|Coverdell Education Savings Accounts (CESA)||
Health Savings Accounts
Major highlights of Health Savings Accounts (HSA) include the following:
More information: IRS Publication 969 - Health Savings Accounts and other tax-favored Health Plans.
HSA Quick Facts
|Contribution Limits||HSA Contribution Limits|
|Individual 2008||Up to $2,900|
|Individual 2009||Up to $3,000|
|Individual 2010-11||Up to $3,050|
|Individual 2012||Up to $3,100|
|Family 2007||Up to $5,650|
|Family 2008||Up to $5,800|
|Family 2009||Up to $5,950|
|Family 2010-11||Up to $6,150|
|Family 2012||Up to $6,250|
|55 Years or Older Catch up Contributions**|
**Only one catch-up contribution per account. Let's say a husband and wife are both over 55 and share a family HSA. Tax reporting is under the husband's TIN. The IRS allows only one catch-up per TIN. Therefore, the wife would need to open a separate "Family" HSA under her TIN in order to get the other catch-up contribution.
The health plan deductible must be HSA eligible and between the limits shown below in order to be HSA eligible
Health Savings Accounts at State Bank
State Bank's HSA is a savings account!
State Bank is not responsible to control the contributions or distributions. You may take a distribution for any purpose, but you are responsible for tracking expenses, maintaining receipts, and any possible tax consequences for unqualified distributions.
Warning: Medical expenses that occur before the HSA is opened cannot be paid with HSA dollars. Individuals should open the HSA as soon as possible to establish the opening date. The insurance needs to be put in place by 12/01.
Basic Philosophy of Health Savings Accounts
Remember the old days when the patient pulled out his wallet to pay the doctor's bill? This doesn't happen much nowadays because people expect someone else to pay medical bills, which has led to very unhealthy trends in health care.
Supply and demand never balance when people are insulated from the consequences of economic choices. Prices may rise, but people don't change behavior when someone else bears the cost. This is one reason medical insurance premiums have risen dramatically over the past 20 years.
The Health Savings Account (HSA) offers hope because it puts people back into the position of feeling the consequences of medical choices. Someone else (an insurer) starts to pay after individuals have spent a significant amount of their own money.
Qualifying for a HSA
HSA's have qualifying rules, as follows:
Deposits are contributions. Withdrawals are distributions. A teller may handle these because regular savings tickets are used. New Accounts personnel handle transfers. Unspent money remains in the account where it can grow tax free through the lifetime of the owner.
SBSU will open an HSA account for anyone who wants one. However, you should ask for information so you can make the correct choice.
Two Parts to Health Savings Accounts
A Health Savings Account is only half of the equation. Two parts are required, as follows:
A high-deductible health plan is a fancy way of saying, "Health insurance that doesn't pay anything until a lot of money has been spent by the owner". It is a type of insurance that remains in the background until the owner spends enough of his own money to meet the deductible. And then the insurance kicks in.
The chart back on page 2 shows the minimum and maximum deductibles in order for an insurance plan to be eligible for a Health Savings Account. Individuals should obtain HSA eligible insurance before opening a HSA.
Requirement #1: The High Deductible Health Plan (HDHP)
A person cannot be covered by other health insurance except for the following types of limited-coverage plans, as follows:
HSA money cannot be used to pay HDHP insurance premiums.
Requirement #2: The HSA
After obtaining appropriate insurance, individuals may open a Health Savings Account at SBSU. There is nothing special about the account except for the following:
Funding the HSA
Contributions to the HSA may come from the individual, others, or employers up to 100% of the health plan deductible. Contributions to the HSA carry different tax benefits, depending upon who makes the contribution, as follows:
Employers hope that HSAs help drive health costs down because money in the HSA belongs to the individual, which is the grand idea behind Health Savings Accounts. Ideally, individuals will not only be more selective when spending their own money, but will also avoid costly lifestyle errors such as over-eating or substance abuse.
