Health Savings Accounts:

Health Saving Accounts, or HSAs, are tax-favored consumer savings arrangements for individuals covered by high deductible health insurance plans.  HSAs were created by Congress to combat the rising medical costs providing an incentive for more consumers to pay “first-dollar” medical expenses.  This account is like an IRA account, but it is distinctively designed for covering authorized medical expenses for the person who opens the account and his or her dependents.

 Health Savings Accounts maintain their tax-free status if they are used for the following medical expenses: 

· Doctor and dental visits, prescriptions, transportation to receive medical and dental care.

· Healthcare coverage when unemployed

· Long-term care insurance

· Certain continuation-of-benefit healthcare coverage

· Health insurance plans that qualify after age 65

 NOTE:  Violations—nonqualified uses of Health Savings Accounts savings are subject to taxation and a 10% penalty unless the Health Savings Account holder is age 65 or older, is disabled or dies.

WHAT ARE THE TAX BENEFITS OF A HSA?

 Qualified individuals can enjoy significant tax benefits associated with paying qualified medical expenses.  These benefits have similar characteristics to IRA accounts.  A summary of HSA tax advantages is shown below.

· HSA assets are never taxed, if used for qualified medical expenses.

· HSA earnings are tax deferred.

· Employer or employee contributions to a HSA are excluded from income.

· Unused HSA assets may be used for retirement, but these funds will be subject to a 10% penalty if the HSA beneficiary has not reached the age of 65, dies or is disabled.  Any funds that are not used for medical expenses will be subject to income taxes.

· Upon death, HSA assets become the property of a named death beneficiary, or of the HSA account beneficiary’s estate.  The spouse of the beneficiary may treat the assets as their own HSA, while other death beneficiaries must treat such savings as ordinary taxable income.

 WHO IS ELIGIBLE?

 You are eligible if you:

· are covered under a high deductible health plan (HDHP) on the first day of the month;

· are not covered by any other health plan that is not HDHP (with limited exceptions);

· are not enrolled in Medicare (generally not yet age 65; and

· are not able to be claimed as a dependent on another person’s tax return.