| HSA Benefits |
| HSA ’s can provide significant tax benefits to eligible individuals. Not only can HSA’s provide tax benefits related to paying qualified medical expenses, they may also provide benefits similar to many tax-favored retirement plans. |
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| Tax Benefits |
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HSA contributions — by employer or employee — are excluded from income. |
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HSA earnings are tax-deferred. |
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If used for qualified medical expenses, HSA assets are never taxed. |
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Unused HSA assets may be used for retirement, however, they will be subject to a 10 percent penalty until the HSA account beneficiary turns age 65, and if not used for medical expenses, they will be subject to income taxes. |
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Upon death, HSA assets become the property of a named death beneficiary, or the HSA account beneficiary ’s estate. A spouse may treat the assets as his or her own HSA, while non-spouse death beneficiaries must treat such assets as ordinary, taxable income. |
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| How Do HSA’s Differ From Archer MSA’s? |
While many of the rules that apply to HSA’s are similar to those governing MSA’s, there are some key differences: |
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HSA’s are available to individuals only covered by a qualified high deductible health plan (HDHP), regardless of whether the person is self-employed or employed by a small employer, and regardless of whether their employer maintains the HDHP. |
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An employer may offer HSA’s through a cafeteria plan. |
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Employer contributions to an HSA offset what an individual can contribute — they do not eliminate an individual’s ability to contribute. |
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Nonqualifying use of HSA assets is subject to a potential 10 percent, rather than a 15 percent, penalty. |
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HSA-qualifying medical expenses include expenses to purchase certain health insurance after age 65. |
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The law allows MSA assets to be rolled over to HSA’s, which is one way a current MSA account holder can immediately take advantage of these more favorable HSA rules. |
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| What Are Qualified Medical Expenses? |
| In order for HSA assets to retain their tax-free status, they may only be withdrawn and used for certain expenses. |
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| These expenses include: |
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Actual medical expenses, including doctor visits, prescriptions, transportation to get medical care, and dental care. |
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Long-term care insurance. |
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Healthcare coverage when unemployed. |
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Certain continuation-of-benefit healthcare coverage. |
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Certain health insurance after age 65. |
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Nonqualified uses of HSA assets are subject to taxation and a 10 percent penalty, unless the HSA account beneficiary is age 65 or older, dies, or is disabled. |
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| Are You Eligible For An HSA? |
| You are an eligible individual for any month if you:
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Are covered under a qualified high deductible health plan (HDHP) on the first day of that month. |
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Are not also covered by any other health plan that is not an HDHP (with limited exceptions). |
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Are not entitled to benefits under Medicare. |
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Are not able to be claimed as a dependent on another person ’s tax return. |
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| What Is An HDHP? |
| An HDHP is an insurance policy that meets certain dollar limits. |
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| Can Self-Employed Individuals Have An HSA? |
| Sole proprietors and others who are self-employed can have an HSA and are, in fact, often ideal candidates. In such situations, the business owner is both employer and employee. |
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| HSA’s are often advantageous for the self-employed because: |
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High-deductible health insurance plans generally have modest premium costs and may be an effective cost-containment mechanism for the employer. |
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The employer is protected against potentially catastrophic healthcare expenses. |
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The HSA may serve the dual purpose of providing for both medical and retirement expenses. |
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| HSA Contribution Rules |
The total amount you or your employer may contribute to an HSA for any taxable year is dependent upon whether you have individual or family coverage under a high deductible health plan.
In addition to the standard HSA contribution limits shown in the previous table, if you have attained age 55 before the close of a taxable year, you may also contribute an additional amount known as a “catch-up” contribution. The catch-up contribution limit is $500 for 2004, and is scheduled to increase through 2009. |
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| HSA Reporting Requirements |
| Employer contributions to an HSA must be reported on the employee’s W-2. It is anticipated that the IRS will issue forms and instructions on how to report HSA contributions, deductions, and distributions. |
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| For More Information |
| To learn more about how to take advantage of the many HSA benefits, ask one of our representatives for more details. |
