What is a Health Savings Account and what do I need to know? Q. What is a Health Savings Account?

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1 What is a Health Savings Account and what do I need to know? Q. What is a Health Savings Account? A. A health savings account (HSA) combines high deductible health insurance with a tax-favored savings account. Money in the savings account can help pay the deductible. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest and is yours to keep.

2 Q. What are the Advantages of using a Health Savings Account? A. Health Savings Account Advantages: Tax-deductible Contributions to the HSA are 100% deductible (up to the legal limit) just like an IRA. Tax-free Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed. Tax-deferred Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free. HSA money is yours to keep Unlike a flexible spending account (FSA), unused money in your HSA isn t forfeited at the end of the year; it continues to grow tax-deferred. Q. Who can have a Health Savings Account? A. You must be: 1. Covered by qualified high deductible health insurance plan; 2. Not covered under other health insurance; 3. Not enrolled in Medicare; and 4. Not another person's dependent. Exceptions. Other health insurance does not include coverage for the following: accidents, dental care, disability, longterm care, and vision care. Workers compensation, specified disease, and fixed indemnity coverage is permitted. Q. If I qualify for an Health Savings Account, can my dependents NOT on my health plan also take advantage of the HSA account? A. Generally, yes. Qualified medical expenses include unreimbursed medical expenses of the accountholder, his or her spouse, or dependents. Q. What is the penalty if I use my HSA funds for anything other than qualified medical expenses? A. Funds distributed for non qualified medical expenses are subject to a 20% penalty plus treated as income for tax purposes. It s expensive!!!

3 Q. What are the maximum contributions I can make each year? A. This amount can change from year and you should check current IRS guidelines each year. Limits for 2015 & 2016 are as follows: 2015 IRS Limits Single Family Maximum Contribution Limit $3,350 $6,650 Minimum Deductible $1,300 $2,600 Maximum Out-of-Pocket $6,450 $12,900 Catch-up Contribution (55+) $1,000 $1, IRS Limits Single Family Maximum Contribution Limit $3,350 $6,750 Minimum Deductible $1,300 $2,600 Maximum Out-of-Pocket $6,550 $13,100 Catch-up Contribution (55+) $1,000 $1,000

4 Q. What is a qualified Medical expense? A. A qualified medical expense is one for medical care as defined by Internal Revenue Code Section 213(d). The expenses must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision. Most expenses for medical care will fall under IRC Section 213(d). Even if you do not have dental or vision insurance, you can use your tax-free dollars from your HSA to pay for qualified expenses. However, some expenses do not qualify. A few examples are: Surgery for purely cosmetic reasons Health club dues Illegal operations or treatment Maternity clothes Toothpaste, toiletries, and cosmetics HSA money cannot generally be used to pay your insurance premiums. *See IRS Publications 502 ( Medical and Dental Expenses ) and 969 ( Health Savings Accounts and Other Tax- Favored Health s ) for more information. *see common examples Q. When can I start to use the funds in my HSA? A. Once your account is open, a deposit has been made to your account and funds are available, you can start using your HSA. You are 100 percent vested as soon as the funds are deposited and you have total control over the funds. Q. Is it true that individuals 65 or older can take out funds from their HSA plan for any reason without a penalty? A. If an individual is age 65 or older, regardless of whether the individual has been enrolled in Medicare, there is no penalty to withdraw funds from the HSA. As always, normal income taxes will apply if the distribution is not used for unreimbursed medical expenses (expenses not covered by the medical plan). Q. What happens to my HSA account when I die? A. Your HSA will be treated as your surviving spouse s HSA, but only if your spouse is the named beneficiary. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary. Q. Where can I find additional information? A. There are many resources available on the internet, such as hsabank.com, hsacenter.com (where a lot of the information from here can be found), or by contacting your local bank.

5 Health Savings Account (HSA) Eligible/Ineligible Expenses A FULL list of these expenses is available on the IRS Web site, in IRS Publication 502, Medical and Dental Expenses." Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate plus 20% tax penalty if you're under 65. The following list provides examples of eligible and ineligible expenses. This list is not all-inclusive and the information contained herein is not meant to substitute or replace legal, accounting, or medical advice. Please keep in mind the IRS may change the list from time to time and it s your responsibility to contact a tax advisor should you require any specific tax advice. Eligible medical expenses may include: Acupuncture Alcoholism Ambulance Annual Physical Examination Artificial Limb Artificial Teeth Autoette Bandages Birth Control Pills Body Scan Braille Books and Magazines Breast Pumps and Supplies Breast Reconstruction Surgery Capital Expenses Car Chiropractor Christian Science Practitioner Contact Lenses Crutches Dental Treatment Diagnostic Devices Disabled Dependent Care Expenses Drug Addiction Drugs Eye Exam Eyeglasses Eye Surgery Fertility Enhancement Founder's Fee Guide Dog or Other Service Animal Health Institute Health Maintenance Organization (HMO) Hearing Aids Home Care Home Improvements Hospital Services Insurance Premiums Intellectually and Developmentally Disabled, Special Home for Laboratory Fees Lactation Expenses Lead-Based Paint Removal Learning Disability Legal Fees Lifetime Care Advance Payments Lodging Long-Term Care Meals Medical Conferences Medical Information Medicines Nursing Home Nursing Services Operations Optometrist Organ Donors Osteopath Oxygen Physical Examination Pregnancy Test Kit Prosthesis Psychiatric Care Psychoanalysis Psychologist Special Education Sterilization Stop-Smoking Programs Surgery Telephone Television Therapy Transplants

6 Transportation (continued from eligible list) Trips Tuition Vasectomy Vision Correction Surgery Weight-Loss Program Wheelchair Wig X-ray Ineligible medical expenses may include: Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby Controlled Substances Cosmetic Surgery Dancing Lessons Diaper Service Electrolysis or Hair Removal Flexible Spending Account Funeral Expenses Future Medical Care Hair Transplant Health Club Dues Health Coverage Tax Credit Health Savings Accounts Household Help Illegal Operations and Treatments Insurance Premiums Maternity Clothes Medical Savings Account (MSA) Medicines and Drugs From Other Countries Nonprescription Drugs and Medicines Nutritional Supplements Personal Use Items Swimming Lessons Teeth Whitening Veterinary Fees Weight-Loss Program