Archive for the ‘Finance’ Category
Learn How to Use Your Health Savings Account to Pay for Dental Expenses
o much for coverage and not having enough coverage may be a familiar scenario for many of the residents in America. Not many health insurance companies offer policies with coverage that will give you dental, eye and alternative care. Americans are spending over $30 billion annually just for dental services and most of it is out of their own pocket. The prices for dental care can be very horrid, ranging between $850 to $1,000 for crowns, $150 for check-ups and cleaning and thousands of dollars for oral surgery.
Most of the dental plans available are expensive – the reason being that the insurance companies know that the individuals who purchase dental coverage already have dental problems and will definitely be using the coverage. This is also known as “adverse selection”.
Another option is available today with the HSA, or Health Savings Account. This is an account that you can use to accumulate tax-free dollars for medical bills that aren’t covered under your High Deductible Health Plan, or HDHP. It is required that you are enrolled in a High Deductible Health Insurance Policy to qualify for an Health Savings Account. These plans have high annual deductibles, but you receive low monthly premiums in exchange. Since the money in the HSA is tax-free, the account holder can funnel their dental expenses through the HSA for a tax write-off.
If you decide to get a health plan with dental coverage, the deductible cannot be paid for with the HSA, but the expenses rendered from services can. Since you’ll be funding your account with pre-tax money, you can easily save $600 or more off the costs of your family’s yearly dental expenses by paying for the charges from your Health Savings Account.
There are some other options for dental coverage available. With prepaid dental plans you will be charged low monthly fees, which are usually around $7/month for individuals and $16/month for families. The plans give you significant discounts on check-ups, fillings, extractions and other dental services provided by a network dentist. Some plans help with the expenses for eyeglasses and contact lenses. Since these plans aren’t insurance, it can be paid for with the HSA. When calculating what medical expenses will be reimbursed from your HSA, include dental fees and premiums from the prepaid dental plan.
More About Health Savings Accounts
Any health expenses that aren’t covered under you HDHP can be paid for with your HSA, such as deductibles, eyewear and dental care. As long as the bill you are trying to cover was needed for a health problem, it can be paid for. So if you decided to get a massage while at the spa – this wouldn’t be covered, but if your doctor recommended that you go to a masseuse after a painful accident; this would be covered. Having a Health Savings Account is the way health insurance should be – you get to choose what medical help you receive for your health conditions.
This means if you decide to get alternative medicine instead of going to an allopathic physician (conventional doctors that use prescriptions drugs and other treatments for quick-fixes instead of delving to the root of the problem), you can do so and have the expenses paid with your Health Savings Account.
What is Considered an “HSA Qualified Expense”?
The definition of qualified medical expenses is only partially given in IRS Publication 502 and through different federal court rulings. There are few restrictions – as long as the expenses are for medical treatments or prevention for a health problem. For instance, yoga wouldn’t be identified as a medical expense unless your doctor recommended it as a treatment for medical reasons, such as for physical therapy after an injury, then it is qualified as a medical expense.
Many may question why the government would give a tax deduction for someone using some crazy vibration machine to cure their cancer. Again, the HSA is how health insurance should be. You should get to choose what treatments would best benefit your health condition. This gives account holders that power to manage their health as they see fit. Health Savings Accounts are encouraging individuals to take personal responsibility of their health care while loosening the monopoly traditional health care has had over the past couple of decades.
By: Wiley Long
About the Author:
Most of the dental plans available are expensive – the reason being that the insurance companies know that the individuals who purchase dental coverage already have dental problems and will definitely be using the coverage. This is also known as “adverse selection”.
Another option is available today with the HSA, or Health Savings Account. This is an account that you can use to accumulate tax-free dollars for medical bills that aren’t covered under your High Deductible Health Plan, or HDHP. It is required that you are enrolled in a High Deductible Health Insurance Policy to qualify for an Health Savings Account. These plans have high annual deductibles, but you receive low monthly premiums in exchange. Since the money in the HSA is tax-free, the account holder can funnel their dental expenses through the HSA for a tax write-off.
If you decide to get a health plan with dental coverage, the deductible cannot be paid for with the HSA, but the expenses rendered from services can. Since you’ll be funding your account with pre-tax money, you can easily save $600 or more off the costs of your family’s yearly dental expenses by paying for the charges from your Health Savings Account.
There are some other options for dental coverage available. With prepaid dental plans you will be charged low monthly fees, which are usually around $7/month for individuals and $16/month for families. The plans give you significant discounts on check-ups, fillings, extractions and other dental services provided by a network dentist. Some plans help with the expenses for eyeglasses and contact lenses. Since these plans aren’t insurance, it can be paid for with the HSA. When calculating what medical expenses will be reimbursed from your HSA, include dental fees and premiums from the prepaid dental plan.
