Health Savings Account


An HSA is a tax-advantage medical savings account available to taxpayers who are enrolled in a high-deductible health plan (HDHP).  The funds contributed to an account are not subject to federal income tax at the time of deposit.  Unlike an FSA, funds roll over and accumulate year to year if not spent.  HSAs are owned by the individual, which differentiates them from company owned HRAs which can be paired with any standard policy (not limited to HDHP). The main advantage of making pre-tax contributions is the Federal Insurance Contributions Act tax (FICA) and Medicare Tax deduction, which amounts to a savings of 7.65% each to the employer and employee.  The annual maximum deposit to an HSA for a single individual is $3,300, and $6,550 for a family (basis 2014).   A catch-up provision also applies for plan participants who are age 55 or over, allowing the IRS limit to be increased (+$1,000). Funds in an HSA can be invested in a manner similar to investments in an Individual Retirement Account (IRA).  Investment earnings are sheltered from taxation until the money is withdrawn.  While an HSA can be rolled over from fund to fund, it cannot be rolled into an IRA for 401(k) and vice versa.  Participants do not have to obtain advance approval from their HSA trustee or their medical insurer to withdraw funds, and are not subject to income taxation if made for qualified medical expenses.  Some HSAs include a debit card, some supply checks for account holder use, and some allow for a reimbursement process similar to medical insurance. A Health Savings Account can be used to pay for qualified medical expenses incurred on or after the date of HSA establishment for the account owner, his or her spouse, and qualified dependents.  For HSAs, employers cannot restrict eligible expense listings – there cannot be any difference between the IRS-allowed expenses and the HSA-allowed expenses. Funds you withdraw from your HSA are tax-free when used to pay for eligible medical and dental expenses.  Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate plus 20% tax penalty if you’re under 65. Medical expenses are qualified only to the extent they are not reimbursed by insurance or otherwise.

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