IS A HEALTH SAVINGS ACCOUNT (HSA) THE RIGHT HEALTH INSURANCE FOR YOU AND YOUR EMPLOYEES?
The Basics of Health Savings Accounts (HSAs)
Simply put, an HSA is a tax advantaged way to pay for health care. It works like this: an individual buys a high-deductible insurance policy to cover major medical expenses, and then sets money aside each month in a savings account - that’s the HSA part - to pay for everyday health care costs. The account is owned by the individual, which means money not used one year can be rolled over into the next.
If there’s a job change, the HSA moves, too. Money earned in an HSA accumulates tax-free, and whatever is withdrawn for medical expenses is also tax-free.Common Questoins and Answers about Health Savings Accounts (HSAs)
Who can get a Health Savings Account (an HSA)?
Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term care insurance policies.How much can I contribute annually to an HSA?
You can contribute in 2006 the amount of the deductible, up to $2,700 for singles and $5,450 for families, each year to your HSA. And if are 55 or older, you can put in an extra $700.Can any high-deductible health insurance policy qualify for an HSA?
Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,050 for individuals or $2,100 for families, and the annual out-of-pocket expenses cannot exceed $5,250 for an individual or $10,500 for a family, including the deductible and co-payments (but not premiums). So individuals can buy high-deductible policies on their own, or through their employers.How and where can I open a health savings account?
It depends on if you're buying coverage on your own or getting it through your employer.
On your own.
Cornell Insurance Services can provide information on many different insurance carriers thatis the right
fit for you and or your family. Please contact us for more details and discuss the right fit for you.
Through your employer.
If you get health insurance through your employer, you may have seen an HSA-eligible option during
last-year's open-enrollment period (generally in the fall). If not, talk to your benefits manager to see
if HSAs will be on your health insurance menu. Choosing an HSA could knock down your share of
premiums significantly, and some employers may choose to fund all or part of the HSA for you, perhaps
even adding a 401(k)-style match.Would I fund an HSA with pre- or post-tax dollars?
If your employer offers a high-deductible health insurance policy, you may be able to make pretax contributions, like you would with a flexible-spending account. If you open the HSA on your own, your contributions will be deductible when you file your taxes, even if you don't itemize.
For 2006, you'll be able to deduct the lesser of either:
1. Your insurance deductible or
2. The sum of $2,700 for individuals; $5,450 for families
If you're between the ages of 55 and 65, you can add an additional $700 to the deduction limits in 2006.Do the tax benefits phase out at certain income levels?
Unlike many other tax breaks, there aren't any income limits. Anyone under age 65 who buys a qualified high-deductible policy can open an HSA.What's the difference between the new HSAs and the flexible-spending accounts?
It seems they are for the same purpose. The tax benefits of both plans are quite similar, but there are several differences.The biggest and most important difference is that your HSA balances can roll over from year to year and continue to grow tax-deferred.
Money in your flex plan must be spent by the end of the plan year or you lose it. That may sound like a big negative, but flex plans can save you a lot of money even if you don't spend every nickel.
Also, you can open a flexible-spending account only if the plan is offered by your employer, and you don't need to have a high-deductible health insurance policy.If my employer offers both, can I fund my flexible spending plan, too?
No. You cannot have an HSA if you use a flexible-spending account to pay health-care costs or if you have other medical coverage (say, through a spouse's policy). However, if your flex plan restricts reimbursements to wellness care (such as annual physicals) and vision and dental care, you can have an HSA too.If I set up HSA through my employer, what happens if I switch jobs?
You can keep the money in an HSA account even after you leave that job, similar to a 401(k). But you will get stuck with a 10% penalty -- plus an income-tax bill -- if you use any of the money for nonmedical expenses before age 65.What happens if I want to withdraw the money for nonmedical expenses after age 65?
You won't be hit with the 10% penalty if you use the money for nonmedical expenses after age 65, but you would still have to pay income taxes on the money. Keep in mind that you can continue to withdraw money from the account tax-free for qualified medical expenses after age 65.
Can a couple who is planning to retire early open an HSA?
Sure. Anyone under age 65 can contribute to an HSA if he or she buys a high-deductible health insurance policy, and you can contribute an extra $700 in 2006 if you're 55 or older. This catch-up contribution amount will increase by $100 per year until it reaches $1,000 in 2009.
You can't make new HSA contributions after age 65, but you can still use the money in your account tax-free for medical expenses at any age. You'll owe income taxes on the money -- but no penalty -- if you withdraw the money for nonmedical expenses after age 65.Do contributions to an HSA in any way affect one's ability to contribute to an individual retirement account?
No. Your HSA contributions won't affect your IRA limits -- $4,000 per year or $4,500 for those over 50. It's just another tax-deferred way to save for retirement.Who can get an HSA?
Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term care insurance policies.How much can I contribute annually to an HSA?
You can contribute in 2006 the amount of the deductible, up to $2,700 for singles and $5,450 for families, each year to your HSA. And if are 55 or older, you can put in an extra $700.Can any high-deductible health insurance policy qualify for an HSA?
Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,050 for individuals or $2,100 for families, and the annual out-of-pocket expenses cannot exceed $5,250 for an individual or $10,500 for a family, including the deductible and co-payments (but not premiums). So individuals can buy high-deductible policies on their own, or through their employers.Click here to have us contact you regarding health savings accounts
