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Beginning on January 1, 2004, individuals under the age of 65 are eligible to contribute to an HSA if they have a qualified health plan.

For self-only policies, a qualified health plan must have a minimum deductible of $1,050 with a $5,250 cap on out-of-pocket expenses for 2006. (indexed annually).

For family policies, a qualified health plan must have a minimum deductible of $2,100 with a $10,500 cap on out-of-pocket expenses for 2006. (indexed annually).

Preventive care services, as well as coverage for accidents, disability, dental care, vision care, and long-term care is not subject to the deductible.

Individuals may contribute up to 100% of the health plan deductible.
The maximum annual contribution is $2,700 for self-only policies and $5,450 for family policies for 2006 or the lesser of the deductible of the insurance policy. (indexed annually).

Individuals age 55 to 65 may make additional catch-up contributions of up to $700 in 2006, increasing $100 per year to $1,000 annually in 2009 and thereafter. A married couple can make two catch-up contributions as long as both spouses are at least 55 and each has their own HSA Account

Contributions may be made by individuals, family members and employers and are tax deductible, even if the account beneficiary does not itemize. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers will be allowed to offer HSAs through a cafeteria plan.
Investment earnings accrue tax-free.

HSA distributions are tax-free if they are used to pay for qualified medical expenses. Qualified expenses include prescription drugs, qualified long-term care services and long-term care insurance, COBRA coverage, Medicare expenses (but not Medigap), and retiree health expenses for individuals age 65 and older.

Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty is waived in the case of death or disability. The 10% penalty is also waived for distributions made by individuals age 65 and older.
Upon death, HSA ownership may transfer to the spouse on a tax-free basis.

Contributions to a Health Savings Account (HSA)
Maximum Contributions
For 2006, the maximum you may contribute to a Health Savings Account (HSA) is the lesser of your deductible under the High-Deductible Health Plan (HDHP) and $2700 for single coverage or $5450 for family coverage. Minimum HDHP deductibles are $1050 for individuals and $2100 for families.

Minimum Contributions
After you establish your HSA, you have no legal obligation, per HSA regulations, to make additional contributions, even if you continue coverage under a High-Deductible Health Plan (HDHP).

Catch-Up Contributions
Because a new savings program tends to favor younger people with more time to save, a "catch up" provision was included with HSA regulations. HSA holders age 55 and older may make additional annual contributions of $700 for 2006, increasing by $100 each year to a maximum additional calendar year contribution of $1000 in 2009.

Employer Contributions
An employer may contribute to an employee's Health Savings Account (HSA), but the employer must make available comparable contributions on behalf of all "comparable participating employees." Contributions are considered comparable if they are the same amount or same percentage of the High-Deductible Health Plan (HDHP) deductible.

Partial Year Contributions
If you establish an HSA for a partial year, your maximum contribution is proportional to the number of months left in the year. For example, if you have individual coverage with a $2600 deductible and you establish an HSA on July 1, your maximum calendar year HSA contribution would be $1300.

Contribution Deadlines
HSA contributions must be made for a specific year on or before the due date (without extensions) for filing tax returns for that year. So, for 2006, contributions must be made on or before April 15, 2007.

Higher HDHP Deductibles
You can purchase a High-Deductible Health Plan (HDHP) with a deductible beyond the HSA contribution limit. For example, a single person can purchase a $5000 deductible HDHP. However, that person's maximum 2004 HSA contribution would still be limited to the $2600 cap for single coverage.

HSA Contributions must be Cash
Health Savings Account (HSA) contributions must be in cash. For example, contributions can not be made in stock or other property.

Rollovers are Permitted
Rollover contributions from Archer MSAs and other HSAs are permitted. Rollovers are not subject toe the annual contribution limits and rollover contributions need not be in cash. Rollovers from an IRA, a health reimbursement arrangement (HRA), or from a health flexible spending arrangement (FSA) are not permitted.

Excess HSA Contributions
Contributions by an individual are not deductible to the extent they exceed the maximum limits. Excess contributions by an employer generate taxable income to the employee. In addition, a 6% excise tax is imposed on the excess funds.

The excise tax and any net income attributable to excess contributions are avoided if the excess contributions are paid to the HSA owner prior to federal income tax deadline for the year at issue.

Distribution of Funds from a Health Savings Account
Distributions for Qualified Expenses
When distributions from a Health Savings Account (HSA) are used to pay for qualified medical expenses of the account owner, his or her spouse, or dependents, the distributions are excluded from gross income -- even if the individual is not currently eligible to make HSA contributions.

Distributions not used for Qualified Expenses
Distributions not used for qualified medical expenses are includable in gross income and, for applicants under age 65, subject to an additional 10% tax.

For Ineligible Individuals
If the Health Savings Account (HSA) beneficiary is no longer "eligible" (e.g., over age 65, entitled to Medicare or no longer enrolled in a High-Deductible Health Plan (HDHP), distributions used to pay qualified medical expense continue to be exempt from gross income.

Determination of Qualified Medical Expense
The person who establishes an HSA makes the qualified medical expense determination and should maintain verifying expense records. The HSA Trustee or Custodian makes no judgments on what may or may not be a qualified medical expense. They simply accept the judgment of the HSA owner.
In addition, employers who make contributions to an employee's HSA cannot make a qualified medical expense determination. Determining qualified medical expense is always the job of the HSA owner.

HSA Disbursements for "Old" Expenses
For the calendar year 2005 and beyond, you can only reimbuse yourself for qualified medical expenses incured after you have set up your HSA, not when you purchased your HDHP.

HSA Distributions are Optional
When you incur a qualified medical expense, you are not obligated to pay the expense with available Health Savings Account (HSA) funds. You face a trade-off: You can spend after-tax income (not good), in return maximizing the long-term savings in your HSA (good).

Financial professionals advise, in most circumstances, using your HSA funds to pay necessary qualified medical expenses. Keep in mind, if HSA funds are not used to pay qualified medical expenses, those HSA funds will eventually be subject to income tax.

HSA Distributions after Death
If the Health Savings Account (HSA) owner dies, the HSA becomes the property of the named beneficiary. If the spouse is the beneficiary, the surviving spouse is subject to income tax only on HSA distributions not used for qualified medical expenses.

If the HSA passes to a person other than the spouse, the HSA terminates as of the date of death, and the person is required to include in gross income the assets of the HSA at the date of death. The taxable amount is reduced by any HSA payments for the decedent's qualified medical expenses, if paid within one year after death.