 TITLE: Health Savings Account - Tax-Advantaged Medical Savings Account CONTENT: Health Savings Account (HSA) — Tax-Free Account for Medical Expenses\n--------------------------------------------------------------------\n###### Written by: Kristy Welsh\n_Last Updated: September 8, 2017_\nIf you are a relatively healthy person looking for a way to help you save money for retirement, a health savings account (HSA) may be for you. It's not only a great way to claim tax-free income, but also to set aside a nice chunk of change for coverage of unforeseen medical expenses, as well as a safety net of support for your retirement years.\nWhat is a Health Savings Account (HSA)?\n---------------------------------------\nA health savings account, or HSA, is an opportunity to cover your medical expenses with tax-free income. An HSA may only be established for individuals covered by a high-deductible health plan (HDHP). Whatever amount you (or your employer) contribute to the HSA throughout the year is considered tax-free income. It remains tax-free if and when you withdraw said funds to pay for qualifying medical expenses. These withdrawals count toward the HDHP deductible. Once this deductible has been reached via qualifying HSA withdrawals, the HDHP covers any additional medical expenses incurred the remainder of the year.\nHSA's were signed into law in 2003 under the Medicare Prescription Drug Improvement and Modernization Act under President George Bush. They were created to expand upon medical savings accounts (MSA's).\nWhat is a Medical Savings Account (MSA)?\n----------------------------------------\nMSA's were signed into law in 1996 under the Kassebaum-Kennedy bill during President Bill Clinton's administration. They were made available only to self-employed individuals or businesses with 50 or fewer employees. Because of these limitations, HSA's (health savings plans) were signed into law in 2003 — the same concept as an MSA, but clearing the way for anyone to take advantage of this tax-deferment program.\nWhat is a High-Deductible Health Plan (HDHP)?\n---------------------------------------------\nAn HDHP is a health insurance plan that comes with a higher deductible than most insurance plans. However, because the deductible is so high, the premiums are relatively low. HSA's must be set up in conjunction with an HDHP.\nWhat Are the Pros and Cons of an HSA?\n-------------------------------------\n**PROS:** Any out-of-pocket medical expenses you incur with a high-deductible health plan are tax-free, meaning you will not be taxed on whatever contributions\/withdrawals you make with your HSA throughout the year. If you are a relatively healthy person with few medical expenses, HSA's are a great way of saving tax-free money that you can access without tax or penalty once you reach retirement age.\n**CONS:** If you incur medical expenses on a regular basis, HSA's can be costly, as you are required to carry the HDHP. Your premiums may be low on the HDHP, but the deductible is so high that, even with tax-deferred payments via the HSA, you will have a hefty out-of-pocket expense. In other words, if you do have serious medical issues, you may be better served by a regular insurance plan with a higher premium, but with a lower deductible.\n### How Can I Qualify for an HSA?\nYou qualify for an HSA if you are covered under a high-deductible health plan (HDHP), either by your employer or through a plan you pay into yourself.\n### Who Makes Payments Into My HSA?\nIf your participation in an HSA is through your job, your employer makes contributions to the account. If your employer does not make such contributions, or you are self-employed, you make the contributions. Unlike an MSA, an HSA allows both you and your employer both to make contributions to your HSA in the same calendar year.\n### Is There a Maximum Amount That May be Contributed to an HSA in a Given Year?\nYes. The IRS recently announced the new 2018 Health Savings Account index figures. Maximum contribution levels to your HSA are:\n*   $3,450 for a single person\n*   $6,900 for a family\n*   $1,000 for 55+ (HSA catch-up contributions)\n### What if I Contribute More Than the Allowable Amount into my HSA?\nYou will be charged income tax for the excess contributions.\n### Under What Circumstances May I Withdraw Tax-Free Funds From my HSA?\nMost medical expenses qualify under the HSA guidelines, including basic medical care, dental care, vision care and long-term care needs. This excludes over-the-counter drugs not prescribed by a physician.\n### Must I Itemize my Deductions on my Tax Return in order to Receive Deductions for HSA Contributions?\nNo, you need not itemize your deductions in order to claim tax-deferred contributions to an HSA. However, you must report your contributions on Form 8853.\n### If I Change Employers, Do I Lose the Contributions I Have Made to my HSA?\nNo, your HSA is mobile, meaning you do not lose the funds you have contributed with an employer, whether you change employers or simply leave the work force. That said, you cannot make further contributions to the HSA unless you go to work for an employer that has a qualifying HSA program.\n### What Happens to my Contributions if I do not Withdraw the Funds for Use by the End of the Year?\nUnused HSA contributions roll over to the next year.\n### How do I Make Withdrawals From my HSA?\nWithdrawal methods vary depending on your HSA, from debit cards, to checks, to a reimbursement process. And there is no approval system for withdrawals. You simply take out what you need when you need it. However, for the funds to be considered tax-free, the withdrawals must be for qualifying medical expenses, for which you must retain and provide verifying documentation.\n### Can I Withdraw HSA Contributions from the Account for Non-Medical Expenses?\nYes, you may withdraw HSA funds at any time. However, you will be taxed on the income and charged a 20 percent penalty if the funds are used for non-qualifying medical purposes.\n### What Happens to my Contributions Once I Reach Retirement Age?\nOnce you reach age 65, any funds you have in your HSA may be withdrawn, tax-free. Any non-qualifying withdrawals made before that time (for non-medical expenses) result in taxes and penalties.\n### What Happens to the Funds in my HSA in the Event of my Death?\nYour HSA is automatically transferred to your named beneficiary.\n### How are HSA's Similar to MSA's?\nHSA's are very similar to MSA's in that both enable you to contribute tax-free funds to a savings account - funds that may be deposited and withdrawn tax-free if spent on qualifying medical expenses OR may be withdrawn tax-free at retirement age. Both also allow you to roll over unused funds from year-to-year.\n### How are HSA's Different from MSA's?\nWhile an MSA was only made available to small businesses of 50 or fewer employees, or the self-employed, HSA's are available to anyone who also carries a high-deductible health plan (HDHP). Also, unlike MSA's, HSA's allow for both you and your employer to make contributions to the account within the same calendar year. The contribution limits for HSA's are also higher than that of MSA's.\n### Can I Switch From an MSA to an HSA?\nYes, you may roll over the funds in an MSA into an HSA.\n### Can I Roll Over the Funds in my HSA to a Different HSA Account?\nYes you can.\n### Can I Roll Over my HSA Funds into an IRA?\nThe Tax Relief and Health Care Act of 2006 does allow for a one-time rollover of your HSA funds to an IRA, allowing you to fund up to one entire year's worth of your maximum allowable HSA contribution. END