WHAT IS A HEALTH SAVINGS ACCOUNT (HSA)?

A health savings account (HSA) is an IRA-like account funded with pretax dollars that grow tax-deferred. The HSA assets may serve a dual purpose:

• tax-free and penalty-free distributions can be taken to pay for medical expenses, and
• penalty-free (but not tax-free) distributions can be taken for any reason starting at age 65.

In other words, HSA assets not used for medical expenses become retirement assets.

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WHO IS ELIGIBLE FOR HEALTH SAVINGS ACCOUNTS?

Any individual with a high deductible health insurance plan may establish an HSA.

• An individual must obtain HDHP coverage before opening an HSA.
• An individual must generally not be covered by any health plan that is not an HDHP.
• An individual must not be enrolled in Medicare when opening an HSA.
• An individual must not be claimed as a dependent on another person's tax return, even if the other person does not actually claim the deduction.

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WHAT IS A HIGH DEDUCTIBLE HEALTH PLAN?

The requirements for a health plan to be considered a "high deductible" (HDHP) vary, depending on whether the covered individual receives single or family health insurance coverage.

For single coverage, the policy must have:

• a minimum deductible of $1,100 and
• a maximum out-of-pocket cost of $5,600.00.

For family coverage, the policy must have:

• a minimum deductible of $2,200 and
• a maximum out-of-pocket cost of $11,200.

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CONTRIBUTIONS

Prior to President George W. Bush signing the Health Opportunity Empowerment Act of 2006 into law, the maximum HSA contribution limit was calculated by the lesser of the deductible or the IRS limitation. However with this new law came new HSA rules, which state that you can now contribute up to the IRS limitations regardless of deductible. Below you will find the contribution limits for 2008.

Annual contributions to an HSA are limited to the IRS limitations each year. Limitations for 2008 are as follows: $2,900 for an individual with single coverage or $5,800 for family coverage.

Individuals age 55 and older, who are covered by an HDHP, may make additional catch-up contributions in the amount of $900 in 2008.

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WHEN MUST HSA CONTRIBUTIONS BE MADE?

Like IRAs, contributions may be made until the tax return due date (not including extensions) for the individual. This date is typically April 15th

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WHO CONTRIBUTES TO MY HSA?

Contributions may be made in any combination of employer, individual or family member. If your employer contributes to your HSA, your employer must make comparable contributions for all employees with comparable health insurance coverage.

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HOW ARE CONTRIBUTIONS TREATED FOR TAX PURPOSES?

Employer contributions are excluded from income and individual contributions are deductible "above the line". That is, a taxpayer does not have to itemize in order to take the contribution as a deduction.

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DISTRIBUTIONS

Your HSA dollars can be taken anytime, free from federal income tax, to pay for qualifying medical expenses. HSA funds may be used to pay premiums only for long-term care insurance, COBRA continuation premiums, or other health insurance premiums for people receiving unemployment benefits. Be sure to check your HSA plan for specifics regarding distribution procedures.

There is one unanswered question of whether or not distributions would begin at age 70½. While the law is silent on this point at the present time, we would expect the IRS to treat this like an IRA. Therefore, the answer will probably be yes.

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HOW DO I INVESTMENT MY HSA FUNDS IN THE STOCK MARKET?

You can invest through brokersXpress, a self directed brokerage account which gives you the ability to invest in stocks, bonds and mutual funds with your HSA dollars.
To learn more about brokersXpress please click here.

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HOW ARE DISTRIBUTIONS TREATED FOR TAX PUPOSES?

If distributions are taken for Qualifying Medical Expenses (QME), the distributions are tax free. Distributions taken for other purposes are taxed at ordinary income tax rates. If the distribution is not taken for a QME and is not due to disability, death or attainment of age 65, a 10% penalty tax applies in addition to the ordinary income tax.

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WHAT ARE QUALIFYING MEDICAL EXPENSES?

A Qualifying Medical Expense (QME) is generally an expense incurred maintaining your or your family's health (e.g., diagnostic services, treatments or hospitalization). QMEs do NOT include the payment of health insurance premiums, unless the premiums are for long-term care insurance, health care continuation coverage, or health care coverage while you are receiving unemployment compensation under any federal or state law.

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WHAT ARE SOME EXAMPLES OF MEDICAL EXPENSES THAT I CAN PAY TAX-FREE FROM MY HSA?

Medical service fees from doctors, dentists, optometrists, chiropractors, psychiatrists, psychologists, and other certified medical professionals are some of the examples of medical expenses that I can pay tax-free from my HSA.

• Prescription drug fees.
• Fees for lab work, therapy, nursing services and surgery.
• Fees for eyeglasses, contact lenses, hearing aids, false teeth, and any other prosthetic devices and special devices.
• Fees for insurance premiums as discussed in the previous question.
• Fees for transportation expenses needed for medical, dental or health treatment, plus many other expenses not listed above. For information, a complete list can be obtained by calling 1-800-TAX-FORM and ordering IRA publication 502.

Please contact your HSA Administrator with regard to any questionable qualifying expense.

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WHAT ARE SOME EXPENSES THAT ARE NOT CONSIDERED QMES?

• Payments for cosmetic surgery.
• Payments for your general health, such as health club dues.
• Stop smoking programs.
• Weight loss programs.
• Trips for general health improvement.
• Payment for illegal medical treatment, such as unapproved procedures.
• Payment for premiums for the HDHP.
• Payment for premiums for other types of medical insurance, as addressed
  by the above question.
• Funeral, burial or cremation expenses.

Please contact your HSA Administrator with regard to questionable qualifying expense.

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WHAT HAPPENS TO MY HSA AT MY DEATH?

At your death, the HSA will pass to your named beneficiary. If the beneficiary is your spouse, the HSA will be re-titled in your spouse's name. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.

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HEALTH SAVINGS ACCOUNT RATE AND FEE INFORMATION

RATE INFORMATION

Click here for our outstanding Health Savings Account rates! At our discretion, we may change the interest rate for this account.

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FEES AND CHARGES

A $25 maintenance fee will be imposed on the Health Savings Account each year. Also a $25 fee will be imposed upon closing or transfer of the account.

There is no transaction fee for distributions from the Health Savings Account.

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WITHDRAWAL OPTIONS: HEALTH SAVINGS CHECKING ACCOUNT

• You can choose from 40 free checks, our free VISA debit card or both.
• Check/transaction processing free - no limit
• Withdrawal for medical purposes only

HOW DO I SIGN UP?

To sign up you can call Ann or Adam at (800) 205-7203 or fill out the HSA Information Request / Sign-up form. The necessary application and enrollment forms can be either emailed or mailed to you.

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HOW DOES THE BANK OF CASHTON HSA COMPARE TO OTHER HSA'S?

Go to HSAfinder, HSAinsider or VIMO and compare us to other custodians. You will find that the Bank of Cashton HSA offers you everything you want!

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WHERE CAN I GET MORE INFORMATION ABOUT HSA'S?

Go to the U.S. Treasury website for Frequently Asked Questions about Health Savings Accounts.

You can also download the HSA Road Rules to answer many of your questions.

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