Qualified Medical Expenses

IRS Publication 502 has a checklist of expenses that can be itemized. Most of these expenses (click to view complete list) qualify for tax-free withdrawal from your HSA, unless the expenses were reimbursed by your health- care coverage. One expense, which cannot be reimbursed tax-free from your HSA is the premiums for most healthcare plans, unless the insured is collecting unemployment benefits. To order IRS Publication 502, call 1-800-TAX-FORM. View complete list of Qualified Medical Expresses

Q. What is a Health Savings Account?
A. A Health Savings Account or HSA is a combination of a tax-free savings account and a "high deductible" health plan (HDHP).

Q. Who qualifies for an HSA?
A. All individuals under the age of 65 are eligible to contribute to an HSA if they have the qualified health plan.

Q. What qualifies as a "high deductible" health plan?
A. For self-only policies, a qualified plan must have a minimum deductible of $1000 with a cap on out of pocket expenses of $5000 (indexed annually).

For family policies, a qualified health plan must have a minimum deductible of $2000 with a $10,000 cap on out-of-pocket expenses (Indexed annually).

Q. Who can make contributions to an HSA?
A. Any combination of individuals, family members and employers may make contributions to a Health Savings Account. Contributions made by an individual and family member are tax-deductible (for the account beneficiary) 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 HSA's as part of a cafeteria plan.

Q. How much can I contribute to my HSA?
A. Contributions are allowed up to 100% of the annual deductible. The maximum annual contribution is not to exceed $2,600 for self-only policies and $5,150 for family policies. Individuals age 55-65 may make additional "catch-up" contributions up to $500 in 2004, Increasing to $1,000 annually In 2009 and thereafter. A married couple can make two catch-up contributions as long as both spouses are at least 55. Catch-up contributions will help Individuals accumulate assets for retiree health expenses.

Q. What happens to my HSA at the end of the year?
A. The money in your HSA belongs to you. HSA funds rollover from year to year, earning interest tax-free and continue to accumulate for future years. These funds may be used to pay for future medical expenses tax free or can be used to supplement Income at age 65 tax-deferred.

Q. What happens if I take money out of my HSA?
A. HSA distributions are tax-free If they are used to pay for qualified medical expenses, such as:

• Amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease.
• Prescription drugs.
• Qualified long-term care services and long-term care Insurance
• Continuation coverage required by Federal Law (I.e., COBRA)
• Health insurance for the unemployed.
• Medicare expenses (but not Medigap).
• Retiree Health expenses for Individuals age 65 and older. (Note: retiree health plans would not have to meet the $1,000/$2,000 minimum deductible requirements)

Distributions made for any non-qualified medical expense are subject to Income tax and a 10 penalty. The 10% penalty Is waived in the case of death or disability or once the Individual reaches age 65. Upon death, HSA ownership may transfer to your spouse on a tax-free basis. All other transfers result in a taxable event