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Health Savings Account FAQ

What is a Health Savings Account and how does it work and what are its advantages?
What is the tax treatment of employer contributions to an HSA?
How do I access my HSA funds after I reach age 65?
Can I use my HSA to pay for health insurance premiums (including Medicare) of a spouse or dependent?
Can I make changes to my HSA contributions throughout the year?

What is a Health Savings Account and how does it work and what are its advantages?
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.

An HSA provides an added way to save tax deferred. Contributions to the HSA are tax deductible (up to IRS limits), withdrawals to pay for qualified medical expenses (including dental and vision) are tax free, and interest earnings accumulate tax-deferred. Interest earnings used to pay for qualified medical expenses are tax free and, unlike a Flexible Spending Account (FSA), unused money in the HSA is not lost at the end of the year but continues to grow tax deferred. HSA's like an IRA can be invested in stocks/bonds, mutual funds, CD's and annuities. Employer contributions and earned interest to an HSA are taxable income in California.
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What is the tax treatment of employer contributions to an HSA?
Employer contributions to an employee's HSA are excludable from the employee's federal gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not federally taxable to the employee nor are they subject to withholding from wages for federal income tax or other employment taxes. State taxes apply in AL, NJ and CA on HSA contributions and interest earned.
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How do I access my HSA funds after I reach age 65?
Once you reach age 65 your HSA funds can be withdrawn at any time and are only subject to ordinary income tax. However, you may avoid any tax by continuing to use the funds for qualified medical expenses. For those over age 65 premiums for Medicare Part A or B, Medicare HMO and employee premiums for employer-sponsored health insurance can be paid from an HSA.
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Can I use my HSA to pay for health insurance premiums (including Medicare) of a spouse or dependent?
You can use your HSA to pay for health insurance premiums of your spouse or dependents in the case when your spouse or your dependent are: (1) receiving health care continuation coverage through COBRA, or (2) are receiving unemployment compensation through a federal or state program. If you are not age 65, you generally cannot use your HSA to pay for the Medicare premiums of your spouse who is over 65.
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Can I make changes to my HSA contributions throughout the year?
Yes. You can make changes to your HSA contributions mid year by completing an enrollment form.
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