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Health Savings Accounts (HSA)
Health Savings Accounts (HSA) were an important
provision in the 2003 act of
Congress that
extended prescription drug coverage
to Medicare
recipients. Here are the main
provisions
(consult with your tax advisor
for applicability
to you):
- Individuals can contribute $2,600 annually.
Families can contribute $5,150. These amounts
will be indexed (increased) for inflation
in future years.
- Contributions made by individuals can be
deducted from taxable income.
- Contributions made by companies on behalf
of employees are not taxable income.
- Withdrawals do not trigger penalties or tax
if they pay for qualified medical expenses
(as defined by the law and subsequent U.S.
Treasury regulations).
- As with an IRA, investment income grows tax-deferred.
- If you have an unspent balance at the end
of the year, you keep that balance.
- After age 65, you can withdraw funds in excess
of what you need to pay for qualified medical
expenses, but you must pay income tax on
that excess.
- You are eligible to open an HSA only if you
have a qualified High Deductible Health Insurance
Plan. In general, your minimum annual deductible
must be $1,000. Curiously, you are not eligible
if your total out of pocket expenses are
not capped at $5,000 for an individual or
$10,000 for a family.
- You can have no other health coverage (with
exceptions for injury, accident, disability,
dental, vision or long term care plans),
you cannot be eligible for Medicare and you
cannot be eligible to be claimed as a dependent.
Other things to note:
- Conflicts between state laws on health insurance
and the federal legislation are being reconciled,
so HSA accounts still may be difficult to
find in you area.
- Many insurers, fearing liability, will not
certify whether or not they offer qualified
High Deductible Insurance Plans. This prevents
you from staying with one of these insurers
and opening an HSA elsewhere, such as with
a bank.
- Some employers are planning to let their
employees choose a combination of an HSA
and a High Deductible Health Insurance Plan.
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