Consumer-directed health care plans are here to stay!
Reduce your monthly premiums and build long-term wealth with the triple tax advantages of HSAs. Watch our HSA VIDEO.
The Medicare bill that the President signed into law in December 2003 created an exciting new financial vehicle called a Health Savings Account (HSA). About 7,000,000 Americans currently have HSAs.
HSA account holders receive triple tax advantages.
Any unused funds roll-over to the next year and accumulate. Your HSA money will always be available without penalty and can be withdrawn tax free anytime if used for qualified expenses. Transfering your HSA account from one financial institution to another is a non-reportable tax event.
How you can get started building your health savings nest egg:
1) Buy an HSA-compatible health insurance policy with a high deductible (e.g., $5000 for family coverage). The 2011 minimum annual deductibles are $1,200 for self-only coverage or $2,400 for family coverage. Annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) cannot exceed $5,950 for self-only coverage and $11,900 for family coverage. In 2011, a single subscriber may contribute the annual maximum of $3,050, or a family may contribute the annual maximum of $6,150 to fund their HSAs. Members over 55 years of age may contribute an extra $1000 "catch-up" annually.
High deductible HSA compatible policies generally offer much lower premiums than standard health insurance policies. The premiums are tax deductible if your are self-employed.
2) Establish a Health Savings Account. You can put the money you save on premiums and the money that you would ordinarily spend out of your own pocket for health care into this HSA. This money also is deductible from your taxes, whether or not you itemize other deductions (e.g., mortgage, charitable contributions, etc.). You can deposit up to the full amount of your insurance policy's deductible into this account every year - but no more than $3,050 annual maximum single, or $6,150 annual maximum family in the 2011 calendar year. The 2011 maximum annual catch-up contribution is $1,000 for individuals 55 years of age and older. You can use money from this account to pay expenses below your deductible.
The IRS recently announced increases to contribution limits for HSAs. For 2012, HSA contribution limits were raised approximately 1.63 percent due to the inflation rate from last year. For individuals with a self-only HDHP, the 2012 HSA contribution limit increased by $50 to $3,100. The HSA contribution limit for individuals with a family HDHP increased $100 to $6,250.
For persons age 55 or older at any time during the 2012 tax year, the HSA catch-up contribution limit remains the same at $1,000. This provision allows soon-to-be retirees the ability to add an additional $1,000 to the amounts listed above.
The HDHP minimum required deductibles have not changed from the 2011 amounts of $1,200 for self-only coverage and $2,400 for family coverage. The 2012 maximum annual limit on out-of-pocket expenses (including items such as deductibles, co-pays, and co-insurance, but not premiums) is $6,050 for self-only coverage and $12,100 for family coverage.
3) Invest Health Savings Accounts balances in a variety of ways - money markets, CDs, and even certain mutual funds. All of the gains are tax free if used to pay for medical expenses. You may do a one-time rollover from your IRA into your HSA without a tax penalty.
4) Save any money that remains in your account for future medical expenses. The money is tax free going in to your account, tax free when you take it out to pay doctor bills and other medical costs and money that you don't spend earns interest tax free. There is no "use it, or lose it rule".
This may be the ideal time to consider opening a Health Savings Account because of the recently passed the Tax Relief and Health Care Act of 2006 (HR Bill 6111). HSA participants may now set aside extra money (tax-free) and do trustee-to-trustee transfers from their IRA, FSA, or HRA accounts to their HSA accounts without penalty.
It is estimated that about 40 million Americans will establish HSA accounts in the next few years. Different families have different needs. HSAs may be right for your family. HSAs give you more options to make your health care more affordable.
For more information about HSAs and to watch a video showing how they work, go to HSAcenter.com .
For recent articles on HSAs go to our Articles page.
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Brian J. Schroeder - LUTCF