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Taxes

Health Savings Account Contribution Rules

You can't continue putting money into an HSA if you no longer have a high-deductible health insurance policy.

I have an HSA account that was opened when my employer switched to a high-deductible policy. My pre-tax deductions were deposited in the HSA from my paycheck. I have moved to another employer that does not offer a high-deductible policy. Can I still contribute to the HSA? If so, are the contributions tax-deductible? Can I still pay health-related costs from the HSA?

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You can make health savings account contributions only for the months that you were covered under a qualified high-deductible health insurance policy. But if you didn't make the maximum contributions that were allowed when you were eligible, then you may still be able to contribute the remainder of the money, says Roy Ramthun, president of HSA Consulting Services in Washington, D.C.

For example, if you had HSA-qualified coverage from January 1 to April 31, 2008, then you were eligible to make four months' worth of contributions. The maximum contribution limit for 2008 is $2,900 for people who are not yet age 55 with individual coverage. So you could contribute $966.67 (4/12 of $2,900). If you only had $200 taken out of your paycheck every month for the HSA ($800 total), then you can still contribute $166.67 to your HSA for 2008, says Ramthun.

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Because your contributions are no longer subtracted from your pay before taxes, you'll need to deduct those extra contributions when you file your 2008 income tax return (the last day for making 2008 contributions will be April 15, 2009).

Good news on the second half of your question: You can always use money from an existing HSA tax-free to pay out-of-pocket medical expenses in any year, even if you can't make new contributions, as long as the expenses were incurred after you opened the HSA.

For more information about HSAs, see Health Savings Account Answers.

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