HSA Frequently Asked Questions

Q: Who’s eligible to open an HSA?
A: Anyone under the age of 65 who has a qualified high-deductible health plan and isn’t claimed as a dependent on another person’s tax return is eligible to open an HSA.

Q: What is a high-deductible health plan?
A: A health insurance plan with a minimum deductible of $1,000 for individuals or $2,000 for families and annual out-of-pocket expenses (including deductibles and co-pays) does not exceed $5,000 for individuals and $10,000 for families

Q: Who can contribute to an HSA?
A: Employees, employers, or both can contribute

Q: How much can a person contribute to an HSA?
A: The amount an individual or family may contribute to the HSA is set by the federal government and may change. The 2005 limits are set at 100% of the plan’s deductible or $2,650 for individuals and $5,250 for families, whichever is less. A special catch-up provision allows individuals between ages 55 and 65 to contribute an additional $600 in 2005. This catch-up amount will increase by $100 each year until it reaches $1,000 in 2009.

Q: What expenses can be paid with HSA funds?
A: The HSA holder decides how to spend HSA health-care dollars. Visits to physician offices, prescription drugs, dental care, nursing care, psychiatric care, and chiropractic care are examples of eligible expenses listed in IRS Publication 502, which is available at the IRS Web site, www.irs.gov.

Q: What happens if HSA funds are used to pay ineligible expenses?
A: If funds are withdrawn for ineligible expenses, the HSA owner will have to pay taxes on the withdrawn amount and will be subject to a penalty unless the owner is over the age of 65.

Q: Who’s responsible for determining if an expense qualifies for payment from an HSA?
A: The HSA holder is totally responsible for determining if an expense is qualified. The employer or financial institution has no responsibility.

Q: What happens to funds remaining at the end of the year?
A: Contributions to the HSA, along with any interest or dividends, continue to grow tax-free. At the end of the year, funds in the HSA that haven’t been spent are retained in the HSA to pay eligible medical expenses in future years.

Q: What’s the tax advantage of an HSA?
A: Money can be deposited in an HSA before income and FICA taxes are deducted from the account holder’s paycheck. As a result, the HSA holder’s taxable income is reduced and taxes are never paid on money used for eligible medical expenses. The money in an HSA may earn interest or dividends, which grow tax-free. This assumes that a Section 125 Plan is in place.

Q: Who can administer an HSA?
A: HSAs can be set up at any participating authorized financial institution.