Using Your Health Savings Account:

Once you have established your health savings account, you will need to begin making contributions to it. The limit for a single person is $2650 per year. Families are allowed to contribute a maximum of $5250 per year. You can elect to make this contribution in one lump sum, or if you prefer, a little each month. Your HSA administrator will be able to assist you in learning how to make these contributions. The administrator of your account will either be assigned by your health insurance company, or they may come from a third party.

Your contributions to your HSA are tax-free, and as long as you spend the money in your account on qualified medical expenses, the amount you spend is tax-free as well. If you use the money to purchase non-qualified medical expenses, you will be taxed on these purchases.

You must also have a high deductible health insurance plan in place that is HSA eligible in order to use your health savings account to make tax-free payments. If you are uncertain whether your current plan is eligible, you can contact your health insurance representative for more information.

At this point, you will also need to decide how you will plan to invest the money that is in your health savings account. Currently, there are four options available to you. The first is a standard interest bearing account, which is just like a typical savings account. The money that you contribute will earn a set amount of interest each year. The next option is a CD interest account that is similar to the first option, but will earn a little more interest. The third option is a money-market interest account. This type of account is pooled with other HSA's and earns interest in this manner. The fourth option is a mutual fund account, which is managed in a similar way.

The amount of interest that your account earns will depend on how much money you leave in your health savings account. If you keep the full amount of your allowed contribution, you will earn interest based on this amount. Otherwise, it will fluctuate, depending on the amount that is in your account.

Once you have set-up your account, made your contributions and your account begins to earn interest, you will receive a checkbook or a debit card from your HSA administrator. This can be used to pay for your health insurance premiums; prescriptions, supplies and health care needs, just like a regular checkbook or debit card. The amount that you spend will be deducted from your HSA, just like it would from your bank account. It is important to keep track of your expenditures to ensure that you are aware of the amount that is available in your HSA.

As we mentioned above, in order to have your expenditures remain tax-free, they must be made on qualified medical expenses. These expenses are defined by the IRS in their Publication #502, which can be viewed at www.irs.gov. They include health insurance premiums, doctor visits, prescriptions, dental and vision care, mental health therapy, as well as alternative therapies. Even if your health insurance plan does not provide coverage for these areas, you can still use your HSA to make tax-free payments as long as they are considered qualified expenses by the IRS.

At the end of the year, you will need to decide if you plan to itemize your deductions with the IRS. If you do not plan to itemize, you will be able to deduct the amount of money that you spent on your health care premiums from your taxes. This is one of the main tax benefits of an HSA and can offer significant tax savings.

Once the end of the year rolls around, you will be able to make another $2650 contribution or a $5250 contribution if you have a family HSA. The amount of money in your health savings account from the previous year, as well as the interest you earned during that period will be carried over in your account. This means that you can earn even more interest on your contributions as the years progress.

It is important to keep in touch with your health savings account administrator, particularly if you have any questions on qualified medical expenses, or questions on contributions.

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