What Is the HSA Limit for 2010?

Health Spending Accounts, or HSAs, offer a convenient way to budget and save on medical expenses. HSAs provide the benefits of a savings account coupled with tax-free withdrawals. Unlike Flexible Spending Accounts, the unused money in an HSA carries over from year to year. There are limits to the amount of money an individual may contribute to an HSA. The IRS sets these annual limits based on family status and age.

Health Spending Accounts

• Created by the IRS, HSAs allow consumers to make contributions into a savings account that can be utilized for medical expenses. An HSA can be set up during an employer's open enrollment period or individuals can sign up for an account at a financial institution. Contributions are deductible on tax returns. Withdrawals from the account to pay for qualified medical expenses are not taxable. Any interest earned on the account is tax-free. After age 65, withdrawals from the account are no longer subject to an excise tax if used for non-medical purchases.

2010 HSA Contribution Limits

• The HSA contribution limit for single individuals filing tax returns in 2010 is $3,050. Filers over the age of 55 may contribute an additional $1,000. The family contribution limit is $6,150 and an additional $1000 for over-55 filers. Contributions over the set IRS amount incur a 6% penalty. In order to contribute to an HSA, individuals must be covered by a High Deductible Health Plan (HDHP). For 2010, the minimum qualifying deductible for individuals is $1,200 and $2,400 for families.

HSA Guidelines

• Individuals seeking to open a Health Spending Account must be under the age of 65 and cannot be covered under Medicare. If someone can claim you as a dependent on their tax return, you are not eligible to open an account. Only individuals with a high deductible health insurance plan can open an HSA; other insurance coverage is not eligible. If withdrawals from the account are used for expenses other than medical, they will incur a 10% penalty and they are taxed as ordinary income.

Upcoming HSA Changes

• The new health-care law changes how HSA dollars are used. Previously both over-the-counter and prescription drugs could be purchased with HSA funds. Starting in 2011, only prescription drugs will be covered. Individuals wishing to purchase OTC medications with HSA dollars will need a prescription from a doctor.

  Also in 2011, the penalty for purchasing non-medical items with HSA dollars increases to 20% for individuals under the age of 65.