More About Health Savings Accounts
Any health expenses that aren’t covered under you HDHP can be paid for with your HSA, such as deductibles, eyewear and dental care. As long as the bill you are trying to cover was needed for a health problem, it can be paid for. So if you decided to get a massage while at the spa – this wouldn’t be covered, but if your doctor recommended that you go to a masseuse after a painful accident; this would be covered. Having a Health Savings Account is the way health insurance should be – you get to choose what medical help you receive for your health conditions.
This means if you decide to get alternative medicine instead of going to an allopathic physician (conventional doctors that use prescriptions drugs and other treatments for quick-fixes instead of delving to the root of the problem), you can do so and have the expenses paid with your Health Savings Account.
What is Considered an “HSA Qualified Expense”?
The definition of qualified medical expenses is only partially given in IRS Publication 502 and through different federal court rulings. There are few restrictions – as long as the expenses are for medical treatments or prevention for a health problem. For instance, yoga wouldn’t be identified as a medical expense unless your doctor recommended it as a treatment for medical reasons, such as for physical therapy after an injury, then it is qualified as a medical expense.
Many may question why the government would give a tax deduction for someone using some crazy vibration machine to cure their cancer. Again, the HSA is how health insurance should be. You should get to choose what treatments would best benefit your health condition. This gives account holders that power to manage their health as they see fit. Health Savings Accounts are encouraging individuals to take personal responsibility of their health care while loosening the monopoly traditional health care has had over the past couple of decades.
By: Wiley Long
About the Author:
By Wiley Long – President, HSA for America ( http://www.Health–Savings–Accounts.com ) – The nation’s leading independent health insurance firm specializing in individual and family coverage that works with Health Savings Accounts.
Rex Krawiec
Learn How Managing Health Savings Accounts Can Save You Money
vings Accounts consist of two parts – the HSA bank account, and the high deductible health plan (HDHP). By carefully choosing which bank you use to establish your HSA, and strategically choosing how to fund your account and manage your investment, you will be able to get the most return on your money while keeping your expenses to a minimum.
Make Sure to Establish Your Health Savings Account
By switching from a conventional copay health insurance plan to a high-deductible health insurance plan (HDHP), most people are cutting their health insurance costs by about 40% or so. This is such a big savings, that many people neglect to take the next step and set up their HSA. But this is a financial mistake that is costing them money.
Unless you pay no income tax and have zero medical expenses (including dental, over-the-counter medications, or charges for alternative care like chiropractic or acupuncture), you will absolutely save money by establishing your HSA.
Run All Your Medical Expenses Through Your HSA
Not everyone feels like they have “extra” money that they afford to set aside in their HSA, despite the tax savings and other financial benefits. Even if that’s the case, you should still establish your HSA. Every time you incur a medical expense, deposit at least as much money as you spent on that medical expense. For instance, if you went to the dentist and it cost $85, put $85 in your HSA. If you like you can then take it right back out.
What this does is convert this medical expense into a tax-deductible expense. Then when you file your taxes next year, you can put the total amount that you ran through your Health Savings Account on line 25 of your 1040, and deduct it from the total income you report.
Cover Your Deductible
Your next step is to get enough money in your HSA to cover your deductible. For 2008, deductibles start at $1,100 and go up to $5,600 for individuals, and $2,200 to $11,200 for families. Annual contribution limits are $2900 for individuals, and $5800 for families. So it could take a few years to save enough money in your account to cover your deductible.
Once this money is in your HSA, you will have the confidence of knowing that you can cover most any medical expense that comes your way, particularly if you have a health insurance plan that pays 100% after your deductible.
As you continue to build money in your account, you may want to consider switching to a health insurance plan with an even higher deductible, which will further lower your premiums.
Minimize the Fees You Pay
If you will be using your HSA to pay medical expenses as you incur them, you should keep an eye on the fees your bank charges. Until you have enough money in your account to cover any fees with investment returns, you probably want to have your HSA with a bank that charges no fees. (Several are listed on the website referenced above).
If you plan to access money from your Health Savings Account to pay ongoing medical expenses, you may wish to keep a portion of your Health Savings Account money in a short-term CD or savings account. But to take maximum advantage of your Health Savings Account, you’ll want to eventually move some of the funds to investments that have a higher potential return.
Investment Options
No other investment has the triple tax-advantage that Health Savings Accounts offer. Not only is your deposit tax deductible, and your withdrawals to cover medical expenses tax-free, but your investment also grows tax-deferred.
