March 1, 2013
A Health Savings Account (HSA), is a medical savings account that provides tax advantages to taxpayers in the U.S who are enrolled in qualified high deductible health plans. The funds that are contributed to a Health Savings Account are not subject to federal income tax at the time of the deposit. Before you establish an HSA you should be aware of several key points.
1. HSA contributions are tax deductible. Contributions to an HSA can be deducted from your income tax return within the limits imposed by the IRS. For 2011, the maximum credit is $ 3,050 for single coverage and $ 6,150 for family coverage and $ 1,000 for catch-up contributions. Tax deductions are not permitted if you are enrolled in Medicare Part A or Part B.
2. An HSA is not a traditional health insurance plan. Basically, an HSA is a form of savings account with additional features recognized by the IRS. A Health Savings Account is not a traditional health insurance plan but a special component of a comprehensive insurance plan recognized by the IRS as tax deductible.
3. An HSA can be used as a long-term investment. If you haven’t used your money in your HSA, you can save this for your future retirement, tax free. Starting at 65, you can withdrawl your HSA funds for any reason, although you will need to pay income taxes. However, if you have health problems and you want to have a standby fund, you can use your HSA to pay for current and future medical bills.
4. HSA money can be invested on a tax-free basis. All of the money in your HSA can grow without paying taxes as long as you use it to fund IRS acceptable medical expenses.
5. HSA monthly premium is very low. The higher the deduction on your primary health insurance plan, the lower your monthly premium for the HSA plan will be. When opening an HSA, you are required to have a high-deductible health insurance plan, thus your monthly contribution will be very affordable.
Health Savings Accounts are an option that must be carefully evaluated.
For assistance please contact a licensed health insurance agent at California Health Plans. Our toll free number is 1-800-585-1776. Since a Health Savings Account has tax ramifications we also suggest that you discuss this matter with a CPA or tax professional as our agency does not provide tax information.