Beginning on January 1, 2004, individuals under the age of 65 are eligible to contribute to an HSA if they have a qualified health plan.
For individual coverage in 2009, a qualified health plan must have a minimum deductible of $1,150 with a $5,800 cap on out-of-pocket expenses (indexed annually). In 2008 minimum deductible was $1,100 for self-only coverage with $5,600 cap on out-of-pocket expenses.
For family coverage in 2009, a qualified health plan must have a minimum deductible of $2,300 with a $11,600 cap on out-of-pocket expenses (indexed annually). In 2008 minimum deductible was $2,200 for family coverage with $11,200 cap on out-of-pocket expenses.
The maximum annual contribution for 2009 is $3,000 for individual coverage and $5,950 for family coverage (indexed annually). In 2008 the maximum annual contribution amounts were $2,900 for individual coverage and $5,800 for family.
Individuals age 55 - 65 may make additional “catch-up” contributions of up to $500 in 2004, $600 in 2005, $700 in 2006, etc. to $1,000 in 2009 and thereafter. A married couple can make two catch-up contributions as long as both spouses are at least 55.
Contributions may be made by individuals, family members and employers and are tax deductible, even if the account beneficiary does not itemize. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers will be allowed to offer HSAs through a cafeteria plan.
Contributions to the HSA account can be made by April 15 of the following year.
Investment earnings accrue tax-free.
HSA distributions are tax-free if they are used to pay for qualified medical expenses. Qualified expenses include prescription drugs, qualified long-term care services and long-term care insurance, COBRA coverage, Medicare expenses (but not Medigap), and retiree health expenses for individuals age 65 and older.
Money in the HSA account can also be used to pay the medical expenses for yourself, your spouse and your dependant children even if they are not covered under your HSA qualified HDHP plan.
Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty is waived in the case of death or disability. The 10% penalty is also waived for distributions made by individuals age 65 and older.
Upon death, HSA ownership may transfer to the spouse on a tax-free basis. In the event you are single, the account will pass to your beneficiary or estate upon your death and will no longer be treated as HSA (will be subject to any applicable taxes).
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