Health Savings Accounts—Learn why Health Savings Accounts can benefit those who qualify
Over the years Health Saving Accounts or HSA's as they are often called have gained popularity and offer benefits to those that qualify—a real opportunity to manage their health costs more effectively.
In this discussion we will look at ways that a HSA can help you achieve your Health Planning goals and end with a discussion about the Flexible Spending Account or FSA and other Health care options that are available that you could possibly benefit from.
What Are HSA's
A Health Saving Account has the potential to assist those who have no insurance policy or those who have a high deductible policy (at least $1,250 for individual coverage and $2,500 for families in 2014) with paying their medical expenses.
Health Savings Accounts have annual limits—and tax benefits can be rolled over from year to year—thus providing additional medical coverage as you get older.
HSA's can be used during your retirement or when you start Medicare for out of cost expenses and other expenses designated by the HSA guidelines.
In 2014 you can contribute up to $3,300 individual—and you can contribute up to $6,550 for family coverage. If you are age 55 or older during the year you can contribute an additional $1,000.
Key Benefits of Health Savings Accounts:
- You are allowed to set aside money that you can use tax free in any year to pay your insurance deductible
- A HSA lets you set aside tax-deductible money if self-employed (more benefit to you)
- An HSA lets you set aside pre-tax money if you are employed (more benefit to you)
- You are allowed to pay out-of-pocket medical expenses that qualify
- As an added bonus some employer's will match or provide contributions when you first set up the account
- some employers offer wellness checks or have health-risk assessments and will contribute even more to the account
- You can plan your account savings strategy on when you expect to need and use the funds in the account—compare plans at www.hsasearch.com
Key Guidelines for Health Savings Accounts:
- IF you have a HSA policy set up by December 1st—you are allowed to make the full contribution for the year (see above for 2014 limits)
- If you start a policy during the year you must keep the policy for the entire upcoming calendar year—or you would face a penalty
- i.e. if you contributed $1,650 and you were single and you were to drop the policy mid year in July of 2014 you would pay income tax and a penalty of 10% on the difference between the amount contributed $1,650—therefore you would pay tax on 6 months or on $1,650 plus a 10% penalty on $1,650
- Look for an administrator that has low fees, attractive investment choices and convenience of use (provide debit card, checkbook etc.)
- Money in account can continue to grow if you have no need for the funds
- You cannot at this time "contribute" to an HSA "after" you sign up for Medicare Part A or B—but you can still use the money for co-payments, deductibles, prescription drugs, vision, dental and some of your LTC premiums
- You can use an HSA to "pay" Medicare Part B, Part D or Medicare Advantage
- You "cannot" use an HSA account to pay medigap premiums
You are allowed (once in your lifetime) to roll
over from your "Traditional IRA" to an HSA account and avoid a
tax bill on the withdrawal (up to the annual limit that is in place at the
time of your withdrawal) minus (any contributions that you have made for the
- An important caveat is that you must must maintain an
eligible HSA policy for 12 months after the transfer or rollover—to avoid penalties.
Other Key Points about Health Savings Accounts:
If you want to continue contributing to an HSA you can delay your Medicare enrollment past age 65 if you are in position to do so. It might be a good option for you if you are still working—particularly if your employer offer some type of match.
With Medicare Part A being free—consider all of your options carefully. Consider
professional assistance if you feel the process is too complex for you at this
time—or at the time where you are trying
to decide the best option.
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For those of you who are not eligible for an HSA or you decide against a HSA for the reason of your choice—a Flexible Spending Account or FSA may be an option worth considering.
If your employer offers one it could allow you to:
- contribute up to $2,500 and pay no taxes at the federal level (also escapes Social Security and Medicare taxes as well as state and local in most states)
- You can use the funds to pay out of pocket medical expenses throughout the year
- Some employers allow a limited "carry-over" feature where you could possibly carry $500 or so over into the next tax year
- FSA money can be used tax-free for your deductible, co-payments, medical and prescription drug expenses that are not covered by insurance
- FSA money can also be used tax-free for your purchase of eyeglasses, contact lenses, lens solutions, prenatal vitamins, breast pumps, hot and cold packs, knee and ankle braces, thermometers, blood pressure monitors, vaporizers, heating pads, pregnancy test kits, bandages, first-aid kits and other designated items spelled out in the law.
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Consider The Affordable Care Act Options If The HSA or FSA option is not right for you:
- If your MAGI or Modified Adjusted Gross Income is less than $46,680 single or $62,920 in 2014 you can possibly qualify for a government subsidy if you buy health insurance on your state exchange if your state has set up one.
- If you have life changes or income changes during the year that may affect how you qualify under the Affordable Care Act—be sure you know the guidelines and follow them properly to avoid a surprise tax bill.
Always consider your options and use the open enrollment period at your company to re-evaluate your needed coverage and that of your family's.
If you buy insurance on your own the open enrollment period starts in November—and you can do your comparisons at that time.
There are also special enrollment changes allowed during the year under the Affordable Care Act and possibly under your insurance provider as well if you leave your job, retire, have a child or a number of other circumstances that are spelled out.
Health Care coverage is a very important area of finance that you need to address as soon as practical as it has been a major cause of financial hardship—including the filing of bankruptcy by many who did not have adequate coverage!
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The above article was written by Thomas (TJ) Underwood. Thomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia.
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