Taking advantage of tax-deferred growth is one of the best ways to build long-term savings. Some banks will provide a short list of mutual funds you can invest in, while others provide access to an online discount brokerage such as Ameritrade where you can choose from stocks, bonds, mutual funds, and more.
The most aggressive strategy is to pay your medical expenses from somewhere other than your HSA, and save the receipt. You can then reimburse yourself at a later date. The additional growth you get from not paying any taxes on your investment may be enough to cover all your medical expenses.
By: Wiley Long
About the Author:
Make Sure to Establish Your Health Savings Account
By switching from a conventional copay health insurance plan to a high-deductible health insurance plan (HDHP), most people are cutting their health insurance costs by about 40% or so. This is such a big savings, that many people neglect to take the next step and set up their HSA. But this is a financial mistake that is costing them money.
Unless you pay no income tax and have zero medical expenses (including dental, over-the-counter medications, or charges for alternative care like chiropractic or acupuncture), you will absolutely save money by establishing your HSA.
Run All Your Medical Expenses Through Your HSA
Not everyone feels like they have “extra” money that they afford to set aside in their HSA, despite the tax savings and other financial benefits. Even if that’s the case, you should still establish your HSA. Every time you incur a medical expense, deposit at least as much money as you spent on that medical expense. For instance, if you went to the dentist and it cost $85, put $85 in your HSA. If you like you can then take it right back out.
What this does is convert this medical expense into a tax-deductible expense. Then when you file your taxes next year, you can put the total amount that you ran through your Health Savings Account on line 25 of your 1040, and deduct it from the total income you report.
Cover Your Deductible
Your next step is to get enough money in your HSA to cover your deductible. For 2008, deductibles start at $1,100 and go up to $5,600 for individuals, and $2,200 to $11,200 for families. Annual contribution limits are $2900 for individuals, and $5800 for families. So it could take a few years to save enough money in your account to cover your deductible.
Once this money is in your HSA, you will have the confidence of knowing that you can cover most any medical expense that comes your way, particularly if you have a health insurance plan that pays 100% after your deductible.
As you continue to build money in your account, you may want to consider switching to a health insurance plan with an even higher deductible, which will further lower your premiums.
Minimize the Fees You Pay
If you will be using your HSA to pay medical expenses as you incur them, you should keep an eye on the fees your bank charges. Until you have enough money in your account to cover any fees with investment returns, you probably want to have your HSA with a bank that charges no fees. (Several are listed on the website referenced above).
If you plan to access money from your Health Savings Account to pay ongoing medical expenses, you may wish to keep a portion of your Health Savings Account money in a short-term CD or savings account. But to take maximum advantage of your Health Savings Account, you’ll want to eventually move some of the funds to investments that have a higher potential return.
Investment Options
No other investment has the triple tax-advantage that Health Savings Accounts offer. Not only is your deposit tax deductible, and your withdrawals to cover medical expenses tax-free, but your investment also grows tax-deferred.
Taking advantage of tax-deferred growth is one of the best ways to build long-term savings. Some banks will provide a short list of mutual funds you can invest in, while others provide access to an online discount brokerage such as Ameritrade where you can choose from stocks, bonds, mutual funds, and more.
The most aggressive strategy is to pay your medical expenses from somewhere other than your HSA, and save the receipt. You can then reimburse yourself at a later date. The additional growth you get from not paying any taxes on your investment may be enough to cover all your medical expenses.
By: Wiley Long
About the Author:
By Wiley Long – President, HSA for America ( http://www.health–savings–accounts.com ) – The nation’s leading independent agency specializing in individual and family health insurance coverage that works with Health Savings Accounts.
Anne
Health Savings Account Write-offs – be Sure to Take Them All
Having a Health Savings Account makes all of your HSA qualified medical expenses tax-deductible, so read this article carefully to make sure you aren’t over paying on your taxes. Remember, there is no virtue in paying more taxes than you really owe.
Qualified Medical Expenses
The main purpose of your HSA is to enable you to pay for qualified medical expenses with tax-free dollars. Qualified medical expenses are defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses). Most people remember to pay for doctor visits and prescription drugs from their HSA (or save the receipts and reimburse themselves later), but there are many medical expenses that people simply pay for, without realizing that because they own an HSA the expense is tax deductible. These are the most common:
Over-the-counter medications. Remember, your medicine does not necessarily have to be prescribed to be considered a qualified medical expense. Any time you buy a bottle of aspirin, cough syrup, bandages, or zit medicine for your teenager – save the receipt, so you can reimburse yourself from your HSA.
