Publication 553 - Highlights Of 2003 Tax Changes - Department Of The Treasury (Page 9 of 23) in pdf

Plans in which substantially all of the coverage is

deductible under his HDHP and Mrs. Auburn has a $2,000

through the above listed items are not HDHPs.

deductible under her HDHP. Mr. and Mrs. Auburn are both

For example, if your plan provides coverage sub-

treated as being covered under the HDHP with the $2,000

CAUTION

stantially all of which is for a specific disease or illness, the

deductible. Mr. Auburn can contribute $1,500 to an HSA

plan is not an HDHP for purposes of establishing an HSA.

(

the deductible of $2,000 + $500 additional contribution

for people age 55 or older) and Mrs. Auburn can contribute

$1,000 to an HSA (unless Mr. and Mrs. Auburn agree to a

Amount of Contribution

different division).

The amount you, your family members, or your employer

Medicare eligible individuals. Beginning with the first

can contribute to your HSA depends on the type of HDHP

month you are entitled to benefits under Medicare (month

coverage you have and your age.

you turn age 65), you cannot contribute to an HSA.

For 2004, if you have self-only coverage, you can

contribute up to the amount of your annual health plan

Example. You turned age 65 in July 2004 and became

deductible, but not more than $2,600 ($3,100 if you are

eligible for Medicare benefits. You had self-only coverage

age 55 or older). If you have family coverage, you can

under an HDHP with an annual deductible of $1,000. You

contribute up to the amount of your annual health plan

cannot contribute to an HSA after June 2004. Your monthly

deductible, but not more than $5,150 ($5,650 if you are

contribution limit is $125 ($1,000/12 + $500/12 for the

age 55 or older). See Rules for married people (discussed

additional contribution for people age 55 or older). You can

later). You must have an HSA all year to contribute the full

make contributions for January through June totaling $750

amount.

($125 × 6), but cannot make any contributions for July

For each full month you did not have an HDHP, you

through December.

must reduce the amount you can contribute by one-twelfth.

You must also reduce the amount you can contribute to an

When To Contribute

HSA by any (a) amounts contributed to your Archer MSA

(including employer contributions) and (b) employer contri-

You can make contributions to your HSA for 2004 until

butions to your HSA that were excluded from income.

April 15, 2005.

Example. In 2004, you have an HDHP for your family

for the entire months of July through December (6

Setting Up an HSA

months). The annual deductible of your HDHP is $4,000.

You can contribute up to $2,000 ($4,000 ÷ 12 months × 6

No permission or authorization from the IRS is necessary

months) to your HSA for the year. If your annual deductible

to establish an HSA. When you set up an HSA, you will

is $6,000 and you are under the age of 55 at the end of

need to work with a trustee. A trustee can be a bank, a life

2004, you can contribute up to $2,575 ($5,150 ÷ 12 months

insurance company, or anyone already approved by the

× 6 months) to your HSA for the year.

IRS to be a trustee of individual retirement arrangements

(IRAs) or Archer MSAs. The HSA can be established

Note. If you have more than one HSA in 2004, your total

through a trustee that is different from the HDHP provider.

contributions to all the HSAs cannot be more than the limits

Your employer may already have some information on

above.

HSA trustees in your area.

Contributions in excess of the limits above may

be includible in your gross income and may be

Rollovers. You can roll over amounts from Archer MSAs

subject to a 6% excise tax.

CAUTION

and other HSAs into an HSA. Rollover contributions do not

need to be in cash. Rollovers are not subject to the annual

Rules for married people. If either spouse has family

contribution limits. Rollovers from an IRA, a health reim-

coverage, both spouses are treated as having family cov-

bursement arrangement, or a flexible spending arrange-

erage. If both spouses have family coverage, you are

ment are not allowed.

treated as having family coverage with the lower annual

deductible of the two health plans. The contribution limit is

Distributions

split equally between you unless you agree on a different

division.

You can make tax-free withdrawals from your HSA to pay

If both spouses are age 55 or older by the end of

or be reimbursed for qualified medical expenses you incur

TIP

2004, each spouse can contribute an additional

after the HSA has been established (discussed later). If

amount to his or her HSA. Therefore, if both

you make withdrawals for other reasons, the amount you

spouses were age 55 or older by the end of the year, the

withdraw will be subject to income tax and may be subject

total contributions to the HSAs when both spouses have

to an additional 10% tax as well. You do not have to make

family coverage cannot be more than $6,150.

withdrawals from your HSA each year.

You will generally pay medical expenses during the year

Example. Mr. Auburn and his wife both have family

without being reimbursed by your HDHP until you reach

coverage under separate HDHPs. Mr. Auburn is 58 years

the annual deductible for the plan. When you pay medical

old and Mrs. Auburn is 53. Mr. Auburn has a $3,000

expenses during the year that are not reimbursed by your

Chapter 1 Tax Changes for Individuals

Page 9

Publication 553 - Highlights Of 2003 Tax Changes - Department Of The Treasury Page 9

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