Every year, the Internal Revenue Service (IRS) sets the Health Savings Account (HSA) contribution limits. "Contribution" is the money you place in your HSA that may be deducted from your annual income tax.

Last year, the limits remain unchanged because the increase in the cost of living was holding steady. That was attributed to the economic crisis then, but the IRS has announced that the 2012 HSA contribution limits will increasing slightly.

What Are Health Savings Accounts?

Basically, a Health Savings Account is a tax-advantaged account that is linked with a qualified high-deductible health plan. You can set up an HSA with private insurance companies and banks, too. Health Savings Accounts are primarily used to pay for qualified health care expenses tax-free and help build savings for the future.

HSA annual contributions can be made by you or your employer. Even if you leave the job, you get to keep the contributions made by your employer. The earnings that you get from your HSA assets are not taxed either. The unused HSA money left at the end of the year is never lost. The balance rolls over each year.

What Are The HSA Limits For Contributions In 2012?

For individual coverage, the 2012 maximum annual HSA contribution will increase by $50 to $3,100. As for family coverage, that will increase by $100 to $6,250.

What Is The HSA Catch-Up Contribution?

As for the catch-up contribution, it remains unchanged. Persons age 55 or older can make an additional contribution of $1,000 to help them catch up with pending retirement needs.

Can I Use HSA Funds For Something Other Than Health Care?

Unless you are at least 65 years old, using your HSA money for anything other than qualified health care would trigger a 20-percent tax penalty on the withdrawal. You'd also have to pay taxes on that money. You can use your HSA dollars on qualified medical expenses for your spouse and dependents even if they are not covered by your health insurance policy. Qualified expenses can vary and include dental care, eyeglasses, chiropractic care, hearing aids and weight loss programs.

What Are The Limits For Deductibles on HSA Plans In 2012?

HSA plans are only available when you have a qualified high-deductible health insurance policy. Not all high-deductible health plans can be linked with an HSA.

As for 2012, you must have an annual deductible of not less than $1,200 for individuals or $2,400 for families. Even though a plan may fall within this range, the insurance company must agree to report to the IRS in order for a plan to allow you to start an HSA. These plans also have limits on how much you can end up spending "out-of-pocket" per year. That maximum is $6,050 for individuals and it's $12,100 for families. These numbers are not changing from 2011.