Rules for Your Health Savings Account (HSA)
Find out what a health savings account (HSA) is, who can have one, and how to make distributions the right way.
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What Are the Annual Limits for a Health Savings Account (HSA)?
For 2013 and 2014, the minimum required annual deductibles for a HDHP are:
- Self-only coverage (individual): $1,250
- Family coverage: $2,500
For 2014, the maximum out-of-pockets expenses (including deductibles, co-payments, and other amounts, excluding premiums) are:
- Self-only coverage: $6,350 (up $100 from 2013)
- Family coverage $ 12,700 (up $200 from 2013)
For 2014, the annual contribution limits for an HSA are:
- Self-only coverage (individuals): $3,300 (up $50 from 2013)
- Family coverage: $6,550 (up $100 from 2013)
Rules for Taking Distributions from a Health Savings Account (HSA)
Now that you know the HSA basics, let's talk about the right way to make distributions or payments from the account. I previously mentioned that spending money on non-qualified medical expenses can really cost you. The hefty penalty is 20% plus ordinary income tax on the distribution amount.
To find out which medical expenses the IRS allows you to pay for using HSA funds, refer to Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans for complete information.
So how should you handle a situation where you might get a refund for a medical expense from your insurance company? You can choose from 2 options:
- Pay the medical expense with your personal funds. Then you can reimburse yourself later on with HSA funds when you know if you'll receive a refund or not. You could use an HSA check or transfer funds to your personal bank account online.
- Pay the medical expense with your HSA funds. However, any refund received would be considered an erroneous distribution if you keep it, instead of putting it back into your HSA. But the good news is that when you make a distribution in good faith for a qualified medical expense, you can repay it by April 15 of the following year with no penalty. The repayment gets classified as an adjustment to the HSA, not a contribution that would count against the allowable annual contribution limit.
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