A Health Savings Account (HSA) is a personal investment account that you own. You can use it to save money, federal income-tax–free, to pay for qualified medical expenses. When you have medical expenses, including those that may apply to your deductible, you can choose to pay for them using the money in your HSA. Or, you can save the money for a future need – even into retirement.

1. Triple Tax Advantage:

                a). Contributions that both you and your employer make to the HSA can be tax-free for you.

                b). Interest and investment earnings on your HSA balance are not taxed.

                c). Withdrawals used to pay for qualified medical expenses are not taxed.

2. The HSA that accompanies the CDHP plan allows you to save for current and future medical expenses, meaning the funds are held in the account year over year and are available when needed for current qualified medical expenses or future expenses.

3. The CDHP premiums are usually lower than other types of plans, so you might choose to use those savings to fund the HSA.

If one or more of the following are true, you may want to select the CDHP with an HSA:

• You are paying for insurance you are not using
• You want an option to save for current and future medical expenses
• You want to save on monthly premiums
• You anticipate major health expenses that would exceed the out-of-pocket maximum of the CDHP

An “eligible individual” may establish an HSA. To be an eligible individual, you must be:

• Covered under a CDHP as of the first day of the month
• Not also covered by any other health plan that is not a CDHP
• Not enrolled in Medicare benefits 
• Not claimed as a dependent on another person’s tax return

The simplest way to contribute to the HSA is through before-tax payroll contributions, but you may also write a check or transfer money from your bank account to make a lump-sum contribution to your HSA. If the money comes from your bank account instead of through payroll contributions, you may deduct the amount contributed on your federal taxes using IRS Form 8889, since those contributions would be made with after-tax money.

An HSA may receive contributions from you or any other person, including an employer or family member, on your behalf. Contributions other than employer contributions or an employee’s before-tax payroll contributions are deductible on your federal tax return whether or not you itemize deductions or whether you or anyone else other than your employer makes a contribution. Contributions from all sources are aggregated for the purpose of applying the maximum annual contribution limit.

With an HSA, the money rolls over year after year and the account is yours to keep, even if you leave the University or retire.

If a faculty or staff member gets hired into a fully benefits-eligible position during the year — or goes from partially benefits-eligible status to fully benefits-eligible, or has a qualifying life event — and elects the CDHP plan at that time, due to the change, when are they eligible to participate in the HSA and receive Vanderbilt’s employer contribution?

In any of these scenarios, if you become newly-eligible for the CDHP with employer contributions to the HSA, you may set up — and begin your own contributions to — the HSA, without a waiting period. Vanderbilt makes contributions to the HSA twice a year, once in January and once in July.  So, for example, an employee hired in May into a fully benefits-eligible position will be eligible to receive the next available Vanderbilt contribution in July.  An employee who gets married in May and switches from employee only to employee + spouse coverage will receive the family-tier Vanderbilt contribution in July.

No. If you are enrolled in a health care FSA, federal tax law does not permit you to be eligible for an HSA. If you are married, you may not make contributions to an HSA while covered by your spouse’s FSA.

The main difference between an FSA and an HSA is that the FSA is a spending account and the HSA is a savings account. The IRS makes that distinction because you are expected to spend the money you have set aside in an FSA within the plan year (plus an optional two and a half month grace period) or you forfeit any funds not spent. By contrast, an HSA rules allow you to save your money until you need it, even if that isn’t until many years later. Unlike an FSA. Un-used HSA funds are not forfeited at the end of the year, but remain available to you year after year.

No, the IRS specifies that HSAs must be individual accounts. Each spouse who is an eligible individual who wants to open an HSA must open a separate HSA. However, funds from either spouse’s HSA can be used to pay for the expenses of another spouse if you both meet eligibility guidelines. The combined annual contributions cannot exceed the annual family maximum. 

When you open your Fidelity HSA, a brokerage account, your contributions will initially be invested in the core position through which all your HSA contributions are made and from which all distributions are taken. You can choose to invest in a wide variety of investment options depending on your investment objective, time horizon, and risk tolerance — including more than 10,000 mutual funds, individual stocks and bonds, Treasuries, CDs, and more. Contact Fidelity for more information about your HSA investment options.

Yes. The HSA is a personal savings account in the account holder’s name. Similar to a checking account, the funds must be in the account before it is available to be used to pay for any expense.

