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Funds withdrawn from the account to pay for medical expenses in the future are tax-free as long as the expenses are considered qualified medical expenses.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 >>
  3. Who can make catch-up contributions to a Health Savings Account (HSA)?

    Learn about health savings accounts and who can make additional catch-up contributions to HSAs according to the U.S. Internal ... 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

    HSA Contribution Limits in 2016

    Find out the 2016 contribution and out-of-pocket limits for health savings accounts and why HSAs are still viable options as health care plans.
  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. Investing

    Is It Worth Switching Insurance to Get an HSA?

    We crunch the numbers to see if the (future) benefits of a Health Savings Account outweigh the (present) price of a high-deductible health insurance plan.
  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. Managing Wealth

    Pros And Cons Of A Health Savings Account (HSA)

    Health Savings Accounts let you pay healthcare costs with pre-tax dollars and keep money you don't spend now for future use. Would one make sense for you?
  7. Insurance

    Pros And Cons Of A Health Savings Account

    A health savings account offers a way to save while paying for healthcare expenses.
  8. 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.
RELATED TERMS
  1. High-Deductible Health Plan - HDHP

    A health insurance plan with a high minimum deductible that that ...
  2. Health Savings Account - HSA

    An account created for individuals who are covered under high-deductible ...
  3. Creditable Coverage

    A health insurance, prescription drug, or other health benefit ...
  4. Annual Addition

    The total dollar amount contributed in a given year to a participant's ...
  5. Out-of-Pocket Limit

    Out of Pocket Limit
  6. Medicare Doughnut Hole

    A range of total prescription drug spending in the Medicare Part ...
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center