IRS Guidelines for Health Savings Accounts

Health savings accounts (HSAs) allow consumers to put money aside for their own healthcare spending. In return for making this investment, those consumers get a tax break from the IRS. But since the IRS is providing the tax break, it gets to make the rules. Learn the rules associated with HSAs before opening an account.

High-deductible Health Plan

• To open a health savings account, enroll in a high-deductible health plan, or HDHP. The HDHP must be in place before you open the HSA. To qualify as an HDHP, the plan must have a minimum deductible of $1,150 for single coverage or $2,300 for family coverage. The plan's maximum out-of-pocket costs must be equal to or less than $5,800 for single coverage or $11,600 for family coverage. These figures are as of 2010, so check for updated figures at the IRS website.

Contribution Limits

• For the tax year 2010, you can contribute up to $3,050 to an HSA plan designed to cover an individual. If you have a family HSA plan, you can contribute up to $6,150. You can use the amount of your contribution as a deduction on your tax return, thereby lowering your taxable income and your tax liability.

Eligible HSA Spending

• The money in the HSA is intended to cover medical expenses that are not covered by your insurance plan. You can use the funds in your HSA to cover things like copayments for prescription drugs, doctor visits not covered by your HDHP and over-the-counter medications at the local pharmacy. Many pharmacies use a point-of-sale system that tells the store clerks which items are and are not eligible for purchase with HSA funds. Contact your pharmacist if you have any questions about which products you can purchsae with your HSA debit card.

Rollover

• Health savings accounts are different from flexible spending accounts in that any unused money rolls over into the next year. If you have a balance in your HSA at the end of the year, that balance will remain after the new year starts. When the year year starts, you will be able to make an additional contribution to the HSA, and any unused money can continue to grow on a tax-deferred basis.