The funds belong to you for life. Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have CDHP coverage or are no longer eligible for some other reason. The funds remain in the account automatically each year and indefinitely until used. There is no time limit on using the funds. Once CDHP coverage is discontinued and/or another type of healthcare coverage is obtained, the IRS no longer allows new contributions, but the funds are not lost and may still be used tax-free for qualified medical expenses.  If you withdraw funds for nonqualified expenses, however, you would be subject to taxes and possible penalties.

No. Contributions cannot be applied to a future tax year.

Once Vanderbilt makes a contribution to your HSA, it is legally owned by you, and you can do whatever you want with the funds.

If you have an HSA, but your spouse has separate health coverage, the following special married couple rules apply:

• If your spouse has non-qualifying family coverage that includes you, it makes you an “ineligible individual” and you may not contribute to an HSA.
• If your spouse has an individual HSA-qualifying plan, you would have to subtract your spouse’s contribution from the maximum that you could otherwise contribute.
• If your spouse has coverage other than an HSA-qualifying plan and you are not covered under the plan, there is no effect on your or your ability to contribute to your HSA.

If each is enrolled in their own plan as self-only coverage, the maximum amount that can be contributed to each account is limited to the individual IRS contribution limit. If either spouse has family CDHP coverage, then both spouses are treated as having family CDHP coverage, and the contribution limit is combined for both spouses and is limited to the family IRS contribution limit. If each spouse has family coverage under a separate plan, the contribution limit is combined for both spouses and limited to the family IRS contribution limit.

Federal rules permit “catch-up” contributions to HSAs if you are age 55 or older, allowing you to contribute up to an additional $1,000 per year. You are eligible for this extra contribution if you are 55 years or older at the beginning of the year -- or turning 55 anytime during that year. If your spouse is also turning 55, your spouse cannot contribute their catch-up contribution to your HSA. However, if your spouse meets the eligibility requirements, they can open their own HSA and contribute catch-up contributions to that account.

                For example:

• 2024 individual coverage contribution limit:
  • $4,150 + $1,000 (age 55+ catch-up) = $5,150
• 2024 family coverage contribution limit:
  • $8,300 + $1,000 (age 55+ catch-up) = $9,300

Yes, rollover contributions from other HSAs are permitted and limited to one rollover annually. In a rollover, you have direct control (custody) of your funds and you have 60 days to roll the funds over into the new HSA in order to avoid taxes and a penalty. Rollover contributions are not subject to the annual contribution limits. The IRS also allows a onetime (per lifetime) qualified funding distribution from a traditional or Roth IRA to an HSA.

The Internal Revenue Service (IRS) decides which expenses can be paid and reimbursed from an HSA.

Some examples include:

• Medical plan deductible
• Dental treatments, exams, or cleaning costs
• Prescription drug costs
• Vision expenses, such as contact lenses or glasses
• Chiropractic care or acupuncture fees
• Crutches

You can find a complete list of HSA-qualified expenses at: https://www.irs.gov/pub/irs-pdf/p502.pdf

Generally, if you are younger than age 65, and you take an HSA distribution that must be included in your gross income because the funds were not used to pay for qualified medical expenses, the amount of that withdrawal will be subject to an additional 20% penalty as well as the income tax. This 20% penalty tax does not apply to distributions made after the HSA account holder’s death, disability, or attainment of age 65. 

You must keep itemized receipts and explanation of benefits statements (EOBs). This is similar to the way you would keep itemized receipts for charitable donations that you claim as an itemized expense of your personal income tax return. You are subject to IRS audits, so you should keep the receipts for seven years.

Currently, there is no statute of limitation for when funds can be withdrawn to pay for qualified medical expenses, as long as the account holder keeps their itemized receipts. It could be done in a future year as long as the HSA had been established before the expense was incurred.

If you need to pay a medical expense that is more than what you have set aside in your HSA, you can pay the bill out of personal non-HSA funds, and then reimburse yourself in the future as soon as those funds become available in your HSA.

Yes. HSA funds may be used to pay for qualified medical expenses for tax dependent child(ren), even if the child(ren) are not covered by your health insurance plan.

Yes. If you have a Fidelity HSA, you as the account owner can request from Fidelity additional debit cards for a spouse and/or eligible dependents. Once the account is activated on Netbenefits, a debit card will automatically be mailed to the employee. Employees can go directly to NetBenefits and request more debit cards for covered family members. This will be done under the “Paying” tab from the HSA landing page.

NOTE: cards are mailed directly to the account owner’s address.

No. It is important to differentiate between a tax dependent and medical dependent. Under federal regulation, children up through age 25 can be covered by their parent’s medical insurance, even if they are not considered dependents for tax purposes. In this case, however, because the child is not a tax dependent, the tax-advantaged HSA funds cannot be used for his or her medical expenses.

