When were HSAs introduced, and how popular are they?
HSAs were officially established by US federal law as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003. Because they are used in conjunction with reduced-premium, qualified high-deductible health insurance plans (QHDHPs), HSAs have gained in popularity as a way for individuals and businesses to reduce the impact of rising health care costs. As of 2013, approximately 40% of employers offered QHDHPs with HSAs, and HSA accounts held roughly $19 billion.
Can I open an HSA without health insurance?
No. You are not eligible to establish and contribute to an HSA unless you are covered by a qualifying high-deductible health plan (QHDHP). Note that the QHDHP does not have to be in your name, but you must be covered by it and meet all other eligibility requirements. However, you can open a new HSA account for the purpose of transferring an existing HSA that is being held at a different institution, even if you are not covered by a QHDHP at that time.
What types of insurance and other coverage can I have and still be eligible to contribute to an HSA?
Permitted insurance includes worker's compensation, property insurance, insurance for a specific disease, such as cancer coverage, and insurance that pays a fixed amount per day of hospitalization. Coverage for dental, vision, long-term care, accidents, and disability are also permitted. Once you have enrolled in Medicare, you are no longer eligible to contribute to an HSA, but you may continue to take distributions from your HSA to cover qualified medical expenses.
What are the HSA contribution limits?
Please see HSA Basics for current contribution limits.
What is the deadline for making contributions to my HSA?
For a given tax year, contributions must be made on or before the federal tax filing due date (excluding extensions), which is usually April 15 of the following year. If you are making a contribution between January 1 and April 15, be sure to specify the tax year to which it should be applied.
What is a qualified medical expense?
Please see HSA Basics for a list of qualified medical expenses. For more information regarding qualified medical expenses, see IRS Publication 502, Medical and Dental Expenses, or consult your tax professional.
Can I use the money in my HSA to pay medical insurance premiums?
Generally, you cannot use your HSA account to pay premiums for health insurance coverage. Exceptions include COBRA premiums, long-term care premiums, or premium payments that allow you to retain health coverage while you are receiving unemployment compensation.
What if I use my HSA to pay for something other than a qualified expense?
If you withdraw money from your HSA to pay for something other than a qualified medical expense, you will owe income taxes on the amount in addition to a 20% penalty (unless you are disabled or older than 65).
What happens to my HSA when I die?
If your spouse is the designated beneficiary, your HSA will be treated as your spouse's HSA after your death, and no taxes will be owed. If your spouse is not the beneficiary, the fair market value of your HSA is taxable to the beneficiary (or to your estate if no beneficiary is designated) in the year of your death.
Can I change the investments in my HSA?
Your HSA investment account is flexible and allows you to change your investment elections. For changes to mutual funds, please call a Saturna Capital representative at 800-728-8762. Changes requested before 1:00 p.m. (Pacific Standard Time) are generally made on the same day. For changes to self-directed brokerage investments, please contact a Saturna Brokerage Services representative at 800-728-1266. The cut-off time for same-day processing will vary with the type of investment. There is no guarantee that a change will be made at a specific time.
Can I transfer money from my IRA to my HSA?
The short answer is yes, with caveats. Except under specific circumstances, you can make only one qualified HSA funding distribution from your IRA during your lifetime. The distribution must be made directly by the IRA trustee to the HSA trustee. The distribution amount is not included in your income, is not deductible, and is counted towards the amount that can be contributed to your HSA for that year. The maximum amount you can transfer varies based upon your HDHP coverage (self-only or family coverage), your age at the end of the applicable tax year, and other limitations. Please review IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov.