Health Savings Accounts (HSA)
Health Savings Accounts allow individuals to control their health costs as well as receive tax benefits in a savings account.

It is a method that isn’t for everyone – but is ideal for others.

The four key concepts of HSAs
• Replace low deductible health insurance with qualified high deductible plan, effectively lowering premiums.
• Deposit a portion of the savings on premiums (up to IRS limits) into a special savings account. This contribution is deductible before adjusted gross income. This deduction is deductible regardless of income.
• The savings account my be invested much like an IRA. The earnings in that account are not taxed.
• Withdrawals from the savings account are tax free – if used for medical expenses.

The health insurance plan must be qualified (Insurance Companies can inform you) for an HSA.

The health insurance plan must have deductibles of at least $1,200 for individuals and $2,400 for families (the deductibles can be higher).

The annual contribution limit to the health savings account is $3,100 for individuals and $6,250 for families. There is an additional catch up provision of $1,000 for taxpayers over 55.

There is a maximum (including deductible) out of pocket expense of $6,050 for individuals and $13,100 for families.

In addition to having a Qualified High Deductible insurance plan you can generally have no other regular health insurance, but you can have accident, disability, dental, vision, and long term care insurance.

So who is a HSA good for?
An HSA is particularly good for an individual or family that is generally heathy and is willing to take the risk that they will not have large medical costs.

Even if you spend the entire amount you contribute to the savings account every year – you reduce your tax liability – because the amount you contribute to the savings account reduces your taxable income. Since your health costs must exceed 7.5% of your income, you may not be receiving a deduction today.

Who is an HSA not so good for
An HSA is little benefit if your costs generally exceed your deductible and you are not using the savings plan.

Most major companies that have health insurance have plans that employee premiums are paid pre-tax and deductibles are relatively low. HSAs are not a good replacement because the company is usually paying a large portion of the premiums.

If you contribute to the health savings account, and then use the funds for anything other than health care there is a 20% penalty.

Setting up an HSA
Contact insurance companies to learn of their plans. Make sure they are qualified and high deductible. Make sure you are seeing a premium reduction to justify the increased deductible. Also make sure that you current insurance will convert to the HSA insurance policy, and any pre-existing issues will be covered.

At year end you will receive a 5498-SA showing the amounts you contributed, and a 1099-SA showing the amount of disbursements. These forms should be given to your tax preparer.

IRS Circular 230 Notice: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.