Frequently Asked Questions

About Health Savings Accounts

At M & F Bank, we’re in a prime position to offer Health Savings accounts (HSAs) to individuals, Third Party Administrators (TPAs), agents, brokers & employers. With lower fees, a wide selection of service options, and our experience with custodial accounts, M & F Bank offers clear advantages over other HSA providers..

What is an HSA?

A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses.

  • 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 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.
How does an HSA plan work?

An HSA works in conjunction with high deductible health insurance.

Your HSA dollars can be used to help pay the health insurance deductible and any qualified medical expenses, including those not covered by the health insurance, like dental and vision care.

Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate, plus 10% tax penalty.

Once you meet your calendar-year deductible, the health insurance pays remaining covered expenses in accordance with the terms and conditions of your particular plan. Some plans pay 100% of covered expenses after the calendar-year deductible is met.

Who can have an HSA?

You must:

  1. Be covered by qualified high deductible health insurance plan;
  2. Not be covered under other health insurance;
  3. Not be enrolled in Medicare; and
  4. Not be another person’s dependent.

Exceptions. 
Other health insurance does not include coverage for the following: accidents, dental care, disability, long-term care, and vision care. Workers’ compensation, specified disease, and fixed indemnity coverage is permitted.

Are there HSA management fees?

Yes, if the minimum daily balance is under $2,000 there is a $4.00 charge each month.

What are the tax deductible contribution limits?

The law.
Federal law states that annual contribution limits are $3,400 for singles/$6,750 for families for 2017 and $3,350 for singles/$6,750 for families for 2016. Individuals aged 55+ may contribute an additional $1,000 for each tax year.

Do HSA plans work with physician and provider networks?

Yes. These networks are very often part of the health insurance plan, and they provide discounts on health care. The discounts apply to all care — even prior to meeting the health insurance deductible. So, your HSA plan savings go further.

Can my HSA be used for dependents not covered by the health insurance?

Generally, yes. Qualified medical expenses include unreimbursed medical expenses of the accountholder, his or her spouse, or dependents.

What about non-medical withdrawals?

Nonmedical withdrawals from your health savings account are taxable income and subject to a 10% tax penalty in 2010 and 20% in 2011.

Exception.
This tax penalty does not apply if the withdrawal is made after the date you:

  1. Attain age 65;
  2. Become totally and permanently disabled; or
  3. Die.
Can my HSA be used to pay premiums?

No, this would be a non-medical withdrawal, subject to taxes and penalty.

Exceptions.

No penalty or taxes will apply if the money is withdrawn to pay premiums for:

  1. Qualified long-term care insurance; or
  2. Health insurance while you are receiving federal or state unemployment compensation; or
  3. Continuation of coverage plans, like COBRA, required under any federal law; or
  4. Medicare premiums.
What are the tax benefits?

There are three major tax advantages to your HSA.

  1. Cash contributions to an HSA are 100% deductible from your federal gross income (within legal limits).
  2. Interest on savings accumulates tax deferred.
  3. Withdrawals from an HSA for “qualified medical expenses” are free from federal income tax.
What is a qualified medical expense?

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).

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 exceptions above under “Can my HSA be used to pay premiums?”.

*See IRS Publications 502 (“Medical and Dental Expenses”) and 969 (“Health Savings Accounts and Other Tax-Favored Health Plans”) for more information.

Are there adjustments for inflation?

Yes, the tax law requires an annual Cost of Living Adjustment (COLA) based on changes in the Consumer Price Index.
This calculation, rounded to the nearest $50 increment, affects deductible limits, maximum out-of-pocket amounts, and the maximum annual HSA contribution limits.Health insurance deductibles may change by the COLA each year.

Can I have an HSA and an IRA?

Yes, having an HSA in no way restricts your ability to have an IRA.

When can I start to use the funds in my HSA?

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% vested as soon as the funds are deposited and you have total control over the funds.

What expenses are qualified for reimbursement from my HSA?

You are eligible to receive tax-free reimbursement for qualified health expenses not covered by your insurance as defined by Section 213(d) of the Tax Code. A list of these expenses is available on the IRS website, www.irs.gov. HSA distributions used for any purpose other than the qualified medical expenses listed will be taxable, and the appropriate tax rules will apply

What about “catch up” contributions for those 55 and older?

Individuals aged 55 and over may contribute an additional $1,000 above the maximum for each tax year.

Is it true that individuals 65 or older can take out funds from their HSA plan for any reason without a penalty?

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).

To find out more about Health Savings Accounts available at M & F Bank
connect with one of our local branches.

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