With the number of health plans available to Central Oregonians dwindling, and premiums skyrocketing, you may find yourself paying a much higher premium for benefits you may never use. If this sounds like a situation you or your family may be in, you might consider a Health Savings Account to cover your medical costs in 2017.
A Health Savings Account (HSA) is an individually-owned, tax-advantaged account that you can use to pay for current or future IRS-qualified medical expenses. With an HSA, you’ll have the potential to build more savings for healthcare expenses or additional retirement savings through self-directed investment options.
How an HSA works
You can contribute to your HAS account via payroll deduction, online banking transfer, or by sending a personal check to your HAS provider. Your employer or third parties, such as a spouse or parent, may contribute to your account as well. You then can pay for qualified medical expenses with your HSA debit card directly to your medical provider or pay out-of-pocket. You can either choose to reimburse yourself or keep the funds in your HSA to grow your savings. Unused funds will roll over year after year. After age 65, funds can be withdrawn for any purpose without penalty (subject to ordinary income taxes).
Are you eligible for an HSA?
You must have a High Deductible Health Plan (HDHP)- either from your employer, through your spouse, or one you’ve purchased on your own- through healthcare.gov. (Warning: not all plans that have high deductibles qualify for HSA plans. The plan must specify HSA in its’ name). In addition, to qualify you cannot be covered by any other non-HAS health plan-including Medicare Parts A and B; cannot be covered by TriCare; cannot have accessed your VA benefits in the past 90 days; cannot be claimed as a dependant on another person’s tax return (unless it’s your spouse).
What are the annual IRS Contribution limits?
Contributions made by all parties to an HSA cannot exceed the annual HSA limit set by the IRS. Anyone can contribute to your HSA, but only the accountholder and employer can receive tax deductions on those contributions.
2017 Annual Contribution Limits: $3,400 individual; $6,750 family.
In addition, HSA account holders who are 55 years or older, may contribute an additional $1,000.
How can you benefit from tax savings?
An HSA provides triple tax savings. First, your contributions to your HSA account can be made with pre-tax dollars and any after-tax contributions that you make are tax-deductible. Second, HSA funds earn interest and investment earnings are tax-free. And finally, when used for IRS-qualified medical expenses, funds are tax-free.
IRS-Qualified Medical Expenses
You can use your HSA to pay for a wide range of medical expenses for yourself, your spouse, or tax dependents. An IRS-qualified medical expense is defined as an expense that pays for healthcare services, equipment, or medications. While you do not need to submit any receipts to your HSA provider, you must save your bills and receipts for tax purposes.
In Conclusion
High deductible health plans typically carry the lowest premiums but require a large out-of-pocket payment for medical services before policy benefits kick in. If you are in good health and reasonably believe you will continue to be in good health, choosing a low premium, high-deductible plan might work best for you. And as long as you are willing to pay the first $3,000- $5,000 of your medical expenses, you can benefit by the tax-deduction of the contributions. In addition, if you don’t use part or all of the balance, you may add to it each year to build an additional retirement funding account.
Provided by Ed Wettig, CFP, Wettig Capital Management which offers investment management, financial planning and retirement income strategies. Securities, insurance and investment advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC. Wettig Capital Management is a marketing designation.
