Health Savings Accounts

A Health Savings Account (HSA) is a tax-deferred investment account, similar in many respects to an IRA, which is used in conjunction with a qualified high deductible health plan (HDHP). HSA's allow earnings and deductible contributions to grow tax-deferred and are primarily used to save for qualified medical expenses.

In order to be eligible to contribute to a Health Savings Account, an individual needs the following:

Covered by a High Deductible Health Plan
Not covered by other health insurance
Not enrolled in Medicare
Cannot be claimed as a dependant on someone elses tax return

Persons with individual health plans can contribute $2850 in 2007, while persons with family health plans can contribute $5650 in 2007. There are no income limits or requirement of having earned income to contribute. You, a family member, your employer, or any other person may contribute to your HSA. All contributions made by or on behalf of an eligible individual to an HSA are aggregated for purposes of applying the contribution limit. HSA contributions that do not exceed the contribution limits are deductible from your gross income on your federal income tax return for the tax year for which the contributions are made. Earnings grow on a tax-deferred basis.

You may make withdrawals/disbursal from an HSA at any time. Withdrawals made for qualified medical expenses are income tax-free. Withdrawals made for non-qualified medical expenses prior to age 65 are subject to federal income taxation and a 10% tax penalty. Withdrawals not used for qualified medical expenses, made after the account holder turns age 65, becomes disabled or dies are not subject to the additional 10% tax penalty, but are taxed as ordinary income.

For your convenience, withdrawals/disbursal can be made in person, by writing a check or by using a debit card.

Click Here to view the current rates.

DuTrac Community Credit Union does not provide tax or legal advice. You should contact your tax or legal advisor for advice regarding your situation.