HEALTH SAVINGS ACCOUNT FUNDEMENTALS
- What is a Health Savings Account or HSA? Health Savings Accounts are savings accounts that allow individuals to pay for qualified out-of-pocket medical expenses using pre-tax dollars. Think of the account as the equivalent of a medical IRA. In order to be able to establish an HSA account, you must have a high deductible health insurance plan.
- What are the major benefits of establishing your own HSA?
- Money contributed to an HSA is deductible from your gross income just like a regular IRA or 401(k) contribution.
- These are your funds, not your employer’s or anyone else who contributes to your HSA.
- Your funds in an HSA earn a tax-deferred return, again just like an IRA.
- The “BIG” benefit - When you pay for or reimburse yourself for qualified medical expenses from your HSA account, the money withdrawn is TAX FREE.
- How much can I contribute to an HSA account in 2010? An individual may contribute up to $3,050 and a couple can contribute up to $6,150 into a joint account, plus catch up provisions of $1,000 for those ages 55 and older.
- My wife and I are older than 55, what is the maximum we could contribute to our HSA account? In 2010 the maximum contribution is $8,100. In order to make the maximum contribution, you and your wife would need your own separate accounts. If you have a joint account the maximum is $7,150.
- What is a high deductible health insurance plan? It is a health insurance policy with a minimum deductible of $1,200 for an individual policy and $2,400 for a family policy. In addition, the annual out of pocket maximum of an individual policy is $5,950, and $11,900 for a family policy. Want more information on high deductible insurance plans? Call me at 626-797-4618
- What are qualified medical expenses? Everything from aspirin to acupuncture, from crutches to chiropractors, from doctors visits to dentists.
- What are non-qualified medical expenses? Expenses such as child care, cosmetic surgery, hair transplants, health club dues, health insurance premiums, household help, maternity clothes, and teeth whitening. Want a complete list of qualified and non-qualified expenses? Call me at 626-797-4618.
I HAVE OPENED MY HSA ACCOUNT, ARE THERE ANY OTHER BENEFITS?
- You can pay for your COBRA premiums from your HSA account.
- You can pay for your long term care insurance premiums from your HSA account (subject to certain provisions).
WHAT HAPPENS WHEN I TURN 65?
- When you turn 65, you are not eligible to contribute to an HSA account. Remember, you lose you high deductible plan when you go on Medicare.
- You may take funds from the account for other than medical expenses and pay ordinary income tax just like any other IRA or 401(k) plan.
- What is the most important reason to establish an HSA account prior to age 65? Once you turn 65 and go on Medicare, you are able to reimburse the Medicare Part B monthly premium directly from you HSA account.