June 23, 2010
If you are covered under a High Deductible Health Plan(HDHP), you may be eligible to make tax deductible contributions to a Health Savings Account (HSA). Contributions may remain in the account from year-to-year until you use them and can generate tax-deferred or tax-free earnings. An HSA is "portable" so it stays with you if you change employers or leave the work force. Also, the interest or other earnings on the assets in the account accumulate tax free.
The HSA/HDHP combination is not for everybody because of the high deductible. If you are taking several prescription medications or if you expect to visit the doctor several times, you would have to pay a great deal out-of-pocket until your HDHP deductible is met. Or, you may not have enough to be able to fund an HSA.

But if your medical expenses are relatively low and you are able to contribute consistently to an HSA, consider all of these advantages in addition to the tax advantages:
  • HSA funds are not "use or lose," unlike flexible spending accounts (FSAs). You may keep the funds in the account as long as you wish and use them only when you need to.
  • Unlike Roth IRAs, there is no waiting period before you can begin taking tax-free distributions.
  • You may be eligible for a 1-time rollover of IRA or unused FSA funds to help fund your HSA.
  • HDHP premiums are often considerably lower than traditional health plan premiums. The lower premiums can mean you have additional funds to handle the HDHP deductible and fund the HSA.
  • Employers may fund some or all of the HSA for you. Employer contributions are tax-exempt.

HSA Questions

I don't have health insurance, can I get an HSA?

You cannot establish and contribute to an HSA unless you have coverage under a HDHP.

My employer offers an FSA, can I have both an FSA and an HSA?

You can have both types, but only under certain circumstances. General Flexable Spending Accounts (FSA) will probably make you ineligible for an HSA. If your employer offers a "limited purpose" (limited to dental, vision or preventative care) or "post deductible" (pay for medical expenses after the deductible is met) FSA, then you can still be eligible for an HSA.

I don't have a job, can I have an HSA?

There are no income limits that affect HSA eligibility. However, if you do not file a Federal income tax return, you may not receive all the benefits HSA's offer.

Can I start an HSA for my child?

No, you cannot establish separate accounts for your dependent children, including children who can legally be claimed as a dependent on your tax return.

2013 HSA Limits


Minimum Maximum Contribution Over 55
Deductible Out-of-pocket Limit Contribution
Single $1,200.00 $6,200.00 $3,250.00 $1,000.00
Married $2,400.00 $12,500.00 $6,450.00 $1,000.00

For 2013, you can contribute up to:
  • $3,250 if you have self-only coverage with an annual deductible of not less than $1,200 and your annual out-of-pocket expenses do not exceed $6,200.
  • $6,450 if you have family coverage with an annual deductible of not less than $2,400 and your annual out-of-pocket expenses don't exceed $12,500.
  • $1,000 in catch-up contributions for individuals age 55 or older.

You can receive tax-free distributions from your HSA to pay for any qualified medical expenses for the current or prior year as long as the expenses were incurred after the HSA was established. Most medical expenses incurred by you, your spouse, or any dependents qualify. Nonqualified distributions, however, are taxable and generally subject to a 20-percent penalty. Caution: This penalty increased to 20 percent for nonqualified distributions after 2010.

Because earnings are tax-deferred, an HSA could also be used as a means to save for retirement. Nonqualified distributions after attaining age 65 are taxable but not subject to the additional penalty.

2012 HSA Limits


Minimum Maximum Contribution Over 55
Deductible Out-of-pocket Limit Contribution
Single $1,200.00 $6,050.00 $3,100.00 $1,000.00
Married $2,400.00 $12,100.00 $6,250.00 $1,000.00

For 2012, you can contribute up to:
  • $3,100 if you have self-only coverage with an annual deductible of not less than $1,200 and your annual out-of-pocket expenses do not exceed $6,050.
  • $6,250 if you have family coverage with an annual deductible of not less than $2,400 and your annual out-of-pocket expenses don't exceed $12,100.
  • $1,000 in catch-up contributions for individuals age 55 or older.

You can receive tax-free distributions from your HSA to pay for any qualified medical expenses for the current or prior year as long as the expenses were incurred after the HSA was established. Most medical expenses incurred by you, your spouse, or any dependents qualify. Nonqualified distributions, however, are taxable and generally subject to a 20-percent penalty. Caution: This penalty increased to 20 percent for nonqualified distributions after 2010.

Because earnings are tax-deferred, an HSA could also be used as a means to save for retirement. Nonqualified distributions after attaining age 65 are taxable but not subject to the additional penalty.

2011 HSA Limits


Minimum Maximum Contribution Over 55
Deductible Out-of-pocket Limit Contribution
Single $1,200.00 $5,950.00 $3,050.00 $1,000.00
Married $2,400.00 $11,900.00 $6,150.00 $1,000.00

For 2011, you can contribute up to:
  • $3,050 if you have self-only coverage with an annual deductible of not less than $1,200 and your annual out-of-pocket expenses do not exceed $5,950.
  • $6,150 if you have family coverage with an annual deductible of not less than $2,400 and your annual out-of-pocket expenses don't exceed $11,900.
  • $1,000 in catch-up contributions for individuals age 55 or older.

You can receive tax-free distributions from your HSA to pay for any qualified medical expenses for the current or prior year as long as the expenses were incurred after the HSA was established. Most medical expenses incurred by you, your spouse, or any dependents qualify. Nonqualified distributions, however, are taxable and generally subject to a 20-percent penalty. Caution: This penalty increased to 20 percent for nonqualified distributions after 2010.

Because earnings are tax-deferred, an HSA could also be used as a means to save for retirement. Nonqualified distributions after attaining age 65 are taxable but not subject to the additional penalty.

2010 HSA Limits


Minimum Maximum Contribution Over 55
Deductible Out-of-pocket Limit Contribution
Single $1,200.00 $5,950.00 $3,050.00 $1,000.00
Married $2,400.00 $11,900.00 $6,150.00 $1,000.00

For 2010, you can contribute up to:
  • $3,050 if you have self-only coverage with an annual deductible of not less than $1,200 and your annual out-of-pocket expenses do not exceed $5,950.
  • $6,150 if you have family coverage with an annual deductible of not less than $2,400 and your annual out-of-pocket expenses don't exceed $11,900.
  • $1,000 in catch-up contributions for individuals age 55 or older.

You can receive tax-free distributions from your HSA to pay for any qualified medical expenses for the current or prior year as long as the expenses were incurred after the HSA was established. Most medical expenses incurred by you, your spouse, or any dependents qualify. Nonqualified distributions, however, are taxable and generally subject to a 10-percent penalty. Caution: This penalty increases to 20 percent for nonqualified distributions after 2010.

Because earnings are tax-deferred, an HSA could also be used as a means to save for retirement. Nonqualified distributions after attaining age 65 are taxable but not subject to the additional penalty.
Topic: Advice