Health Savings Account
A Health Savings Account (HSA) is a special, tax-advantaged account that is used in conjunction with a high-deductible health plan (HDHP), and allows you to pay for qualified medical expenses. You contribute money to your HSA, where it earns interest tax-free. Funds are not taxed when withdrawn to pay for qualified medical expenses.
- Save for medical expenses for yourself and your dependents
- Pay qualified medical expenses in person, over the phone, or online with a HSA debit card.
- Pretax funds are taken out of your paycheck and deposited automatically in your HSA.
- HSA funds rollover from year to year and continue to build until you need them, maximizing your tax savings. State taxes may still apply.
- Unlike a Flexible Spending Account (FSA), the funds never expire.
- A $3 service charge will be imposed every month if the balance in the account falls below $1,000 any day of the month.
- You must maintain a minimum balance of $5,000 in the account each day to obtain disclosed Annual Percentage Yield (APY).
The Annual Percentage Yields (APYs) below are accurate as of March 31, 2015.
Minimum Balance to Obtain APY
$.01 – 4,999.99
$5,000 – 19,999.99
- Must be covered by an HDHP (High-Deductible Health Plan). An HDHP typically offers a higher deductible in return for lower premiums.
- Cannot have other health insurance coverage, such as a spouse’s plan, that is not an HDHP
- Cannot be claimed as a dependent on another person’s tax return
- Not available to those eligible for Medicare
The federal government sets the maximum contribution limit for individuals and families annually.
- 2014 Individual Maximum Contribution: $3,300
- 2014 Family Maximum Contribution: $6,550
Qualified Medical Expenses
Qualified medical expenses include covered expenses that apply toward your high-deductible health plan (HDHP) annual deductible. You can also pay for qualified medical expenses not covered by your health insurance plan. Some examples follow:
- Prescription drugs
- Eye exams, laser eye surgery, glasses, contacts, and solutions
- Orthodontia and dental work
- Hearing aids
- Diabetic supplies
- Physical therapy, speech therapy
- Chiropractic manipulation
- Specialized equipment for disabled people
- Transportation expenses and devices related to medical care
- Weight-reduction programs for physician-diagnosed obesity
Remember, you must comply with HSA spending regulations. You can find detailed information about qualified HSA medical expenses in Section 213(d) of the Internal Revenue Code and IRS Publication 502.