Dental expenses. Dental fees are typically the most expensive item that people forget to pay for from their HSA. From cleanings, to crowns, to dentures, all of your medically necessary dental work is eligible to be paid from your HSA.
Eye glasses and contacts. Annual eye exams along with prescription glasses, contact lenses, and other prescription eye glass expenses can be paid from your HSA tax-free. Also, prescription sunglasses are considered to be an HSA qualified medical expense.
Physical therapy. Most individual and family health insurance plans have very limited coverage for physical therapy. So you can pay for those expenses out of out of your available HSA funds.
Medical massage therapy. Yes, you can use funds from your Health Savings Account to pay for a massage, as long as your health care practitioner recommends it as treatment for a particular health condition.
Chiropractor visits. Remember that your HSA can be used for medically necessary expenses. If you go to your chiropractor due to a particular injury or functional problem, it is a qualified expense. The chiropractor’s charges would NOT be eligible as an HSA expense if you are getting adjustments for general health maintenance.
Mental Therapy
In some circles, seeing a therapist is reason for embarrassment, whereas in other parts of the country people brag about seeing their therapists. The reality is that mental therapy should be neither a symbol of shame nor a status symbol – it is simply another mode of treatment that can help people live healthier and happier lives.
Psychiatry, psychology, psychoanalysis, and psychotherapy – all of these modes of treatment can be paid for from your HSA. Keep in mind that qualified expenses are those that pay for treatment or prevention of a medical condition. If you are seeing a therapist strictly in order to save your marriage or improve your business skills, these would not be qualifying expenses.
Alternative Medicine
More and more people are disillusioned with the way conventional medicine is practiced. The focus often seems to be on treating symptoms rather than reaching the root cause. Many physicians are very quick to prescribe the latest drug, when less expensive, safer, and often more effective natural remedies may work better.
However, the people who do rely on alternative medical treatments rarely receive reimbursement from their health insurance for these expenses. This is one of the reasons that HSA plans have become so popular among people who do favor natural and/or alternative medical treatments. Here is just a very small sampling of the types of treatment that would be considered a Health Savings Account qualified expense:
Acupuncture. Some think the beneficial results of acupuncture are strictly due to the placebo effect. My veterinarian wife would tell you differently. Though she mostly practices conventional veterinary medicine, she does do a good bit of acupuncture on dogs and cats, and gets some amazing results.
Homeopathy. Though controversial, approximately one out of 50 Americans currently uses homeopathy. Whether using the services of a professional, or simply buying homeopathic remedies from the natural food store, remember that these expenses can be paid for from your HSA.
Traditional Chinese Medicine. Chinese medicine has been practiced for thousands of years, and is becoming ever more popular in the United States. Of course, treatment modalities that originated in other countries, such as Ayurveda (from India), would also be considered a qualified expense.
Faith healing, shamanism, energy medicine, and other (perhaps) far out stuff. Yep, almost any type of treatment could be considered an eligible expense. Keep in mind that the procedure must be related to the treatment or prevention of a specific health condition. Services designed to raise your chi, balance your chakras, or strengthen your aura might be more than the IRS will allow.
Every Dollar Counts
Every medical expense you incurred counts, so don’t forget to save your receipts. If you don’t, it’s like paying an extra 25% each time. Even some retailers like Target are starting to mark on your receipts which items are health related. That should make it even easier to get every tax break you deserve.
By: Wiley Long
About the Author:
Qualified Medical Expenses
The main purpose of your HSA is to enable you to pay for qualified medical expenses with tax-free dollars. Qualified medical expenses are defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses). Most people remember to pay for doctor visits and prescription drugs from their HSA (or save the receipts and reimburse themselves later), but there are many medical expenses that people simply pay for, without realizing that because they own an HSA the expense is tax deductible. These are the most common:
Over-the-counter medications. Remember, your medicine does not necessarily have to be prescribed to be considered a qualified medical expense. Any time you buy a bottle of aspirin, cough syrup, bandages, or zit medicine for your teenager – save the receipt, so you can reimburse yourself from your HSA.
Dental expenses. Dental fees are typically the most expensive item that people forget to pay for from their HSA. From cleanings, to crowns, to dentures, all of your medically necessary dental work is eligible to be paid from your HSA.
Eye glasses and contacts. Annual eye exams along with prescription glasses, contact lenses, and other prescription eye glass expenses can be paid from your HSA tax-free. Also, prescription sunglasses are considered to be an HSA qualified medical expense.
