Health Savings Accounts (HSA)
Beginning on January 1, 2004,
individuals under the age of 65 are eligible to contribute to an HSA if they have a qualified health plan.
For self-only policies, a qualified health
plan must have a minimum deductible of $1,100 with a $5,500 cap on out-of-pocket expenses for 2007. (indexed annually).
For family policies, a qualified health plan
must have a minimum deductible of $2,200 with a $11,000 cap on out-of-pocket expenses for 2007. (indexed annually).
Preventive care services, as well as coverage
for accidents, disability, dental care, vision care, and long-term care is not subject to the deductible.
Individuals may contribute up to
100% of the health plan deductible.
The maximum annual contribution is $2,850
for self-only policies and $5,650 for family policies in 2007 or the lesser of the deductible of the insurance policy. (indexed
annually).
Individuals age 55 - 65 may make additional catch-up contributions of $800 in 2007, increasing
$100 per year to $1,000 annually in 2009 and thereafter. A married couple can make two catch-up contributions as
long as both spouses are at least 55 and each has their own HSA Account.
Contributions may be made by individuals, family members and employers and are tax deductible,
even if the account beneficiary does not itemize. Employer contributions are made on a pre-tax basis and are not taxable to
the employee. Employers will be allowed to offer HSAs through a cafeteria plan.
Investment earnings accrue tax-free.
HSA distributions are tax-free if they are used to pay for qualified medical expenses. Qualified
expenses include prescription drugs, qualified long-term care services and long-term care insurance, COBRA coverage, Medicare
expenses (but not Medigap), and retiree health expenses for individuals age 65 and older.
Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty
is waived in the case of death or disability. The 10% penalty is also waived for distributions made by individuals age 65
and older.
Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
Questions? Give
us a call 949.588.5878 or email i
nfo@askyouragent.net 
