A:

The Health Savings Account (HSA) was established as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 as a savings plan for individuals with high-deductible health plans (HDHP). To qualify in 2009 as a HDHP, your plan must satisfy both of the following:

Self-only Coverage: minimum annual deductible of at least $1,150 and an annual out-of-pocket maximum of $5,800.*
Family Coverage: minimum annual deductible of at least $2,300 and an annual out-of-pocket maximum of $11,600.*

Contribution Limits:
Self-only Coverage: Maximum allowable contribution is $3,000*
Family Coverage: Maximum family contribution is $5,950*

The catch-up contribution amount for those age 55 or older (but under age 65) is $1,000, in addition to the standard contribution limits.
* Note: These dollar figures are for 2009 limits, they are typically indexed (adjusted upwards) each year to account for inflation.

Funds withdrawn from the account to pay for medical expenses in the future are tax-free as long as the expenses are considered qualified medical expenses. At age 65 (when Medicare starts), contributions are no longer allowed. If the individual does not use the funds for qualified medical expenses, withdrawals can be made for retirement income (after age 65) and they are taxed at your then current ordinary income tax rate. (For more on the HSA, see Fighting The High Costs Of Healthcare.)

This question was answered by Steven Merkel

RELATED FAQS
  1. What are catch-up contributions for Health Savings Accounts (HSAs)?

    Learn about Health Savings Accounts (HSAs) and how an eligible individual of age 55 or older can make additional catch-up ... Read Answer >>
  2. What are the requirements to be able to contribute to an HSA?

    Health Savings Accounts (HSA) can be used by individuals covered by a high-deductible health plan to save for health care ... Read Answer >>
Related Articles
  1. Insurance

    High-Income Benefits From A Health Savings Account

    Health savings accounts are the only tax break offering triple benefits. Here's a look at how they work.
  2. Insurance

    Are Health Savings Accounts Useful in Retirement?

    When saving for retirement, an HSA be a tax-efficient vehicle for future healthcare expenses.
  3. Managing Wealth

    How High-Deductible Health Plans Work

    It will give you access to a Health Savings Account, but are the limitations worth the benefits?
  4. Insurance

    Rules For Having A Health Savings Account (HSA)

    Do you qualify? What does it cover? How to see if it makes sense to sign up for a High-Deductible Health Plan with a Health Savings Account.
  5. Insurance

    Fighting The High Costs Of Healthcare

    If your employer is cutting medical benefits, a health savings account may be right for you.
  6. Insurance

    A Health Savings Account Can Make a Big Difference

    Health savings accounts provide excellent tax benefits but are often overlooked.
  7. Retirement

    Your HSA: A Triple Threat Investment Tool

    Thanks to its unique tax advantages, a Health Savings Account may be the best retirement option you never knew you had.
  8. Insurance

    Here’s Why You May Be Blocked From HSAs Next Year

    A health savings account can help you save for medical expenses, but starting in 2017 it may be harder to get if your insurance is from Healthcare.gov.
RELATED TERMS
  1. Health Savings Account - HSA

    A Health Savings Account (HSA) is an account created for individuals ...
  2. Annual Addition

    The total dollar amount contributed in a given year to a participant's ...
  3. Medicare Doughnut Hole

    A range of total prescription drug spending in the Medicare Part ...
  4. Retirement Contribution

    A monetary contribution to a retirement plan. Retirement contributions ...
  5. Tax-Sheltered Annuity

    A type of annuity that allows an employee to make contributions ...
  6. Catch-Up Contribution

    A type of retirement savings contribution that allows people ...
Hot Definitions
  1. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  2. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  5. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  6. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
Trading Center