What are the basics of a health savings account?
A health savings account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.
- No permission or authorization from the IRS is necessary to establish an HSA.
- When you set up an HSA, you will need to work with a trustee.
- A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs.
- An HSA can be established through a trustee that is different from your health plan provider.
What are the benefits of health savings accounts?
You may enjoy several benefits of health savings accounts.
You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account from year to year until you use them.
- The interest or other earnings on the assets in the account are tax-free.
- Distributions may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.
- An HSA is “portable” so it stays with you if you change employers or leave the work force.
Do you qualify for an HSA?
To be an eligible individual and qualify for an HSA, you must meet the following requirements.
- You must be covered under a high deductible health plan (HDHP) on the first day of the month.
- You have no other health coverage except what is permitted under ‘Other Health Coverage’
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s 2016 tax return.
High deductible health plan (HDHP)
An HDHP is required to have:
- A higher annual deductible than typical health plans
- A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses.
- Out-of-pocket expenses include co-payments and other amounts, but do not include premiums.
An HDHP may provide preventive care benefits without a deductible or with a deductible below the minimum annual deductible.
For more information on screening services, see Notice 2004-23, 2004-15 I.R.B. 725 available at: http://www.irs.gov/irb/2004-15_IRB/ar10.html.
Most of the information on this page was taken directly from the IRS website: http://www.irs.gov/publications/p969/ar02.html#en_US_2011_publink1000204020
To learn more about setting up your Health Savings Account, please contact our at office 1-866-7500-IRA(472) or [email protected].
If you are an American IRA Client and you have questions regarding the investment process, please contact our office at 1-866-7500-IRA(472) or [email protected].