Physical therapy. Most individual and family health insurance plans have very limited coverage for physical therapy. So you can pay for those expenses out of out of your available HSA funds.
Medical massage therapy. Yes, you can use funds from your Health Savings Account to pay for a massage, as long as your health care practitioner recommends it as treatment for a particular health condition.
Chiropractor visits. Remember that your HSA can be used for medically necessary expenses. If you go to your chiropractor due to a particular injury or functional problem, it is a qualified expense. The chiropractor’s charges would NOT be eligible as an HSA expense if you are getting adjustments for general health maintenance.
Mental Therapy
In some circles, seeing a therapist is reason for embarrassment, whereas in other parts of the country people brag about seeing their therapists. The reality is that mental therapy should be neither a symbol of shame nor a status symbol – it is simply another mode of treatment that can help people live healthier and happier lives.
Psychiatry, psychology, psychoanalysis, and psychotherapy – all of these modes of treatment can be paid for from your HSA. Keep in mind that qualified expenses are those that pay for treatment or prevention of a medical condition. If you are seeing a therapist strictly in order to save your marriage or improve your business skills, these would not be qualifying expenses.
Alternative Medicine
More and more people are disillusioned with the way conventional medicine is practiced. The focus often seems to be on treating symptoms rather than reaching the root cause. Many physicians are very quick to prescribe the latest drug, when less expensive, safer, and often more effective natural remedies may work better.
However, the people who do rely on alternative medical treatments rarely receive reimbursement from their health insurance for these expenses. This is one of the reasons that HSA plans have become so popular among people who do favor natural and/or alternative medical treatments. Here is just a very small sampling of the types of treatment that would be considered a Health Savings Account qualified expense:
Acupuncture. Some think the beneficial results of acupuncture are strictly due to the placebo effect. My veterinarian wife would tell you differently. Though she mostly practices conventional veterinary medicine, she does do a good bit of acupuncture on dogs and cats, and gets some amazing results.
Homeopathy. Though controversial, approximately one out of 50 Americans currently uses homeopathy. Whether using the services of a professional, or simply buying homeopathic remedies from the natural food store, remember that these expenses can be paid for from your HSA.
Traditional Chinese Medicine. Chinese medicine has been practiced for thousands of years, and is becoming ever more popular in the United States. Of course, treatment modalities that originated in other countries, such as Ayurveda (from India), would also be considered a qualified expense.
Faith healing, shamanism, energy medicine, and other (perhaps) far out stuff. Yep, almost any type of treatment could be considered an eligible expense. Keep in mind that the procedure must be related to the treatment or prevention of a specific health condition. Services designed to raise your chi, balance your chakras, or strengthen your aura might be more than the IRS will allow.
Every Dollar Counts
Every medical expense you incurred counts, so don’t forget to save your receipts. If you don’t, it’s like paying an extra 25% each time. Even some retailers like Target are starting to mark on your receipts which items are health related. That should make it even easier to get every tax break you deserve.
By: Wiley Long
About the Author:
By Wiley Long – President, HSA for America ( http://www.health–savings–accounts.com ) – The nation’s leading independent health insurance agency specializing in individual and family coverage that work with Health Savings Accounts.
Fransisca Milanese
Year-end Health Savings Account Strategies for 2007
Health Savings Accounts can be an important part of an individuals tax and money-management strategy. Not only can you reduce your health insurance premiums, but when you fund your account you get a nice tax break. If you stay healthy, your money grows tax-deferred like an IRA, and can amount to a lot of money in retirement.
Every year around this time you should assess your finances and see what you need to do to optimize your situation. Making the most of your HSA is one area that can really make a difference. Here are the key things you need to know to get the greatest tax reduction and the most growth out of your Health Savings Account.
Maximizing Your Contribution May Reduce Your Taxes By $1836 or More
If you own an HSA-qualified health insurance plan that has an effective date no later than December 31, 2007, you qualify to make a tax deductible contribution to your Health Savings Account. This will immediately reduce your tax bill come April 15.
The contribution limit is not pro-rated based on the number of months in 2007 in which you had coverage, as it was in the past. However, you do need to remain an HSA-eligible individual throughout 2008, or the extra amount contributed will be counted as income and subject to an additional 10 percent tax.
The maximum Health Savings Account contribution in 2007 is $5650 for families, and $2850 for individuals. If you are 55 or older, you may also contribute an additional $800.
Your HSA contribution is deductible on your federal income taxes, and every state (except AL, CA, NJ, and WI) also gives a deduction on state income taxes. So by maximizing their HSA contribution a family in a 28 percent tax bracket, paying 4.5 percent state income taxes, will reduce their April 15 tax burden by $1836.25.
