This is the fourth article in a four-part series on Health Savings Accounts.
Contributions to an HSA account can be made by the employer, the individual or both.
They can also be made by others on behalf of the individual.
Contributions are not taxed and can be treated as follows:

• If made by the employer, it is not taxable to the employee (excluded from income and wages)
• If made by the individual, it is an "above-the-line" deduction
• If made by others on behalf of the individual, it is deducted by the individual

Annual contributions can be made any time during the calendar year and as late as April 15 of the following year.
Beginning in 2007, individuals can make a one-time transfer from their IRA to an HSA, subject to the contribution limits applicable for the year of the transfer.
For 2007, the maximum that can be contributed (and deducted) to an HSA from all sources is:

• $2,850* - Self-only coverage
• $5,650* - Family coverage

The maximum annual contribution is established by law and in general, it cannot exceed the HDHP deductible.
For example, an employee elects family coverage under an HDHP/HSA plan that carries a $5,000 deductible.
The company contributes $100 per month to the employee's HSA and the employee contributes $300 per month.
The annual contributions are as follows:

Employer contribution$1,200

Employee contribution $3,600

Total$4,800

The maximum annual contribution for this plan is $5,000 (the deductible).
The employee could elect to contribute an additional $200 to their HSA account from personal funds (which would be tax-deductible) or transfer the money from an IRA.
Individuals age 55 - 65 can make additional "catch-up" contributions to the HSA each year.
The annual catch-up limits are:

• 2007 - $800
• 2008 - $900
• 2009 and after - $1,000

Contributions must stop once the individual is enrolled in any type of Medicare.
The HSA grows tax-free and withdrawals are tax-free if used for "qualified medical expenses" as defined by the IRS.
These include:

• Deductibles, co-payments and co-insurance
• Over-the-counter and prescription drugs
• Dental treatment such as filings, braces and crowns
• Eye exams, eyeglasses and contact lenses
• Hearing aids (including batteries)

Unlike an FSA, the funds in an HSA rollover from year to year without limit.
This permits individuals in their healthier years to save and grow money tax-free for health related expenses as they become older.
Withdrawals that are used for purposes other than qualified medical expenses are:

• Taxable as income
• Subject to an additional 10% tax penalty

After age 65 or if the individual becomes disabled and/or enrolls in Medicare, the 10% additional tax penalty no longer applies.
* 2007 amounts - these are adjusted annually for inflation.