The individual opens the H.S.A. account and maintains control of the account once opened.
Anyone can fund the H.S.A. account. Typically, the individual puts funds into their own account and/or the employer may also put funds into the account.
Funds going in are not taxable. If the individual put funds in during the calendar year, he or she can deduct the amount of the contribution up the annual H.S.A. account maximum contribution for the year from their taxable income when determining income taxes.
Funds withdrawn could be tax-free. Since the individual has control over the account and use of the H.S.A. dollars it is important that reimbursements only be made to the individual for eligible health care expenses that are not paid or reimbursed through another source.
Funds withdrawn could be taxable. The individual has the ability to withdraw funds for other purposes and then pay taxes on the withdrawn funds and, if the owner of the account is under age 59 ½, he/she would also pay a 10% penalty for the withdrawal.
No 10% tax penalties on taxable withdrawals once age 59 ½ or older. After attaining age 59 ½ years of age, the funds in the H.S.A. account can be withdrawn for eligible medical expenses and would not be subject to taxes. However, if the individual chooses to withdraw the funds for purposes other than reimbursement of eligible medical expenses he or she paid out of pocket, the amount withdrawn is subject to state and federal taxation, but there is no longer a 10% penalty. It is treated similarly to if the individual withdrew funds from his or her Individual Retirement Account (IRA).