Though your HSA-qualified health insurance must be in place before the end of the year, you do have until April 15 to make your 2007 contribution. Though you cannot put any more 2007 money in if you miss this deadline, you can reimburse yourself in later years for qualified expenses incurred in 2007, even if you do not currently have the money in your account.
Strategic Withdrawals
You can withdraw money from your HSA at any time to pay qualified medical expenses. Keep in mind that this includes over-the-counter medications such as aspirin or cough syrup, dental and vision expenses, and even alternative care such as acupuncture or homeopathy.
One strategy that many of our members take is to save their medical receipts, but to delay reimbursement from the HSA so that the funds have the opportunity to grow tax-deferred. There is no time limit in which you must withdraw the money. Since most people will face larger medical bills during their retirement, it is quite likely that the withdrawals would never be subject to taxes.
If you are not fully funding your Roth, another strategy would be to reimburse yourself for medical expenses from your HSA, and to deposit it in your Roth. Your HSA reimbursement is tax-free, and placing it in your Roth would also give you tax-free growth while enabling you to withdraw the money in retirement tax-free for any reason, including non-medical expenses. You would also avoid any extra state taxes in the states that currently tax HSAs.
Remember to Keep Good Records
You should keep a record of any qualified medical expenses you incur. This will ensure that you have documentation substantiating any tax-free withdrawal you make from your HSA. In order to pay for a medical expense from your HSA, it must be a qualified expense.
You can go old school and put receipts in a file, or get a little more organized and track your records online.
2008 Contribution Limit and Deductible Changes
In 2008 the maximum annual HSA contribution limit will again go up, this time to $2900 for individuals and $5800 for families. Those over age 55 will be allowed to contribute an additional $900 to their accounts.
The maximum deductibles will be going up next year to $5600 for individuals, and $11,200 for families. If you’ve now got some money socked away in your HSA, it might make sense to move to a higher deductible to further reduce your premiums.
Health Reimbursement Arrangements
If you are currently set up as an S-corp, you should strongly consider setting up a Health Reimbursement Arrangement (HRA). A Health Reimbursement Arrangement enables your S-corp to reimburse you as a tax-free fringe benefit for the cost of your individual health insurance. This is the only way an S-corp can legally pay for individual health insurance, and is saving our average S-corp member over $3000. The HRA must be established by December 31st in order to take advantage of it in 2007.
It may also be beneficial to set up an HRA if you have a spouse who works in your business. Also, many small businesses use an HRA to reimburse their employees for individual health insurance premiums (which is much less expensive than getting group coverage). More information and a simple online application is available on our Health Reimbursement Arrangement page.
What to Do Now
Here are the steps you should take now:
1. To maximize the potential growth of your funds, you should try to fund your account as early in the year as possible. Every month of tax-deferred growth does add up over time. You can keep the money in a savings account, or invest it in stocks or mutual funds.
2. If you have your health insurance in place but do not yet have your Health Savings Account set up, you can do so online or possibly your local bank.
3. If you do not yet have an HSA-qualified health insurance plan, you should apply for coverage as soon as possible. Your plan must be effective before January 1 in order for you to qualify for the 2007 tax deduction. By getting your Heath Savings Account qualified health insurance in place by January 1, not only will you be able to maximize your tax benefits, but you also may be able to lock in 2007 rates for the next 12 – 24 months.
4. If you have a small business with employees, are set up as an S-corp, or have a spouse who works in the business with you, you should set up an HRA.
Through HSAs and HRAs, individuals who pay for their own health insurance have some powerful tax reduction strategies at their disposal. December 31st is the deadline for obtaining 2007 tax deductions, so you should act quickly if these ideas make sense for your situation.
By: Wiley Long
About the Author:
Every year around this time you should assess your finances and see what you need to do to optimize your situation. Making the most of your HSA is one area that can really make a difference. Here are the key things you need to know to get the greatest tax reduction and the most growth out of your Health Savings Account.
Maximizing Your Contribution May Reduce Your Taxes By $1836 or More
If you own an HSA-qualified health insurance plan that has an effective date no later than December 31, 2007, you qualify to make a tax deductible contribution to your Health Savings Account. This will immediately reduce your tax bill come April 15.
The contribution limit is not pro-rated based on the number of months in 2007 in which you had coverage, as it was in the past. However, you do need to remain an HSA-eligible individual throughout 2008, or the extra amount contributed will be counted as income and subject to an additional 10 percent tax.
The maximum Health Savings Account contribution in 2007 is $5650 for families, and $2850 for individuals. If you are 55 or older, you may also contribute an additional $800.
