How Much Can I Contribute to an HSA Annually?

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Health spending accounts are great savings vehicles.
Health spending accounts are great savings vehicles. (Image: saving money image by Wojciech Gajda from Fotolia.com)

If you are currently enrolled in a High Deductible Health Plan, or HDHP, you are eligible to open a Health Savings Account (HSA). HSAs offer an alternative to traditional health insurance plans which may be more expensive. Holders of HSAs are able to save for future health expenses with pre-tax dollars. The savings can be applied toward deductibles, co-pays or other eligible medical expenses. The accounts were initiated by the IRS, and had a contribution cap equal to or less than the health plan deductible. That has since been removed and allowable contributions are now significantly higher.

HSA Guidelines

IRS guidelines stipulate that those seeking to open an HSA cannot be dependents of another person nor can they be covered under Medicare. Enrollees must be under the age of 65. Coverage under an HDHP is mandatory. These inexpensive health plans are also referred to as catastrophic health insurance plans and they carry a large deductible. The deductible is offset by HSA dollars. The minimum annual deductible for individuals wishing to open an HSA is $1,200, or $2,400 for family coverage.

Contribution Limits

For single filers, the annual contribution limit for an HSA is $3,500; it is $6,150 for family filers. Contributions can be made up until April 15 of the following year, just like IRA contributions. Filers over the age of 55 may add an additional $1,000 toward the annual contribution. HSA contributions are deducted from the gross income when filing tax returns. Contributing over the stated amounts leads to a 6 percent tax penalty and the extra funds incur tax at the normal income rate.

Eligible Expenses

Health spending accounts cover medical expenses such as deductibles, co-pays and specialist visits. Prescription drugs, dental expenses and vision expenses are included. HSAs cover the individual as well as his spouse and dependents. Upon opening an account, the consumer receives either a checkbook or debit card by which to make purchases. Retain receipts of purchases in the case of an audit. Using HSA dollars to purchase non-eligible items incurs a 10 percent excise tax and the funds are taxed as income on the tax filing. Individuals over the age of 65 do not incur an excise tax when making non-medical purchases. They do, however, have to report the funds as income.

Health Care Reform Changes

The Health Care Reform Bill means changes to some HSA benefits. Starting in 2011, over-the-counter medications will no longer be covered unless prescribed by a physician. The penalty for using HSA dollars for non-medical expenses increases to 20 percent starting in January 2011. Contribution limits are set annually based on inflation rates. Since there was low inflation in 2010, the contribution limits remain the same for 2011.

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