Q. Why should I invest in a Health Savings Account?

A. If you or your employer are tired of the high costs of health insurance and would prefer to keep that money for yourself to spend on health expenses or save for the future, you should look into a Health Savings Account.

Q. Who is eligible for a Health Savings Account?

A. To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, or long-term care), must not be enrolled in Medicare, and can’t be claimed as a dependent on someone else’s tax return.

Q. What is a High Deductible Health Plan (HDHP)?

A. A High Deductible Health Plan is a health insurance plan with a minimum deductible of $1,100 (self-only coverage) or $2,200 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,500 (self-only coverage) or $11,000 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventative care and higher out-of-pocket (co-pays and coinsurance) for non-network services.

Q. Who can contribute to a Health Savings Account?

A. Contributions to HSAs can be made by either the employer or the individual, or both. If after-tax contributions are made by the individual, it is an “above-the-line” deduction. If contributions are made by the employer, it is not taxable to the employee (excluded from income).

Q. How much can I contribute to a Health Savings Account?

A. The maximum contribution for 2007 is $2,850 for individuals or $5,650 for family coverage. These dollar amounts will be adjusted for inflation each year. Individuals age 55 and over may also contribute an additional $800 in 2007.

Q. Do Health Savings Account funds roll over year after year and get invested?

A. Yes, any unused funds in a Health Savings Account roll over each year.

Q. Who has control over the money in a Health Savings Account?

A. With Tower Bank as trustee, account holders have complete control over their funds. Other trustees may impose limits on accessibility.

Q. Is there an IRS approved list of medical expenses from which I can use my HSA dollars?

A. Yes, there is list of allowable expenses provided on the home page of this website under “Eligible Expenses.” If you would like a more thorough list provided by the Internal Revenue Service, go to www.irs.gov/pub/irs-pdf/p502.pdf.

In general, you can use your tax-advantaged HSA dollars on all medical, dental (including braces for your children) and vision expenses, chiropractic visits, and even acupuncture, but not on your insurance premium, unless you are unemployed and are collecting Federal unemployment benefits.

Q. Will I have to pay tax penalties on the monthly fees my HSA custodian deducts from my account?

A. The IRS has ruled that nominal bank and custodial fees withdrawn directly from the account are allowable withdrawals, and therefore are not subject to taxes or penalties.

Q. Can I use my Health Savings Account for non-medical expenses?

A. Yes, you can spend money out of your Health Savings Account for non-medical expenses; however, you will pay income tax and a 10 percent penalty for a non-medical withdrawal prior to age 65.