Your HSA contribution is deductible on your federal income taxes, and every state (except AL, CA, NJ, and WI) also gives a deduction on state income taxes. So by maximizing their HSA contribution a family in a 28 percent tax bracket, paying 4.5 percent state income taxes, will reduce their April 15 tax burden by $1836.25.
Though your HSA-qualified health insurance must be in place before the end of the year, you do have until April 15 to make your 2007 contribution. Though you cannot put any more 2007 money in if you miss this deadline, you can reimburse yourself in later years for qualified expenses incurred in 2007, even if you do not currently have the money in your account.
Strategic Withdrawals
You can withdraw money from your HSA at any time to pay qualified medical expenses. Keep in mind that this includes over-the-counter medications such as aspirin or cough syrup, dental and vision expenses, and even alternative care such as acupuncture or homeopathy.
One strategy that many of our members take is to save their medical receipts, but to delay reimbursement from the HSA so that the funds have the opportunity to grow tax-deferred. There is no time limit in which you must withdraw the money. Since most people will face larger medical bills during their retirement, it is quite likely that the withdrawals would never be subject to taxes.
If you are not fully funding your Roth, another strategy would be to reimburse yourself for medical expenses from your HSA, and to deposit it in your Roth. Your HSA reimbursement is tax-free, and placing it in your Roth would also give you tax-free growth while enabling you to withdraw the money in retirement tax-free for any reason, including non-medical expenses. You would also avoid any extra state taxes in the states that currently tax HSAs.
Remember to Keep Good Records
You should keep a record of any qualified medical expenses you incur. This will ensure that you have documentation substantiating any tax-free withdrawal you make from your HSA. In order to pay for a medical expense from your HSA, it must be a qualified expense.
You can go old school and put receipts in a file, or get a little more organized and track your records online.
2008 Contribution Limit and Deductible Changes
In 2008 the maximum annual HSA contribution limit will again go up, this time to $2900 for individuals and $5800 for families. Those over age 55 will be allowed to contribute an additional $900 to their accounts.
The maximum deductibles will be going up next year to $5600 for individuals, and $11,200 for families. If you’ve now got some money socked away in your HSA, it might make sense to move to a higher deductible to further reduce your premiums.
Health Reimbursement Arrangements
If you are currently set up as an S-corp, you should strongly consider setting up a Health Reimbursement Arrangement (HRA). A Health Reimbursement Arrangement enables your S-corp to reimburse you as a tax-free fringe benefit for the cost of your individual health insurance. This is the only way an S-corp can legally pay for individual health insurance, and is saving our average S-corp member over $3000. The HRA must be established by December 31st in order to take advantage of it in 2007.
It may also be beneficial to set up an HRA if you have a spouse who works in your business. Also, many small businesses use an HRA to reimburse their employees for individual health insurance premiums (which is much less expensive than getting group coverage). More information and a simple online application is available on our Health Reimbursement Arrangement page.
What to Do Now
Here are the steps you should take now:
1. To maximize the potential growth of your funds, you should try to fund your account as early in the year as possible. Every month of tax-deferred growth does add up over time. You can keep the money in a savings account, or invest it in stocks or mutual funds.
2. If you have your health insurance in place but do not yet have your Health Savings Account set up, you can do so online or possibly your local bank.
3. If you do not yet have an HSA-qualified health insurance plan, you should apply for coverage as soon as possible. Your plan must be effective before January 1 in order for you to qualify for the 2007 tax deduction. By getting your Heath Savings Account qualified health insurance in place by January 1, not only will you be able to maximize your tax benefits, but you also may be able to lock in 2007 rates for the next 12 – 24 months.
4. If you have a small business with employees, are set up as an S-corp, or have a spouse who works in the business with you, you should set up an HRA.
Through HSAs and HRAs, individuals who pay for their own health insurance have some powerful tax reduction strategies at their disposal. December 31st is the deadline for obtaining 2007 tax deductions, so you should act quickly if these ideas make sense for your situation.
By: Wiley Long
About the Author:
By Wiley Long – President, HSA for America (http://www.health–savings–accounts.com ) – The nation’s leading independent health insurance firm specializing in individual and family coverage that work with Health Savings Accounts.
Billie Fujimoto
Yearly Deadline Draws Near for Health Savings Account Tax-savings
December 1st is the deadline to secure substantial savings on your current year taxes through a Health Savings Account. With the upheaval in our economy, there has been quite a surge in the number of people applying for HSA-qualified health insurance plans. Health Savings Accounts allow you to put aside pre-tax dollars to pay for future medical expenses. Anyone that has an HSA plan in effect no later than December 1st is qualified to make a tax deductible contribution to their HSA during the current year, and may be able to reduce their taxes on April 15th by $1900 or more.
