HSA Regulations

A Health Savings Account (HSA) is similar to an Individual Retirement Account (IRA) except that the funds are used to pay for qualified medical expenses.

Eligibility

• To establish an HSA, you must be covered by a high-deductible health plan (HDHP), have no other health insurance coverage (including Medicare) and not be claimed as a dependent on someone else's income tax return.

High-Deductible Health Plan

• A health insurance policy is considered an HDHP if the deductible associated with it is higher than the guidelines set by the Department of the Treasury. In 2009, these were $1,150 for single policy holders and $2,300 for families; the limits are adjusted annually for inflation.

Uses

• The funds may be used for qualified medical expenses, including most medical care and services, dental and vision care, and over-the-counter medications. Premiums for health insurance aren't qualified expenses unless you're receiving unemployment benefits, paying for COBRA continuation coverage or paying Medicare premiums. Most long-term care insurance policy premiums are also qualified expenses.

Contributions

• Annual contribution limits are set by the Department of the Treasury each year. In 2009, these limits were $3,000 for singles and $5,950 for families. Catch-up contributions are allowed for those over 55, and in 2009, this was an additional $1,000.

Tax Implications

• Contributions to an HSA are tax-deductible and any earnings accumulate tax-free as well. No taxes are due on withdrawals if they are used for qualified medical expenses, and after age 65, you can withdraw the funds tax-free for any purpose. However, if you withdraw funds for non-qualified expenses before age 65, you'll pay a 10 percent penalty and the funds are taxed as income.

Portability

• Like an IRA, an HSA is not tied to any employer or insurance carrier. It won't be affected if you change jobs or insurance providers or if you move to another state.