Answers to your questions about Health Savings Accounts.

Because HSAs are so new, you're bound to have some questions. Questions like:

	What are Health Savings Accounts (HSA) and who is eligible?
	What is a High Deductible Health Plan (HDHP)?
	What expenses are qualified medical expenses?
	What are the tax advantages of an HSA?
	What are the contribution rules?
	How do distributions work?
	What happens to the HSA in the event of death?

Q. What are Health Savings Accounts (HSA) and who is eligible?
A. These accounts are tax-exempt accounts that were created by the Medicare Bill signed by President Bush on December 8, 2003. They allow you to accumulate savings to pay for current and future qualified medical expenses. They must be used in conjunction with an HSA-qualified High Deductible Health Plan (HDHP) and the individual cannot be enrolled in Medicare or be claimed as a dependent on someone else’s tax return. Individuals cannot be covered by any other health plan that provides the same benefits as the HDHP.

Q. What is a High Deductible Health Plan (HDHP)?
A. A high deductible health plan is a health insurance plan with a minimum deductible of $1,100 (self) or $2,200 (family). In addition, the annual out-of-pocket costs, including deductibles and co-pays, cannot exceed $5,600 (self) or $11,200 (family). The limits will be adjusted annually to allow for cost-of-living adjustments.

A health savings account (HSA) must be paired with a qualified high deductible health plan (HDHP). One HDHP option to consider is Starmark's HSA Select Plan. Starmark administers health and life benefits for businesses with 2 - 50 employees. Plans administered by Starmark are fully insured by Trustmark Life Insurance Company. For more information on Starmark plans, call toll-free 866-205-8820. (Insurance products of Starmark are not a deposit or other obligation of, or guaranteed by, Thrivent Financial Bank; are not insured by the Federal Deposit Insurance Corporation or any other agency of the United States; and may involve the possible loss of principal.)

Q. What expenses are qualified medical expenses?
A. These expenses are defined under Section 213 or the IRS Code. See IRS Publication 502: Medical and Dental Expenses. To order IRS Publication 502, call 1-800-TAX-FORM.

Q. What are the tax advantages of an HSA?
A. Tax advantages may include:

• Eligible contributions by an individual, employer or employee are all tax-free.
• Eligible contributions may qualify for both state and federal tax deductibility.
• Employers can save on their FICA taxes.
• Interest earned on qualified HSA balances are tax free.
• Funds used for qualified medical expenses are tax free.

Q. What are the contribution rules?
A. Individuals may contribute up to $2,900 (self) or $5,800 (family). Similar to an IRA, contributions can be made as late as April 15 of the following year.

Individuals age 55-64 can make additional catch-up contributions. The maximum annual catch-up contributions are 2006 - $700; 2007 - $800; 2008 - $900; and 2009 and later - $1,000. A married couple can make two catch-up contributions in to their own HSA as long as both spouses are at least 55 years old.

Q. How do distributions work?
A. Distributions from an HSA are tax free if taken for a qualified medical expense including over-the-counter drugs, COBRA continuation coverage, qualified long term care insurance premiums, if enrolled in Medicare, Medicare premiums, and out-of pocket expenses. The distribution is also tax free if taken for the person covered by the high deductible, spouse of the individual and any dependent of the individual. Spouse and dependents do not need to be covered by the HDHP.

If the distribution is not used for a qualified expense, then the amount is included in income along with a 10% additional tax. The 10% penalty does not apply if taken due to reaching age 65, death or disability of the individual, or if the individual enrolls in Medicare.

The account holder is encouraged to keep his/her receipts if ever asked to prove to the IRS that distributions were for medical expenses.

Q. What happens to the HSA in the event of death?
A. Any balance remaining in the account becomes property of the beneficiary on the account. If the account holder's surviving spouse is the listed beneficiary, the HSA becomes the property of the surviving spouse. The spouse is subject to income tax only to the extent that distributions from the HSA are not used for qualified medical expenses.

If the beneficiary is not the surviving spouse, the HSA ceases to be an HSA as of the date of death. The beneficiary is required to include as gross income the fair market value of the HSA assets as of the date of death. For this type of beneficiary (except the decedent's estate), the includable amount is reduced by any payments made from the HSA for the deceased account owner's qualified medical expenses that are paid within one year after death.

For more information visit the US Treasury website at: www.treas.gov.