02-25-2005, 04:51 PM
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#50 (permalink)
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Easy Rider
Location: Moscow on the Ohio
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Originally Posted by kutulu
Be carefull with the HSA. There are some HSA's where you lose your contributions at the end of the year. Overall, I do not trust them.
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I thought the HSAs build up money just like IRAs. Plus the money you put in every year (up to about $5250 for couples) is tax deductible. Also the money you take out every year for medical/dental is tax free.
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Tax Deductible Contributions
HSAs allow you to legally avoid federal income tax by saving 100% of the health plan's deductible, up to $2650 for singles or $5250* for families, into your HSA account. Whatever you deposit into your account up to April 15, is an "above the line" tax deduction for the previous year's income taxes, meaning you get a federal income tax deduction for money you put in even if you don’t itemize deductions. If your employer makes an HSA contribution for you, it is “excluded” from income, and not subject to any income tax or FICA. Either way, this will immediately reduce your federal income tax due for the year.
*maximum for a family in 2005. Individuals over age 50 may deposit into their account and take a tax deduction of an additional $600.
Tax-subsidized Medical Expenses
Even though you have received a tax deduction by putting your money into this account, the money is still yours to spend tax free, as long as you spend it on qualified medical expenses. Since you have a high-deductible plan, this would of course include any expenses you incur from going to the doctor, purchasing prescription drugs, or paying other expenses toward your deductible. Once your deductible is met, the health insurance covers your medical expenses as defined in the policy.
In addition to being able to withdraw your money tax free to cover these types of expenses (which might otherwise be covered by a traditional low-deductible high-premium policy), you can use your HSA account to cover other costs that would not normally be covered by a health insurance policy.
Long-term savings
A particularly appealing aspect of HSAs is that they encourage individuals to stay healthy. Any money from your HSA account that is not used to pay medical expenses is yours to keep. The money grows in the account free from federal taxes and remains free from federal tax when you take it out if it is used for qualified medical expenses. There is a 10% penalty if the funds are withdrawn before age 65 for a non-medical expense, but after age 65 they can be withdrawn penalty-free for any reason (you do pay income tax on the money withdrawn).
HSA Accounts
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