The hypertext links or pointers displayed on this site are for the convenience of our customers and go to information created and maintained by other public and private organizations. Tower Bank does not control or guarantee the accuracy, relevance, timeliness, or completeness of this outside information. Further, the inclusion of links or pointers to particular items in hypertext is not intended to reflect their importance, nor is it intended to endorse any views expressed, or products or services offered, on these outside sites, or the organizations sponsoring the sites.

Health Savings Account Guidelines

General

A Health Savings Account (HSA) can be established in conjunction with a qualified High Deductible Health Plan (HDHP) to help individuals save for qualified medical and retiree health expenses on a taxfree basis.

Eligibility

Individuals with no other first-dollar medical coverage are eligible to contribute to an HSA if they have a qualified health plan. Your insurance professional will help you determine whether your plan is an HSA qualified plan.

For self-only policies 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).
For family policies in 2009, a qualified health plan must have a minimum deductible of $2,300 with an $11,600 cap on out-of-pocket expenses.
“No other first dollar medical coverage” means that individuals cannot contribute to an HSA if they have dual coverage under another non-HDHP medical plan, including Medicare or a spouse’s non-HDHP plan or FSA. Use of VA benefits may also make an individual ineligible for the HSA.

Preventative care services are not required to be subject to the deductible. Individuals may also carry separate coverage for accidents, disability, dental care, vision care, and long term care, not subject to the deductible.

Contributions

Contributions are allowed up to the maximum statutory limit. For 2009, the maximum annual contribution is $3,000 for self-only policies and $5,950 for family policies (indexed annually). The maximum annual contribution for 2008 is $2,900 for self-only policies and $5,800 for family policies (indexed annually). These limits apply even for participants entering the plan mid-year. Prior year contributions may be made through April 15 of the following year.

Individuals age 55 and over may make an additional “catch up” contribution of up to $1,000 in 2009, which is up from $900 in 2008. A married couple can make two catch-up contributions as long as both spouses are at least 55. The catch-up contribution for the other spouse must be placed in a separate HSA. Catch-up contributions will help individuals accumulate assets for retiree health expenses.

Individuals, family members, and employers may make contributions.

Contributions made by individuals and family members 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 are allowed to offer HSAs through a cafeteria plan.

Individuals are allowed to make a one-time contribution to an HSA from an IRA, tax-free. The maximum contribution for an IRA to HSA transfer is equal to the maximum annual HSA contribution.

Investment earnings accrue tax-free.

Distributions

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 and over-the-counter drugs
Qualified long-term care services and long-term care insurance
Continuation of 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 over

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 over.