket expenses. When your Medicare coverage takes effect, your HSA can take care of Medicare premiums, deductible and co-pays. At this age, you can also use HSA funds for non-medical reasons, this amount will be taxable as income, but is not subject to penalties.

Q: What happens to my HSA when I die?
A: If you are married and your spouse is a named beneficiary, they will become the owner of the account and assume it as their own HSA. If you are unmarried, your account will cease to be an HSA. It will pass to beneficiaries or become a part of your estate, and be subject to applicable taxes.

Q: What if I lose my HDHP coverage?
A: You can continue to pay for qualified medical expenses without having to pay tax or penalties. However, you won't be able to make any more contributions to the account. There is no time limit on using the funds. They will remain in your HSA until you need them.

Q: Can I transfer funds from my IRA to an HSA?
A: You are allowed a one-time contribution to an HSA of amounts distributed from an Individual Retirement Account (IRA). The contribution must be made in a direct trustee-to-trustee transfer. The IRA transfer will not be included in income or subject to the early withdrawal additional tax. The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction.

Contact one of our professional account representatives for more information. (515) 733-4396 or email info@randallstory.com.