HEALTH SAVINGS ACCOUNTS

1.) Contribution Limits:

 All HSA account holders can contribute to the full extent of the Federal Statutory maximum regardless of the deductible amount of the HDHP. The Statutory amounts for 2011 are $3,050/Individual or $6,150/ Family coverage. An additional $1,000 (for 2011) of contribution is allowed as a Catch-up provision for the HSA account holder at age 55 and older and not Medicare eligible.

2.) One time Tax Free Irrevocable Rollover from an IRA or Roth IRA into an HSA:

  The Rollover amount cannot exceed the applicable HSA contribution limit (individual or family coverage) imposed for that year. The account holder must continue to be eligible to contribute to an HSA for a full 12 months following the Rollover date.

3.) FSA and HRA Terminations to Fund HSAs:

 The provision permits an employer to make a one-time transfer of the balance in an employee’s HRA or FSA to an HSA (must be made before January 2012). [Specific rules apply to the transfer.]

4.) Penalty: Unlike FSAs, HSA funds carry over from year to year. So if you reach the maximum in your HSA and do not use the funds, you can find yourself with a rather large balance after a few years. You can withdraw the funds for other purposes, but face both income taxes AND a 10% penalty. Starting in 2011, that penalty will become 20%. Currently, the penalty does not apply to those over 65 – since the health care bill does not specifically address that provision.

5.) Over-the-Counter Medicines: Beginning in 2011, HSA funds cannot be used for over-the-counter medicines unless specifically prescribed by a doctor.

Important:  Tax rules and their applicability to Health Savings Accounts can be complicated.  This information is not intended as tax advice.  We suggest you contact your accountant for specific information regarding your personal situation.