Health Savings Account

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¹ State Farm Bank and its affiliates do not provide tax, investment, or legal advice. Federal and state tax laws are subject to change. If tax, investment, or legal advice is required, please seek the services of a licensed professional.

With our HSA, which works similarly to an interest-bearing checking account, you can pay for qualified medical expenses tax-free, deduct contributions from your income taxes, and accumulate unused funds for expenses in the future.¹ With access to your health savings account online, you can even track your payments and contributions easily. This flexible account, combined with a high-deductible health plan (HDHP), is the perfect way to save and pay for medical expenses.

Features and Benefits

• Open your account today with as little as $100, and never worry about a minimum balance fee.
• Save and pay for qualified medical expenses tax-free. (See additional details below.)
• Contributions to your HSA are tax-deductible and may be made by you, your employer, or both.
• Interest earned is not taxed.
• Variable, tiered interest rate is applied and is compounded daily.
• Enjoy the flexibility to use funds for current qualified medical expenses or to save for future needs.
• Carry unused balances forward from year to year.
• This account is FDIC insured.
• Free initial check order.
• Monthly statements available in English or Spanish.
• Statements available online or by mail.
• Health Savings Visa CheckCard available to make qualified purchases, cash withdrawals. or ATM deposits²

Potential Savings with a Health Savings Account

	Typical Health Plan Family deductible: $1,000 Coinsurance: 80% / 20%	Health Plan with an HSA Family deductible: $5,400 Coinsurance: 100%
Premium paid:	$8,200	$5,200
Your share of medical care expenses ($1,500 claim and $550 in expenses for dental and vision care):	+ $1,650	+ $2,050
Expenses subtotal:	= $9,850	= $7,250
Tax savings¹ on HSA deposits (Assumes a 28% tax bracket on deposit of $5,400):	+ $0	+ $1,512
Tax savings subtotal:	= $0	= $1,512
Net expenses (out-of-pocket minus savings):	$9,850	$5,738
Total net savings with HSA Plan:		= $4,112

In the above example, the covered medical expenses total $1,500 and non-covered expenses total $550 for dental and vision care. Health insurance premiums vary substantially based on age, geographic location, and other variables. Federal income tax savings qualifications assume that contributions are deducted in calculating federal taxes. Withdrawals for non-qualified expenses prior to the age of Medicare eligibility are subject to a 20% federal tax penalty.

¹ State Farm Bank and its affiliates do not provide tax, investment, or legal advice. Federal and state tax laws are subject to change. If tax, investment, or legal advice is required, please seek the services of a licensed professional.

² Deposits to Health Savings Accounts made at an ATM will only count as current year contributions. With the Health Savings Visa® CheckCard, it is your responsibility to make sure that your withdrawals are for expenses that are qualified medical expenses in order to qualify for tax excludability. You must also maintain records of your medical expenses sufficient to show that the distributions have been made exclusively for qualified medical expenses and that such distributions are, therefore, excludable, from gross income.

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• Additional HSA Details

  An HSA is a tax-exempt trust or a custodial account in which you can save money to pay for future qualified medical expenses. Expenses incurred before your HSA is established aren’t considered qualified medical expenses. Qualified medical expenses are explained in IRS Publication 969 and IRS Publication 502. An HSA must be used in conjunction with a high-deductible health plan (HDHP), and any growth in the HSA is tax-deferred.

  If you have plans to make a contribution to an HSA and currently have a hospital indemnity policy or plans to purchase one in the future, then you should consult with your tax advisor about the features offered in the hospital indemnity policy and the possible implications of combining such a policy with a HSA.

• Qualifications

  To get the benefits of an HSA, the law requires that the savings account be combined with high-deductible health insurance. High-deductible health insurance costs less than traditional $250- or $500-deductible coverage, because the insurance company doesn’t have to process and pay claims for routine, low-dollar medical care.

  An HSA can be established by an individual who is:

  • Covered by a high-deductible health plan (HDHP);
  • Not yet enrolled in Medicare Part A or Part B; and
  • Not listed as a dependent on another person’s income tax return.

  Individuals cannot be covered by any other health plan that provides the same benefits as the high-deductible health plan.

• Withdrawals for Non-Medical Expenses

  Distributions for other than qualified medical expenses prior to age 65 are generally taxable and subject to an additional 20% penalty tax. At age 65, distributions can be withdrawn for non-medical reasons without tax penalty, but federal income tax must be paid on the distributions.

• Annual Service Fee

  The $25 service fee, which is debited on the first anniversary of the account activation and annually thereafter, will be considered as part of the annual compensation limit. For example, if the participant’s maximum contribution is $2,900, he or she will be able to use $2,875 for distribution and $25 will be retained as the service fee. However, the entire $2,900 will still be deductible for federal income tax purposes.

• Account Ownership

  HSAs are sole owner accounts with the option to list payable on death (POD) beneficiaries and powers of attorney (POA).

• Tax Considerations

  An individual’s contributions are deductible for federal income tax purposes, even if the account beneficiary doesn’t itemize. Employees’ contributions to an HSA are considered wages, and therefore are subject to FICA taxes. Self-employed individuals are not subject to FICA taxes, but pay self-employment tax instead. An HSA contribution doesn’t reduce self-employment tax. Employer contributions are made on a pretax basis and are not subject to employment taxes (e.g., FICA). Investment earnings accumulate tax-deferred and, if used for qualified medical expenses, are received federal income tax-free.

  Generally, health insurance premiums are not qualified medical expenses except for the following:

  • COBRA insurance
  • Qualified long-term care insurance (subject to the dollar limits in Publication 502)
  • Health insurance premiums for individuals receiving unemployment compensation
  • For individuals age 65 or older, Medicare and retiree health insurance premiums (except for Medicare supplement policy premiums)

  Generally, a distribution to pay an HDHP is not a qualified medical expense.

  HSA funds cannot be rolled over tax-free into an IRA.

• Medical Savings Account (MSA) and Health Savings Account (HSA)

  Customers can fund an MSA and HSA concurrently. The HSA contribution limit for the year is reduced by the amount of the MSA contributions made for that year. There is no requirement that one account type be funded before the other. An existing MSA can be rolled into an HSA. Balances in MSAs can be rolled into HSAs on a federal income tax-free basis, but it isn’t necessary.

For additional details, consult your financial and/or tax advisor to discuss your specific situation.

¹ State Farm Bank and its affiliates do not provide tax, investment, or legal advice. Federal and state tax laws are subject to change. If tax, investment, or legal advice is required, please seek the services of a licensed professional.