HSA STRATEGY LETTER
NAME OF TAX PREPARER OR FIRM NAME
Street address of preparer
City, State and Zip of preparer
Telephone number of preparer,   Fax Number of Preparer
Date of Letter

Client Name
Client Address
Client City, State and Zip

Dear [Salutation],


I am writing to inform you of a strategy to save for medical expenses known as a Health Savings
Account (HSA). For individuals who qualify, HSAs offer a tax-favorable option to set aside
funds to meet future medical needs.

The idea behind HSAs is similar to the one behind IRAs (Individual Retirement Accounts)
except that the goal is to accumulate funds for future medical needs as opposed to retirement
needs. There are two parts to an HSA: a high-deductible health insurance plan (HDHP) and a
health savings account. A high deductible health plan is a health insurance plan that meets certain
requirements regarding deductibles and out-of-pocket expenses. For 2005, a "high deductible
health plan" must have an annual deductible of at least $1,000.00 ($2,000.00 for a family plan).
Annual out-of-pocket expenses for covered benefits cannot exceed $5,100.00 for self-only
coverage or $10,200.00 for family coverage. Out-of-pocket expenses may include deductibles,
co-payments and other payments (other that the plan premium) that must be paid for plan
benefits. An individual is disqualified from being eligible for an HSA if covered by another
health plan that is not a HDHP.

An HSA plan may be established by an employer or an employee. The HSA plan is owned by
and for the benefit of the employee, and may be taken with them when changing employment.
The maximum annual contribution cannot exceed the annual deductible. For 2005, the maximum
annual contribution to a Health Savings Account is $2,650 for self-only coverage or $5,250 for
family coverage. Catch-up provisions for individuals who are 55 or older increase the above
amounts by $600.

If a HSA plan is set up properly, contributions and earnings are generally exempt from taxation,
although taxes may apply if the contribution limitations are exceeded. This means that
distributions from the HSA to cover qualified medical expenses or those of your family are not
taxed. Any amounts not used may be carried forward. This may allow a healthy individual to
accumulate funds tax-free for use later in life.
While HSA plans are new and rules other than those explained above apply, they certainly are an
option for you to consider. Taxpayers in certain economic situations and age groups may
certainly benefit from establishing an HSA plan. Please call if you would like to discuss it
further.

Sincerely,
[Preparer: User Configured Preparer Signature]