What is a Health Saving Account?
A Health Savings Account is like a 401(k) for healthcare. This pre-tax benefit account, in conjunction with your qualified high-deductible health plan, is used to pay for eligible out-of-pocket medical expenses for both you and your dependents. You can also earn interest on the money in your account and invest it so that it grows over time.
Who is Eligible?
In order to be eligible for an HSA, an individual must be enrolled in a qualified high deductible health plan (HDHP).
Eligible expenses include:
Pharmacy (medically necessary)
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How are HSAs funded?
Participants can contribute to the account either
Post-tax: Using an online portal and check by mail
Yearly Contribution Limits (Announced May 2020): In 2021, employees can contribute up to $3,600 if they have self-only coverage and $7,200 if they have family coverage. If the employee is 55 years old or older, they can contribute an additional $1,000 to their plan.
Plan Year: There is no plan year with an HSA, funds rollover continuously each year and do not expire.
Who is eligible to Contribute? Any eligible individual may contribute to an HSA. For an HSA established on behalf of an employee both the employee and the employer may make contributions. Additionally, family members may make contributions on behalf of other family members as long as the other family member is an eligible individual (i.e., has a qualified HDHP and is not otherwise insured).
Who owns the account? An HSA is owned by the account holder and is a bank account set up in the owner's name. Account beneficiaries can be assigned.
What are the funds that I have access to use? The account holder may only use the funds that are available in your account.
When can I change my contributions? HSA users can change their contribution amount at any time, as long as it does not exceed the yearly allocation limit. It is up to the HSA account holder to track contributions and ensure they do not exceed the annual limit.
1. If you are under 65 years old, you will have to pay ordinary income taxes as well as pay a 20% penalty for the amount you disbursed out of your HSA account. If you are 65 or older, disabled, or die, then you will just pay ordinary income taxes (no penalty). If you find yourself in this situation, you can attempt to put money back into your HSA funds before tax time each year.
2. Employers can also contribute to the account at their own discretion meaning they might make monthly, quarterly, or yearly contributions so employees only have access to what has actually been deposited into their HSA account. And participants are able to contribute to prior year limits until tax day the following year. However, there are limits imposed by the IRS that governs the way HSAs are funded and used.
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