While conventional co-pay plans continue to be popular, there has been a large increase in the number of people choosing to invest in health plans that work with Health Savings Accounts. HSA plans have become a better choice for many because these plans have premiums that are usually quite a bit lower than conventional co-pay plans. HSA plans also come with the added incentive that any money deposited into the HSA is tax deductible, which will directly lower the plan holder’s taxable income. A growing number of people are finding that a Health Savings Account is both a wise investment and a valuable way to meet their health insurance needs.
In addition to lowering their taxes and reducing their premiums, Health Savings Account holders are also able to begin building a tax-deferred medical retirement account. These accounts have proven their value for people who have built their accounts and later experienced unexpected medical issues. Rather than having a large amount of out-of-pocket expenses, these people were able to make a withdrawal on their HSA tax-free to cover the unexpected medical bills. Any growth to this account is tax-deferred and if a withdrawal is made for just about any kind of medical expense, that withdrawal is made tax-free.
If you have seriously considered making changes to your current health care arrangements, now is the time to act. At the very least, you could start your own investigation to see if an HSA would be a wise decision for you and your family. You must have your HSA-qualified health insurance in force no later than December 1, in order to take advantage of a 2008 HSA contribution and receive the accompanying tax reduction. Due to the fact that the underwriting process can sometimes take a few weeks, most insurance experts recommend that you apply for a plan as early as possible.
Anyone who does have a plan in place before December 1 will be able to contribute up to $2,900 as an individual, or up to $5,800 as a family to their Health Savings Account. People over the age of 55 can also make an additional contribution of up to $900 to their account. All money placed in these accounts, up to the limits just stated, is not subject to taxes. Someone in a 28% tax bracket who makes a $5,800 contribution to their Health Savings Account will reduce their April 15th tax bill by $1,624-even more when they count the savings on their state income taxes.
If you are paying for your own health insurance, now is the time to investigate HSA plans. Online insurance agencies make comparing premiums and applying for coverage simple, and the lower premium and reduced taxes could add up to $4000 or more in annual savings.
By: Wiley Long
About the Author:
While conventional co-pay plans continue to be popular, there has been a large increase in the number of people choosing to invest in health plans that work with Health Savings Accounts. HSA plans have become a better choice for many because these plans have premiums that are usually quite a bit lower than conventional co-pay plans. HSA plans also come with the added incentive that any money deposited into the HSA is tax deductible, which will directly lower the plan holder’s taxable income. A growing number of people are finding that a Health Savings Account is both a wise investment and a valuable way to meet their health insurance needs.
In addition to lowering their taxes and reducing their premiums, Health Savings Account holders are also able to begin building a tax-deferred medical retirement account. These accounts have proven their value for people who have built their accounts and later experienced unexpected medical issues. Rather than having a large amount of out-of-pocket expenses, these people were able to make a withdrawal on their HSA tax-free to cover the unexpected medical bills. Any growth to this account is tax-deferred and if a withdrawal is made for just about any kind of medical expense, that withdrawal is made tax-free.
If you have seriously considered making changes to your current health care arrangements, now is the time to act. At the very least, you could start your own investigation to see if an HSA would be a wise decision for you and your family. You must have your HSA-qualified health insurance in force no later than December 1, in order to take advantage of a 2008 HSA contribution and receive the accompanying tax reduction. Due to the fact that the underwriting process can sometimes take a few weeks, most insurance experts recommend that you apply for a plan as early as possible.
Anyone who does have a plan in place before December 1 will be able to contribute up to $2,900 as an individual, or up to $5,800 as a family to their Health Savings Account. People over the age of 55 can also make an additional contribution of up to $900 to their account. All money placed in these accounts, up to the limits just stated, is not subject to taxes. Someone in a 28% tax bracket who makes a $5,800 contribution to their Health Savings Account will reduce their April 15th tax bill by $1,624-even more when they count the savings on their state income taxes.
If you are paying for your own health insurance, now is the time to investigate HSA plans. Online insurance agencies make comparing premiums and applying for coverage simple, and the lower premium and reduced taxes could add up to $4000 or more in annual savings.
By: Wiley Long
About the Author:
By Wiley Long – President, HSA for America ( http://www.health–savings–accounts.com ) – The nation’s leading independent health insurance firm specializing in individual and family coverage that work with Health Savings Accounts.
Coral Shallcross