Understanding What Makes You Health Savings Account Eligible: 6 Key Points

Health Savings Accounts (HSAs) offer a valuable opportunity for individuals to save for qualified medical expenses on a tax-advantaged basis. However, not everyone is eligible to open and contribute to an HSA. Eligibility is determined by specific criteria set forth by the Internal Revenue Service (IRS). Understanding these requirements is crucial for anyone considering an HSA. This article outlines six key points that define Health Savings Account eligibility.

1. Enrollment in a High Deductible Health Plan (HDHP)

A fundamental requirement for HSA eligibility involves enrollment in a High Deductible Health Plan (HDHP). An HDHP is a health insurance plan that features higher deductibles than traditional insurance plans. In return, HDHPs typically have lower monthly premiums. For a health plan to qualify as an HDHP for HSA purposes, it must meet specific deductible and out-of-pocket maximum limits set annually by the IRS. These limits distinguish HDHPs from other insurance plans and are a cornerstone of HSA eligibility.

2. Absence of Other Health Coverage

Generally, to be eligible for an HSA, you must not be covered by any other health plan that is not an HDHP. This means having additional "first-dollar" coverage, such as a low-deductible plan, Medicare, or certain types of Health Reimbursement Arrangements (HRAs), can disqualify you. There are, however, specific exceptions to this rule. Permitted types of other coverage that do not affect HSA eligibility include coverage for specific diseases, accident, disability, dental care, vision care, long-term care, and workers' compensation. Understanding these nuances is important when assessing your overall coverage.

3. Not Enrolled in Medicare

Individuals who are enrolled in Medicare, regardless of their age, are generally not eligible to contribute to an HSA. This applies even if they are also covered by an HDHP. Once you enroll in any part of Medicare (Part A, Part B, Part C, or Part D), your HSA contribution eligibility ceases.If you plan to enroll in Medicare, it's often advisable to stop contributing to your HSA several months beforehand, as Medicare Part A coverage can be retroactive. This specific rule helps define the boundaries of HSA eligibility for older adults.

4. Not Claimed as a Dependent on Another's Tax Return

If you are claimed as a dependent on someone else's tax return, you are not eligible to contribute to an HSA in your own name. This rule applies regardless of whether you meet the other eligibility criteria, such as having an HDHP. While a dependent may use funds from another person's HSA (if they are a qualified dependent of that person), they cannot establish and contribute to their own HSA. This provision is designed to prevent multiple individuals from claiming HSA benefits based on a single qualifying individual or family.

5. Meeting Annual HDHP Deductible and Out-of-Pocket Limits

To qualify as an HSA-eligible HDHP, a health plan must satisfy specific minimum deductible and maximum out-of-pocket limits established annually by the IRS. These figures are crucial and are updated for each tax year, so it's essential for individuals to verify the current limits applicable to their plan. For example, for self-only coverage, there's a set minimum deductible and a maximum out-of-pocket expense. Similarly, for family coverage, distinct minimum deductible and maximum out-of-pocket thresholds apply. Your insurance policy's summary of benefits and coverage document should explicitly state whether your plan meets these required thresholds, thereby confirming its status as an HSA-eligible HDHP. Understanding these specific numbers is fundamental to determining your eligibility.

6. Adherence to Annual HSA Contribution Limits

While technically related to the act of contributing to an HSA rather than initial eligibility to open one, understanding and adhering to the annual contribution limits is an integral part of maintaining HSA compliance. The IRS sets maximum amounts that can be contributed to an HSA each year, which are adjusted periodically. These limits