Health Savings Accounts

• An HSA is a savings vehicle that allows individuals to save specifically for medical expenses. To qualify for an HSA, you must he covered by a high deductible health plan, you must not be covered by another health plan or Medicare, and no one can claim you as a dependent on their tax return. High-deductible health plans are defined by the Internal Revenue Code to mean health plans that have annual deductibles of at least $1,200 for self-only coverage and at least $2,400 for family coverage. Moreover, high-deductible health plans may not exceed $5,950 for self-only or $11,900 for family coverage for out-of-pocket expenses.
  
  

Deduction Limits

• Contributions to your HSA may be deducted on your taxes even if you do not itemize your deductions when you file. It is important to note that no deduction is allowed for a contribution to an HSA for any person for whom a personal exemption can be claimed by another taxpayer during that tax year.
  
  The amount you may contribute to your HSA (and therefore deduct) during a year depends on the cost of your high-deductible health plan as well as your age, the date you become eligible to have an HSA and the date your eligibility ceases. In general, the maximum contribution to an HSA is the lesser of 100 percent of the annual deductible of the high-deductible health plan or amounts specified by the Internal Revenue Code, as adjusted for cost of living increases. For 2011, an individual with self-only coverage may deduct up to $3,050 and an individual with family coverage may deduct up to $6,150.
  
  If your employer makes contributions to your HSA on your behalf, those contributions are treated as employer-provided health care. This means that employer contributions are excluded from your gross income.
  
  

Catch-up Contributions

• If you are age 55 or older, you may make additional contributions to your HSA (and therefore have a larger deduction). These additional contributions are called catch-up contributions. Individuals who are eligible to make catch-up contributions may not be enrolled in Medicare Part A or Part B. Catch-up contributions are limited to an additional $1,000 in 2011. Catch-up contributions are adjusted from time to time for cost of living increases.
  
  

Benefits of HSAs

• Your account will grow tax-free, which means that any interest or other earnings that your account earns will not be taxed. HSAs are portable and you may take it with you even if you terminate employment with the employer who established the account for you. You may take distributions from your HSA without incurring taxes if the proceeds are used for qualified medical expenses.