Health Savings Accounts – A Basic Overview


Health Savings Accounts (HSAs) are becoming more and more a need
than a luxury. You must be enrolled in a health care plan to
qualify for a Health Savings Account. Since they have been around,
millions of people have qualified and gotten one of these accounts.
The trend should continue to raise as more employers and companies
offer this benefit as a bonus to their medical plans. Some
companies aren’t quite there yet but many have jumped on the
bandwagon. There are some basic rules that can help an individual
or corporation decide to enter the HSA market.

To establish an HAS, there are some rules and regulations. It is
like establishing an individual retirement account (IRA) in most
cases. In fact the documents are very similar and the procedure as
well. An HSA trustee can add terms to their agreement regarding the
effecting policy and procedure of their HSA. These terms can
include any of the following but that may not be all that is
required. Included in your agreement could be definitions, fees and
expenses, amendments, disqualifying provisions, investment options,
distributions, transfers and rollovers, reports and records,
termination and/or resignation, and liability protection. There
might be more of less of these conditions depending on the insurer.

HSA eligibility requires you to have an Internal Revenue Code to
even desire to be eligible. You must be enrolled in a
high-deductible medical care plan. So, people who don’t pay a
deductible or it is very low, do not qualify for this benefit. Some
exemptions do apply of course but you would need to contact the
right person to find out. You must not be able to be claimed as a
dependent for anyone else or on Medicare. To qualify your
deductible needs to be for an individual a minimum or $1000, and
your out of pocket expenses can’t exceed $5,100 for that year. For
a family, the deductible needs to be a minimum of $2000 and the out
of pocket portion can’t exceed $10,200 per year. There is a cost of
living deduction as well and your agent to better save you money
will adjust things. Many organizations require that you prove you
are eligible prior to a contract. It is the individual asking for
the HSA that must figure out that they qualify or might qualify.

The yearly contribution can’t exceed the deductible amount or
combination with out of pocket expenses. As long as the individual
has the high-deductible health plan they are qualifying. If you
lose this plan, you will not be eligible for that month or period
of time. If you are married and have separate high-deductible
health plan, it is the lowest deductible amount that the family as
a whole can meet. There are no combining deductibles to get a
higher benefit. If you qualify, you can establish a regular
contribution, a rollover contribution, or a transfer contribution
plan. For the money to be deductible for a specific tax year, one
must file by the deadline to receive the benefits. If an eligible
individual’s employer contributes to his or her HSA, the employer,
not the HSA owner, is entitled to a deduction.

An HSA custodian or trustee reports the contributions on IRS Form
5498-SA, HSA, Archer MSA, or Medicare Choice MSA Information.
Copies of the report are due to each participant and the IRS by May
31, 2006. The owner is responsible for reporting the contribution
amount on the proper forms to be submitted and file them with the
income taxes that year. The distributions are to be made by the
owner, if different than the participant. These will tax-free if
used to pay for, or reimburse qualifying medical expenses that
occurred after putting the plan into effect. These expenses include
and could exceed the diagnosis, cure, treatment, or prevention of
disease, prescription and certain nonprescription drugs, and
transportation and certain lodging costs primarily for and
essential to qualified medical care and certain qualified long-term
care services
. It is an HSA owner’s responsibility to determine the
taxability of an HSA distribution and whether it is legitimate. The
guidance of a tax or legal professional may be necessary to
determine whether an expense is a qualified medical expense to
avoid penalties.

Find out more about Health Savings Accounts – A Basic Overview

DISCLAIMER: This information is for educational and informational
purposes only. The content is not intended to be a substitute for
professional advice. Always seek the advice of a licensed Insurance
Agent or Broker with any questions you may have regarding any
Insurance Matter.

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