Health Savings Account

What is an HSA?

A health savings account (HSA) is a tax-sheltered medical savings account available to taxpayers who are enrolled in a high-deductible health plan (HDHP) or an HSA-eligible health plan.   Monies contributed to an HSA Account are not subject to federal income tax at the time of deposit.  It is like a traditional IRA, but it is for medical needs.

Who can have an HSA?

Someone who is:
•    Someone covered by a high deductible major medical insurance (qualified for an HSA) policy; and
•    not covered under "other health insurance"; and
•    one who has net income at least equal to the annual contribution (to be able to deduct the contribution). 

How does an HSA work?

The HSA works together with the high-deductible health plan to give you more comprehensive coverage. Simply put, the high-deductible health plan would cover major illnesses(more than the deductible), and the HSA would cover smaller bills. For medical expenses not covered under a health plan, one may use the tax-free dollars from the HSA. Things like dental, vision, alternative medicine etc. And,year-to-year you can roll over your HSA Savings meaning you do not lose your savings.

Are contributions to an HSA tax-deductible?    

All dollars deposited into a HSA are 100% tax-free as long as they are in this account and used for medical expenses.  

What can one contribute to an HSA annually?

The maximum amount that can be contributed to an HSA depends on the type of HDHP coverage you have. For 2023, if you have self-only coverage, your maximum contribution is $4,150. If you have family coverage, your 
maximum contribution is $8,300.  If you are 55 or older, you can contribute an additional $1,000 as a catch-up contribution. Contributions for 2025, increase to $4,300 for an individual and $8,550 for a family.

What happens if someone uses money from the HSA for something other than medical expenses?  

There is a penalty for withdrawing funds for non-medical expenses if you are younger than 65 because it is considered a premature withdrawal.  There are a few exceptions. You consult the IRS or a professional for what these exceptions are.  At age 65, you will be liable for taxes on the money you withdraw that is not used for medical reasons.

What if someone dies before they utilize all of the funds in the HSA?

Just like with an IRA, funds from a Health Savings Account (HSA) are inheritable.

Can HSA funds be used to pay medical premiums?

No.  However, there are some exceptions like long term care etc. Consult the IRS or a professional for these exceptions.

Who reports the deposits and withdrawals of my HSA?

DATCU will report to the IRS all withdrawals and deposits (in total).  The account owner is responsible for all detail reporting to the IRS.