The transfer of an HSA to a spouse pursuant to a divorce decree is not considered a taxable transfer. Since HSAs are individual bank accounts, when a transfer request such as this occurs, the former spouse will be treated as the new account holder of the HSA. In order to process the transfer to his or her name, Fidelity must be provided with a certified copy of the divorce decree and property settlement or transfer agreement. The spouse must also sign the appropriate documents to establish the account in their own name.

This situation is referred to as an “erroneous distribution.” You can repay the mistaken distribution by April 15 of the following year with no penalty, if there is reasonable evidence that the original distribution was made in good faith and that it was a qualified medical expense. The repayment is classified as a “re-deposit,” not a contribution. Therefore, it would not count “twice” toward the yearly maximum.

Most people enroll in Medicare when they first become eligible at age 65, to get health coverage and avoid late entrance penalties. Medicare enrollment disqualifies you from making any further HSA contributions, though you can still use any already-accrued funds in your HSA for qualified medical expenses.

If you are Medicare-eligible, still working, and covered by your employer’s CDHP, you may choose to postpone your Medicare enrollment, although you should consider this option carefully before doing so. You should get a letter in the mail from Medicare prior to your 65th birthday explaining the rules to avoid Medicare “late entrance” penalties.  Vanderbilt’s CDHP is considered “creditable” for Medicare Part D (prescription coverage). Even if you decide to postpone your Medicare enrollment until after you quit working, if you enroll in Social Security, you will be automatically enrolled in Medicare Part A.  So, if you decide to postpone Medicare, you would also need to postpone Social Security benefits in order to be eligible for HSA contributions.

Your eligibility to contribute to an HSA is not affected if you choose not to enroll in Medicare but your spouse chooses to enroll in Medicare. Both you and your spouse’s qualified medical expenses can still be paid from an HSA, with the exception of your spouse’s Medicare premiums. No Medicare premiums can be paid from your HSA if you are not enrolled in Medicare.

Your enrollment in any part of Medicare (A, B, C or D) makes you ineligible for further HSA contributions, including employer funding. This is true even though Part A is free for most people. You become ineligible for new HSA contributions the first day of the month your Medicare is effective. During the year you enroll in Medicare, you must prorate your annual maximum contributions, including catch-up contributions. (The total annual contribution maximum is divided by 12 and multiplied by the number of full months you were eligible).

If you are still working, neither your employer nor your spouse (nor anyone else) can contribute any amount that exceeds your eligible prorated maximum after you enroll in Medicare. However, if you have Medicare and enroll in the Select PPO medical plan that year, you could elect to contribute to a Flexible Spending Account (FSA).

If you’re Medicare-enrolled, you can continue to withdraw funds from your HSA tax-free to pay for personal qualified medical expenses as well as the qualified expenses of your spouse and dependents. This includes your COBRA premiums, as well as Medicare/COBRA premiums for your spouse/dependents.

Note: HSA funds can never be used for Medigap/Medicare supplement premiums.

After you turn 65, the HSA funds can still be withdrawn tax-free for out-of-pocket qualified health expenses, regardless of whether you enroll in Medicare. If the funds are spent for any reason other than for qualified medical expenses, the funds withdrawn will be taxable as income but will not be subject to any other penalties. Normal income taxes will apply if the distribution is not used for unreimbursed medical expenses (i.e., if it is used for expenses that are not covered by the medical plan).

Although the purchase of health insurance is generally not a qualified medical expense that can be paid or reimbursed by an HSA, the IRS code provides an exception for Medicare premiums once an account beneficiary reaches age 65.

• When you enroll in Medicare, the funds can be used to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. Premiums for Medicare are usually automatically deducted from Social Security benefit payments. Individuals can use HSA funds to reimburse themselves in an amount equal to the Medicare premium deduction. 

If your spouse is not yet enrolled in Medicare, has CDHP coverage, and meets other HSA eligibility rules, he or she may contribute to an HSA opened in her or her own name. You are not allowed to transfer your HSA to your spouse’s name. However, since contributions to HSAs are tax-deductible and any person may contribute to another person’s HSA, you could contribute to your spouse’s HSA, and the contribution would be an “above the line” tax deduction for your spouse.

If you become disabled and enroll in Medicare, contributions to an HSA must stop as of the first of the month in which you enrolled. However, you can use HSA funds to pay Medicare Part A, B, C, or D premiums. Payment of these Medicare premiums is considered to be a qualified medical expense. 

You have the right at any time to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You can contact Fidelity for more information regarding beneficiaries.