Personal Health Savings Account (HSA)

A health savings account (HSA) is a tax-exempt deposit account you set up with a financial institution or insurance company which allows you to pay or be reimbursed for certain out-of-pocket medical expenses. Common expenses include doctor visits, dental or vision expenses, and prescriptions. However, the list of allowable expenses is extensive.

To qualify for an HSA, you must be covered by a health insurance plan officially designated by the provider as a high deductible health plan (HDHP). However, not all HDHP plans are HSA eligible. An otherwise high deductible plan fails the HSA qualification if it provides some benefits or coverage before you meet the deductible. Your health plan administrator can advise you on the eligibility of your plan for an HSA. Additionally, you may not have any other health insurance coverage, you may not be enrolled in Medicare, and you cannot be claimed as a dependent on another person’s income tax return.

Even if the HSA account owner has single HDHP coverage, the HSA can be used to help pay for qualified medical expenses of a spouse or dependent children, assuming all other qualifications are met. The type of HDHP coverage (single or family) only limits the amount of the annual contributions, not for whom the HSA funds can be used.

You can claim income tax deductions for contributions you make to your HSA and contributions your employer makes may be excluded from your gross income, reducing your taxable income. Payments made from the account for qualified medical expenses may also be tax-free. Additionally, there are no yearly deadlines for using the funds, they accumulate from year-to-year earning tax-free interest.

The exact amount of savings is difficult to calculate as HDHPs vary, as well as other unique circumstances, including the impact of compound interest. It is possible, however, to get a general idea by plugging numbers into an HSA Calculator. You can find a variety of savings calculation tools on the Internet by searching for "HSA Calculator", "HSA Balance Calculator" or similar terms. State Savings Bank cannot guarantee the accuracy of any result you obtain using an online tool; always verify any calculations with a tax professional.

The Internal Revenue Service IRS Code Section 213(d) defines qualified medical care expenses as amounts paid for the diagnosis, cure, mitigation or treatment of a disease, and for treatments affecting any part or function of the body. The list of specific items is extensive and generally changes yearly.  IRS Publication 502: Medical and Dental Expenses provides a list of medical expenses that may be qualified. Your HDHP plan provider can help you understand allowable expenses covered by your plan and answer specific questions.

There are annual limits to how much you and/or your employer can contribute to an HSA. HSA contributions for a particular tax year can be made any time prior to filing your federal income tax return for the taxable year. View current tax year allowable contributions today.

Once you enroll in Medicare, you are no longer eligible to further contribute to your HSA effective the month you enroll. You may continue to use your accumulated funds for out-of pocket medical expenses. At age 65, you may use your funds for any purpose without penalty but you will have to pay taxes on any distribution not used for medical purposes.

Tax rules differ depending on whether you name an HSA beneficiary and what that person's relationship is to you. If the beneficiary is your spouse, most frequently the account is treated as your spouse's HSA after you die. If the beneficiary is not your spouse, most frequently the HSA is closed and the beneficiary owes taxes on the funds. For specific guidance, consult your HDHP provider or a tax or legal professional.

Funds in a State Savings Bank HSA can be accessed like any other account; you may order checks or a debit card, use bill pay, or withdraw cash from an ATM to pay for your qualified medical expenses. You can deposit into the account at a branch, via mobile deposit, by transfer from another SSB account, by mailing a check or by making a deposit at a State Savings Bank ATM. Additionally, if offered by your employer, you can set up a payroll deduction.

You are responsible for knowing your contributions limits, contribution deadlines and for keeping receipts and records to support the account’s distributions.  State Savings Bank is not responsible for monitoring contribution limits, distributions, account balances, ongoing eligibility of account holders or impending contribution deadlines. The bank will file Report 5498 SA (Contributions Report) and Report 1099 (Distribution Report) with the IRS as required by federal law.

Changing your HDHP coverage from Self-Only Coverage to Family Coverage or vice-versa changes the maximum annual allowable contributions you can make to your HSA. If this occurs, you must notify the bank to ensure that IRS reporting is accurate and you avoid the possibility of having contributions exceeding the amount you are eligible for. 

If you discover you accidentally paid for something other than a qualified medical expense from your HSA, you may repay the mistaken distribution prior to filing your federal taxes for the tax year of the mistake. Failure to correct an error will subject the unqualified distribution to income tax and may incur an additional 20% tax penalty.

IRS rules allow for several kinds of organizations to set up HSAs including banks, insurance companies and other organizations already approved to offer individual retirement accounts (IRAs). While non-bank companies may offer HSA accounts, those accounts may not be FDIC insured. It is important to know if your funds are insured against loss before opening your HSA. State Savings Bank's HSAs are FDIC insured.

You may transfer some or all of your balance from an existing HSA to a new HSA by contacting your existing HSA provider and requesting a transfer/rollover form. You will need to have opened the new account in order to complete the transfer or rollover. Additionally, you may transfer or rollover funds from an Archer Medical Savings Account (MSA), or you may do a one-time rollover from a Flexible Spending Account (FSA), a Health Reimbursement Account (HRA), or an Individual Retirement Account (IRA).

You may establish more than one HSA but your total contributions to all HSAs may not exceed your yearly allowed contribution limit.

IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans explains HSAs in detail. This document changes yearly; refer to the version that covers the current tax year. Also consult with your HDHP provider for information unique to your specific plan and a tax or legal professional to ensure you are taking advantage of the tax benefits of an HSA.

Same-sex couples or domestic partners are permitted by many employers or insurance companies to elect HSA-qualified insurance plans allowing them to open an HSA. However, if they do not meet the definition of a "married couple" under the federal tax code, each person would need to establish an HSA in their own name and would not be able to use their HAS funds to reimburse their partner's qualified medical expenses since the law only permits HSA funds to be used tax-free for eligible medical expenses incurred by the individual, a spouse, or a dependent child.