The Affordable Care Act triggered skeptics to believe this new law would cause a decline or even the elimination of Health Savings Accounts. However, according to a 2013 census report by America’s Health Insurance Plans (AHIP), enrollments in HSA plans have more than tripled over the last six years. This report clearly disproves the skepticism surrounding HSAs as they seem to be flourishing in this new environment.
HSA plans provide individuals valuable coverage options that include tax advantages. It also encourages consumers to spend their health care dollars wisely. This in turn, may help our economy contain the rising costs of medical care.
The most appealing feature of HSAs are their preferred tax status, this benefit is substantial. In 2014 HSA holders can contribution up to $3,300 for an individual and $6,500 for a family (HSA holders 55 and older can save an extra $1,000) – these contributions are 100% tax deductible from gross income.
Additional benefits include:
- An HSA is an individual account, once established it is controlled by the account holder.
- Contributions roll over year after year, there is no “use it or lose it policy” and you can use the money for medical expenses in any year. This allows you to reimburse yourself retroactively for any expenses paid out of pocket. With no deadline to use your HSA money, you can consider paying out of pocket now and using the HSA as a Medical IRA for medical expenses after you sign up for Medicare and can no longer make contributions to your HSA. This is smart strategy that allows you money to grow and use as a retirement funds for medical expenses.
- Distributions will not be taxed if used to pay qualified health care cost. Once the account holder reaches age 65, unlike a traditional IRA, these distributions are subject to tax but there are no penalties and no Required Minimum Distributions (RMD).
- HSA contributions are not included in your taxable income, they are considered “above the line”. This can help adjust your gross income as well as possibly reduce exposure to the 3.8% surtax on net investment income.
- Investment options for an HSA vary; it would be wise to check with your financial advisor to help evaluate the advantages of an HSA strategy.
In closing there are two ways to utilize an HSA – you can use it to cover health care expenses now with pre-tax dollars or you can choose to turn the HSA into a type of medical IRA, growing untaxed for later use.
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