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HEALTH SAVINGS ACCOUNTS
The Medicare Act of 2003 created tax -favored Health Savings
Accounts ( HSAs). I heard lots of questions about hese dureing
the tax filing season.
In a Nutshell: The HSA is something like an IRA dedicated to
medical expenses. Deduct the money you put in. No tax on the
money you take out - as long as you use it for medical
expenses.
Good News: This makes your medical expenses deductible,
even if you don't itemize your deductions. With a Health
Savings Account even a $10. contribution is deductible.
Bad News: There are sever restrictions on who may open an
HSA, and restrictions on how much may be deductible.
Who Can Have an HSA? You can have an HSA only if you
have a high-deductible health-care policy. Such plans have an
annual deductible of at least $1,000 for self-only coverage and
$2,000 for family coverage. If you have another plan or are
covered by Medicare, you cannot have an HSA. Also, the plan
must have an annual limit on expenditures of not over $5,000
(self-only) ir $10,000 (family plans). Eligibililty is measured each
month. Also, you may not be claimed as another's dependent.
The only other health coverage you may have is for long-term
care, vision, dental, accident or disability coverage, and
disease-specific coverage such as cancer insurance. As you
can see, these are not for everybody.
Why Have an HSA? It's a way to help some of the 44 million
Americans without heath coverage. If you can't afford tradional
health coverage, you may be able to afford a high-dedcutible
plan: They cost up to 40% less than low-deductible or
no-deductible plans. Employers may also set HSAs, which may
entice more small businesses to offer some form of health
coverage. HSAs may be set up with or without employer
involvement.
How to Set Up an HSA? First, you must buy one of the new
high-deductible health-care plans. (If you can afford a better
plan, by all means buy one!) Now you can go to most banks,
brokers, or credit unions to open your account.
Maintaining Your HSA. Once the account is set up, you can
think of it like an IRA. The annual contribution limit is tricky. It's
the lesser of your policy deductible or a maximum number
($2,600 for a self-only HSA, or 5,200 for a family plan). Since
eligibility is determined monthly, if you are eligible for only, say,
7 months of the year your limit 7/12 of these numbers. As with
an IRS, you may contribute until April 15, 2005. If you are 55 or
older by year-end the limit $500 higher. The account earnings
are tax-free. If you withdraw for another purpose you are taxed,
and there is a 10% penalty if you are under age 65.
Santos Associates, FEDERALLY AUTHORIZED TAX
PRACTITIONERS, can help you with your accounting, tax
and financial planning needs. Call today for an appointment &
consultation. We are not attorneys, we can refer competent council
upon request.
