Health Savings Accounts (or HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. Generally, an adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish a Health Savings Account.
What Is a Health Savings Account?
A Health Savings Account is a tax-exempt trust or custodial account that you set up with a qualified Health Savings Account trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for a Health Savings Account.
Can I Open a Health Savings Account?
No permission or authorization from the IRS is necessary to establish a Health Savings Account. When you set up a Health Savings Account, you will need to work with a trustee. A qualified Health Savings Account trustee can be a bank or an insurance company.
The Health Savings Account can be established through a trustee that is different from your health plan provider.
What Are The Benefits of a Health Savings Account?
Some of the benefits of Health Savings Accounts include:
You can claim a tax deduction for contributions you, or someone other than your employer, make to your Health Savings Account.
Contributions to your Health Savings Account made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
The contributions remain in your Health Savings Account account from year to year until you use them.
The interest or other earnings on the assets in the Health Savings Account are tax free.
Distributions from the Health Savings Account may be tax free if you pay qualified medical expenses.
A Health Savings Account is “portable” so it stays with you if you change employers or leave the work force.
What Are The Eligibility Rules For a Health Savings Account?
To be an eligible individual and qualify for a Health Savings Account, you must meet the following requirements.
You must be covered under a high deductible health plan (HDHP)
You are not enrolled in Medicare.
You cannot be claimed as a dependent on someone else's 2012 tax return.
What Are The Contribution Rules For a Health Savings Account?
The amount you or any other person can contribute to your Health Savings Account depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. If you have family HDHP coverage, you can contribute up to $6,450.