To open an HSA, you need a high-deductible health plan (HDHP). This can be an HDHP that you purchase on your own, or through your employer. The IRS defines what is considered an HDHP. In 2015, your plan deductible must be at least $1,300 for individual coverage or $2,600 for family coverage.
To summarize, to be eligible for an HSA:
You must be covered under a high-deductible health plan (HDHP)
You have no other health coverage except what is permitted by the IRS (see IRS Publication 969)
You are not enrolled in Medicare
You can make pre-tax contributions (or tax-deductible contributions, if not through an employer) in 2015 of up to $3,350/year if you have individual coverage, or up to $6,650/year if you have family coverage. People age 55 and older can save an extra $1,000 per year. You can add money to the account until the tax-filing deadline (April 15, 2015, for 2014 contributions).
You may spend the HSA money tax-free on out-of-pocket medical expenses, such as your deductible, co-payments for medical care and prescription drugs, or bills not covered by insurance such as vision and dental care. The IRS determines the types of medical expenses you can use tax-free with HSA funds. They are listed in IRS Publication 502.
Unlike with a Flexible Spending Account (FSA), you don’t have to use HSA funds by the end of the year. Rather, HSA funds can grow tax-deferred in your HSA account for later use.
If you use HSA funds for non-medical expenses, you are required to pay taxes on the withdrawal, plus a 20% penalty before age 65.
HSA administrators typically offer accounts that are easy to access for medical expenses. And, many HSA administrators or banks will let you shift money into mutual funds and other investments after your HSA account balance reaches a certain level.
You can keep your HSA account at any age, but you can no longer make new contributions to the account after you have signed up for Medicare Part A or Medicare Part B, which usually happens at age 65.
No. With an HSA, there are no income limits.
You can keep the money in your HSA account after you leave a job, similar to a 401(k). There is no requirement to spend it before you terminate employment.
The Affordable Care Act ("health reform") was signed into law in 2010 and made two changes to HSAs:
In 2011, over-the-counter medications were no longer eligible for tax-free withdrawal unless obtained with a prescription (except for insulin).
In 2011, the excise tax for non-qualified HSA withdrawals increased from 10% to 20%.
Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs) are all types of Medical Reimbursement Plans. However, each type has different benefits and requirements for employers and employees.
For a detailed overview of the benefits and requirements of HRAs, HSAs, and FSAs see:
Additional questions on Health Savings Accounts? Contact us. We’d be happy to help.