Jason Ross Insurance Agency

A Health Savings Account (HSA) is an account you can use for qualified healthcare expenses.

Both you and your employer can put money in your HSA. Once money goes into the account, it's yours forever - the HSA is in your name, just like a personal checking or savings account.

Why use an HSA for healthcare expenses?

Because you fund the HSA with pre-tax money, you are using tax free funds for healthcare expense that you would normall pay for yourself out of pocket. Your HSA contributions do not count toward your taxable income for federal taxes. Note: self employed people may not be allowed to contribute to an HSA pre-tax. Consult with your tax advisor.

Another advantage is that your account can grow over time.

Since the money always belongs to you, even if you leave the company, and unused funds carry over from year to year, you never have to worry about losing your money. That means if you don’t use a lot of healthcare services now, your HSA funds will be there if you need them in the future – even after retirement.

The HSA also becomes an investment vehicle.

With most HSA accounts, your account can grow tax-free in an interest-bearing savings account, a money market account, a wide variety of mutual funds – or all three. Of course, your funds are always available if you need them for qualified healthcare expenses. You don't face penalties when the funds are used for qualified healthcare costs (but never for premiums).

To be eligible to contribute to an HSA, you need to get a certain kind of health plan called a High Deductible Health Plan.

Often you'll see this plan abbreviated as HDHP. In addition to the qualified High Deductible Health Plan requirement, the IRS has set other rules about participating in an HSA.

You cannot have an HSA if any of the following is true:

• You're covered by other insurance that pays for medical services, like coverage under a spouse's plan.
• You are enrolled for Medicare benefits.
• You can be claimed as a dependent on another person's tax return.

Generally, you can put enough in your HSA to cover your entire deductible, and then the qualified High Deductible Health Plan helps you pay for healthcare after you meet the deductible. The annual contribution limit is based on IRS rules. In general, the total amount that goes in your account each year – from both you and your employer – can't be more than the IRS annual contribution limit. If you're age 55 or older, you're allowed to make extra contributions each year.

You can spend only the money that's actually in your HSA.

If your healthcare expense is more than your HSA balance, you need to pay the remaining cost another way, such as cash or personal check. You can request reimbursement after you have accumulated more money.

You can use your HSA for your spouse and dependents – even if they aren't covered by your High Deductible Health Plan.

You can use HSA funds for IRS-approved items

Examples include:

• Doctor's office visits
• Dental services
• Eye exams, eyeglasses, contact lenses and solution, and laser surgery
• Hearing aids
• Orthodontia, dental cleanings, and fillings
• Prescription drugs and some over-the-counter medications
• Physical therapy, speech therapy, and chiropractic expenses
• Health Savings Account funds cannot be used to pay insurance premiums

More information about approved items, plus additional details about the HSA, is available on the IRS Website at www.irs.gov.

Every time you use your HSA, save your receipt in case the IRS asks you to prove your claim was for a qualified expense. If you use HSA funds for a nonqualified expense, you'll pay tax and penalty on the ineligible amount.

The HSA may sound a little like a Flexible Spending Account (FSA). Even though both are tax-free accounts to help pay expenses your health plan doesn't cover, they differ in several important ways. If you have both accounts, you can only use the FSA for dental and vision care, as well as for certain preventive care services. This is called a "limited FSA."