A Health Savings Account is an interest-bearing bank account you may set up with a financial institution. Participation in a Health Savings Account (HSA) is limited to those enrolled in a HDHP qualified health plan.
Companies can partner with a bank to allow employees to make pre-tax payroll contributions into their HSA account. The money that is deposited into an HSA account is the employees money to use for any qualified medical expense. Contributions to an HSA account cannot exceed the IRS contribution limits. You do not have to use any of the money deposited into the HSA on an annual basis.Your account balance will roll over each year without a penalty on a tax deferred basis.
CONTRIBUTIONS How much can I contribute to my HSA? The maximum annual contribution that an individual, with individual coverage, can make to an HSA is $3,050 for 2011. In the case of a family, with family coverage, the maximum annual contribution is $6,150 for 2011.The deductible contribution is not limited to the annual deductible under the high deductible health plan.
How much may I contribute to the account if I establish my HDHP after January 1, 2011? An individual or family, who are covered under an HDHP in a month other than January, may make a full HSA contribution for the year as long as certain conditions are met. However, if you cease to remain an eligible individual throughout 2011, the extra amount contributed is included in income and subject to an additional 10 percent tax; the 12 month rule.
An individual enrolls in an HDHP in December of 2011 and is otherwise an eligible individual in that month.The individual is not an eligible individual in any other month in 2011.The individual can make an HSA contribution for 2011 as if he or she had been enrolled in the HDHP for all of 2011. If the individual ceases to be an eligible individual (e.g., if he or she ceases to be covered under an HDHP) in June 2011, an amount equal to the HSA deduction attributable to treating the individual as an eligible individual for January through November 2011 is included in the individual’s income in 2011.
How do I make withdrawals (or take distributions) from my HSA? You can make tax-free withdrawals (also known as distributions) from your HSA to pay for qualified medical expenses at any time during the year.When your account is opened, you receive a debit card and checks for easy access to your funds. However, you do not have to make withdrawals from your HSA each year.Your contributions remain in your HSA from year-to- year until you use them. If you make withdrawals for non-qualified medical expenses or for other reasons, the amount withdrawn will be subject to income tax and may be subject to an excise tax as well. Please keep in mind you should track all of your withdrawals from your HSA so you can supply documentation on your expenditures, if needed.
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