Limits to the HSA - Contribution Limits
The second limit concerns the amount of money that may be contributed to an HSA after an individual has obtained the HDHP. As of 2007 a person may contribute up to the maximum deductible allowed by law as long as he is covered by a HDHP by December 1 of that year and all 12 months of the following year. Employees and employers must work together to make sure combined contributions do not exceed the limits.
Contributions must stop once an individual enrolls in Medicare.
Catch-up contributions are allowed for HSA owners 55 and older, but only one catch-up per account. For example, let's say a husband and wife are both over 55 and share a family HSA that is reported under the husband's TIN. They each are permitted a catch-up contribution under the law Because the IRS allows only one catch-up per TIN, the wife would need to open a separate "Family" HSA under her TIN in order to get the other catch-up contribution.
Qualified Health Care Distributions
What can HSA money be spent on? Qualified distributions include the following:
Caution: HSA money cannot be used to pay health insurance premiums or specific-event insurance (vision, dental, accident, cancer, etc.). Distributions used for those purposes will be taxed as ordinary income and subject to a 10% penalty.
Caution: Cannot use HSA money for expenses incurred before the HSA account is opened. Individuals should open an HSA account and fund with only $10 to establish the opening date. Insurance coverage must be in place before Dec 1 and provide coverage for the following 12 months.
Three Points about Qualified Health Care Distributions
First, a co-payment is a qualified medical expense under HSA rules. However, the HSA owner is also responsible for paying for treatment costs in addition to the co-payment. Some insurance plans may not allow a co-payment to count toward meeting the deductible.
Second, medical bills for one year may completely drain HSA resources without meeting the insurance deductible. In those cases the HSA owner may use his next year's HSA contribution to pay a prior year's medical expense if not reimbursed by another source or taken as a medical deduction on a tax return.
Third, some HSA expenditures, such as vision or dental expenses, may not count toward a particular type of HDHP deductible, but do count as qualified medical expenses under HSA rules. Some insurance plans require specific types of medical costs to count toward the deductible. While the IRS "qualifies" certain types of medical expenses, insurers may not follow the same IRS list for meeting the deductible.
Qualified Health Care Distributions continued . . .
HSA distributions for qualified medical expenses are tax and penalty free. However, distributions for unqualified expenses are added to the owner's gross income and taxed at regular rates plus an additional 10% penalty. The individual can spend the money on anything, really, but it is up to him to keep accurate records to prove the distributions went toward qualified health expenses. The 10% penalty for unqualified distributions remains in force until the individual . . .
In other words, unqualified expenditures from an HSA are always subject to regular income tax. They are usually subject to an additional 10% penalty unless the person has died, become disabled, or turned 65 during the year.
Mistaken distributions from an HSA: Money may be re-contributed to the HSA by April 15 of the year after a person should have known it was a mistake. However, clear and convincing evidence is required that proves the distribution was an honest mistake, not a "planned" error.
This is another reason why a person with an HSA must keep receipts and maintain good records.
Rollovers, Transfers and Tax Reporting
The HOPE act of 2007 permits a one-time, tax-free, IRA >> HSA transfer as long as the HSA owner continues to be covered by a HDHP for the next 12 months after the rollover date.
Direct transfers from an HSA at one custodian to an HSA at SBSU is also permitted as long as the owner does not have control of the funds during the transfer.
|Transaction||IRA Owner Circumstance||IRA Distribution||HSA Contribution|
|IRA to HSA||IRA owner is under 59 ½||61 Premature, no exception||2840 From Non-HSA|
|IRA to HSA||IRA owner is 59 ½ or older||67 Normal||2840 From Non-HSA|
HSA Beneficiary Options
This is very simple because there are so few options. A spouse may inherit the HSA from a deceased partner and "treat as own" without tax consequences. The HSA is simply transferred to an HSA in the name of the surviving spouse. The surviving spouse may continue to make HSA contributions if she also has an HSA. If she is not covered, she may use the money for medical expenses, but cannot make more contributions.