What is an HSA?

So much confusion exists about Health Savings Accounts (H.S.A.s) that we thought a short course would be helpful.

First, H.S.A.s are NOT a type of insurance.  Many of the insurance products today are confusing, because they use the words/letters "H.S.A." in the product name (e.g., HMO H.S.A. Option 7).  The IRS code requires that you buy a "Qualified High-Deductible Health Plan" (QHDHP), aka a "H.S.A. Compatible Plan", in order to have the right to set up a Health Savings Account.  When an insurance product includes "H.S.A." in the title, it is really saying that it is a "Qualified High-Deductible Health Plan". The health plan is separate from the Health Savings Account.

Anyone can set up and participate in an Health Savings Account (until age 65), if he/she has a Qualified High-Deductible Health Plan. 

The H.S.A. is similar to an IRA in that you typically establish the account with a bank, and any account contributions become tax deductible, up to the IRS limits for that year.  You may contribute up to April 15th of each year.

The H.S.A. is NOT like an IRA in that any funds used for "Qualified Medical Expenses" continue to be non-taxable, without an early withdrawal penalty.  After age 65, a H.S.A. and an IRA are similar in that both can be used for income without a penalty.  After age 65, a H.S.A. may continue to be used for Qualified Medical Expenses without tax or penalty.

2011 Maximum Contributions: Individual = $3,050; Family = $6,150.

*Please check with your CPA and Tax advisor for complete information.