A Health Savings Account (HSA) Could Save You Some Tax Money
Health insurance has been a popular topic the last few years. Many people don’t figure health insurance into an overall estate planning strategy. But, in fact, there is a savings vehicle for health planning that may actually save you money on your taxes.
What is an HSA?
Many individuals find when procuring health insurance that they have very high deductibles. But that may not be such a bad thing, for tax reasons.
If you are in the financial position to do so, you may want to consider saving money to pay for your uncovered medical expenses. If so, as opposed to just stashing money into a savings account, you may want to consider a health savings account (HSA).
If you have a high-deductible health insurance policy, and no other insurance to cover the deductible portion of your policy, the Treasury allows you to set up an HSA. Qualifying policies for families are those with deductibles generally between $2,500 and $12,700, although that range does change as the IRS issues new guidelines.
The deductible has to be equal for all expenses. For example, a policy with a high deductible for treatment, but no deductible for prescription drugs, wouldn’t qualify. You are allowed to have other forms of insurance that may cover medical expenses, such as, for example, a personal injury protection (PIP) automobile policy.
Even better than the common sense benefit of advance planning is that the money you put into an HSA is not taxable as income. Money anyone, including your employer, deposits directly into the HSA is not taxed as income, nor is interest earned on those funds. If you leave your employer, your HSA goes with you.
As long as you use the funds for medical reasons, your withdrawals from the HSA are also tax free. That includes money spent for premiums, deductibles, non-covered treatment like dental or eye care, or prescription drug coverage. But if you use the funds for non-medical expenses, you’ll be taxed at 20%.
Money put into an HSA must be managed by a trustee. Usually, that can be a bank—most larger financial institutions offer HSAs, and some employers will have an HSA manager that you can use.
It’s Not Too Late
Although 2014 is over, you can make contributions to an HSA until April 15, 2015 and get the tax benefit on your 2014 taxes. And, you are allowed to use the money as reimbursement—for example, if you paid a deductible in cash today, you could withdraw that amount next month from the HSA, tax free.
If you are planning on saving money anyway, and you also anticipate having out-of-pocket medical expenses, an HSA can be a great tool to help you save some money on taxes. If you currently have a medical policy with a higher deductible, but not high enough, it may even be worthwhile to raise the deductible, save money on your premium, and get the tax advantage of the HSA.
Obviously, this kind of estate planning depends on the individual, so make sure you talk to a professional before making major changes with insurance, or before setting up any kind of trust.
Planning ahead can protect your assets and save you money. Contact Tampa business and probate attorney David Toback to discuss your needs and make sure your property is safe and managed correctly.