Health Savings Accounts
If you have a high-deductible health plan, a Health Savings Account (HSA) can be a smart way to pay for your medical expenses. HSAs offer potential tax advantages1, especially when used for qualified expenses. Funds can roll over from year-to-year, and HSAs are portable as you change jobs.
With an HSA at The Bank of Missouri, you’ll enjoy a dedicated debit card, monthly account statements, Online Banking, and the ability to make automatic transfers to your HSA.
Even better, you can earn interest on your balance. Any interest and investment earnings on contributions grow tax-deferred until withdrawn, and like contributions, will be tax-free when withdrawn if used to pay qualified medical expenses.
To open an HSA and start enjoying the benefits, you will need to meet federal regulations. Generally, you must be enrolled in a high deductible health plan (HDHP) that meets certain criteria, and you must not be claimed as a dependent on someone else’s tax returns.
The IRS sets limits on the amount you can contribute to your HSA. This amount typically adjusts for inflation each year.
2018 Annual Contribution Limit
You may choose to contribute monthly to your HSA or make a lump-sum contribution any time before your tax return becomes due. You may also be eligible to make additional "catch-up contributions" to your HSA of $1,000, if you are 55 or older.
Eligible health expenses for your HSA funds include lab fees, prescriptions drugs, dental treatment, ambulance service, eyeglasses, and hearing aids, as well as many other healthcare expenses. Over-the-counter medications are not eligible purchases, unless it’s insulin or is prescribed by a physician. Also, health insurance premiums are generally not eligible expenses. Some exceptions apply, including COBRA coverage. Using your HSA for non-eligible expenses is subject to taxes as well as an additional 20% penalty tax. Exceptions include if the HSA payment is the result of a beneficiary’s death, disability or the beneficiary has reached age 65. For a complete list of qualified medical expenses, please see IRS Publication 502.
About Health Savings Accounts
Who can establish an HSA?
You must be enrolled in an HSA-qualified "high deductible health plan" (HDHP) that doesn’t cover all medical expenses. Your health plan must meet IRS guidelines for the annual deductible and out-of-pocket maximum.
2018 Minimum Annual Deductible
Individual coverage: $1,350
Family Coverage: $2,700
2018 Annual out-of-pocket maximum
Individual Coverage: $6,650
Family coverage: $13,300
- Be covered by any other health plans, including Medicare, unless additional plans are HDHP’s.
- Be claimed as a dependent on someone else’s tax return.
- Receive Veterans Administration benefits within the past three months for a non-service connected disability.
How are contributions taxed?
Individual contributions you make to your HSA that do not exceed the maximum contribution limit are tax deductible on your federal income tax return. Because you deduct these contributions "above-the-line" when computing your adjusted gross income, you can deduct HSA contributions even if you don't itemize. You can also deduct contributions made by a family member on your behalf.
If your employer makes contributions to your HSA, these are excludable from your gross income. Any contributions made through a cafeteria plan are treated as employer contributions. However, you cannot deduct employer contributions to your HSA.
Tip: Employer contributions will be reported in Box 12 of your Form W-2.
Tip: Employer contributions are not taxable to the employer and are not subject to FICA or FUTA taxes.
What happens to funds remaining in my HSA?
At the end of the year:
Funds remaining in your account at the end of the year are not forfeited and can continue to accumulate tax free year after year until withdrawn.
If you change jobs:
An HSA is portable. Because the account is yours, you can keep it and continue to make contributions even if you change employers or leave the workforce.
If you divorce:
If all or part of your interest is transferred to your spouse as part of a divorce settlement, it will not be considered a taxable transfer, and the transferred interest will continue to be treated as an HSA.
If you retire:
Although you can no longer open or make contributions to an HSA once you reach age 65 and are enrolled in Medicare, you can take tax-free distributions from your account to pay for medical expenses. You can withdraw funds from your account for nonmedical purposes without owing a penalty (although the amount you withdraw will be subject to income tax).
If you die:
Funds remaining in your HSA upon your death become the property of your designated beneficiary. If the beneficiary is your spouse, he or she becomes the account holder and the account remains an HSA. If the beneficiary is not your spouse, the account ceases to be an HSA as of the day of your death, and the fair market value of the funds are includable in your beneficiary's gross income.