Health Savings Account Answers
Friday, February 22, 2008; 9:17 AM
Editor's note: This story has been updated since Congress passed a bill December 9, 2006 authorizing changes to the health sav ings account program. The President is expected to sign the bill into law.
Questions about health savings accounts have b een pouring in ever since the tax-free savings vehicle was introduced as part of medicare prescription drug plan and took effect in January 2004. Recently passed legislation will make HSAs an even better deal in 2007. Below are the most frequently asked questions we've received and the answers we've found:
- Who can get an HSA?
- How much can I contribute annually to an HSA?
- Can any high-deductible health insurance policy qualify for an HSA?
- How and where can I open a health savings account?
- Would I fund an HSA with pre- or post-tax dollars?
< li type='square'>Do the tax benefits phase out at certain income levels?
- What's the difference between the new HSAs and flexible-spending accounts? It seems they are for the same purpose.
- If my employer offers both, can I fund my flexible spending plan, too?
- If I set up HSA through my employer, what happens if I switch jobs?
- What happens if I want to withdraw the money for nonmedical expenses after age 65?
- Can a couple who is planning to retire early open an HSA?
- Do contributions to an HSA in any way affect one's ability to contribute to one's IRA?
Who can get an HSA?
Anyone under age 65 who buys a qualified high-deductibl e policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (eithe r as an individual or a dependent), although you can still have other disability, dental, vision and long-term care insurance polici es.
How much can I contribute annually to an HSA?
You can contribute in 2006 the amount of the deductible, up to $2,700 for singles and $5,450 for families, each year to your HSA. And if are 55 or older, you can put in an e xtra $700.
In 2007 you can contribute up to $2,850 for individual coverage or $5,650 for families (people age 55 and older can make an extra catch-up contribution of $800 in 2007). Legislation approved by Congress December 9 will allow you to contribute up t o these limits even if your insurance deductible is less.
Can any hig h-deductible health insurance policy qualify for an HSA?
Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,050 for individuals or $2,100 for families, and the annual out- of-pocket expenses cannot exceed $5,250 for an individual or $10,500 for a family, including the deductible and co-payments (but not premiums). So individuals can buy high-deductible policies on their own, or through their employers.
In 2007 your health ins urance policy must have a deductible of at least $1,100 for individual coverage or $2,200 for families to qualify as an HSA-eligible policy. You can then contribute up to the amount of the deductible each year.
If you're buying a plan on your own, be sure to ask your health insurance company if it qualifies, says Victoria Bunce, research and policy director for the Council for Affordable Health Insurance.