How Do Health Savings Accounts Work?
By Chris Beazer
Introduction
A health savings account is a special tax advantaged health account that allows United States citizens who are eligible to pay taxes to contribute funds to the account. Created in 2003 by a medicare bill, these accounts allow the holder the ability to save money, tax free, for future health bills or retirement related health costs.
Eligibility
You are eligible for a health savings account as long as you are covered by an High Deductible Health Plan (HDHP), you are not covered by another health insurance source, you are not enrolled in Medicare, and you cannot be claimed as a dependent on the tax returns of someone else.
Contribution Rules
Contributions can be made both by the employer and the employee. All contributions by the employee are considered above the line deductions. Contributions can be made by other parties to an individual's account, but can only be deducted by the party and not the individual. Account holders are allowed to make one single contribution from their IRA to their health savings account, as long as the amount does not exceed the contribution limit for the year. The maximum yearly contributions allowed are $2,900 if you are only covering yourself, and $5,800 if you are covering a family.
Distribution
Distribution is allowed tax-free only if the money that is taken out is used for qualified medical expenses. A list of qualified medical expenses can be found at the U.S. Treasury website link found in the additional Resources section of this article. These medical expenses must occur after the savings account has been opened. Any medical bills that have occured before the health savings account was opened, are not eligible to be covered by the account. The money taken out can cover medical costs associated with the individual, their spouse or their dependents. If the money is distributed for expenses non health related, there will be an additional 10 percent tax included on the distribution. This is the case unless the individual is over the age of 65, or the individual has become disabled or has died.
How Do Health Savings Accounts Work? by moneyearningclub.com