Contributed by Paige Biddlecomb, CPA
With rising Health Insurance costs, you may want to take a look at a high-deductible plan along with a Health Savings Account (HSA). The combination can cut taxes now as you stash away money you can use tax-free for qualifying medical expenses.
To qualify, you must have a deductible of at least $1,200 for individual coverage or $2,400 for family coverage. The policy also must limit out of pocket costs to $5,950 for individuals or $11,900 for families. Once enrolled you can open an HSA and contribute up to $3,050 for individuals or $6,150 for families. You are allowed an additional $1,000 contribution if you are 55 or older. To be eligible, you cannot be enrolled in Medicare and not eligible to be claimed as a dependent on another’s tax return.
The tax advantages of an HSA can be significant; contributions are deductible against income, earnings on the account are tax-exempt, and any unused balances may accumulate without limit.
Contributions to HSAs may be made by an individual, as well as by other individuals on your behalf, including employers as long as the contribution does not exceed the annual limit. Contributions can be made during the calendar year and up until April 15th for individuals.
Withdrawals from HSAs are tax exempt if used for qualified medical expenses, excluding health insurance. Qualifying medical expenses include, but are not limited to doctor visits, co-pays, prescription drugs, and lab fees. If funds are not used for qualifying expenses, the distribution is included in income and subject to a 20% penalty. There is no time limit when HSA funds must be used however the funds may not be used to pay expenses incurred prior to establishing the HSA.
HSA funds may be invested in bank accounts, CDs, stocks, mutual funds, bonds, or annuities. Contact your local bank or financial advisor to determine if they have a Health Savings Account to fit your needs.
Paige Biddlecomb is Vice President of Chesapeake Accounting Group, PC 453-7611