Ever since the Patient Protection and Affordable Care Act was enacted in 2010, the debate over whether it is constitutional or not just hasn’t stopped. We are not certain if all the provisions under the new health care reform law will be implemented by 2014 or not.
However, that doesn’t mean that many provisions haven’t already made health insurance a better deal. Have you heard of Health Savings Account (HSA) Plans?
An HSA Plan Can Help With Health Care Costs And Taxes
Health Savings Account Plans are tax-advantaged plans that offer tax-smart solutions for handling health care costs. You can run money through an HSA and use it to pay for qualified medical expenses without paying taxes on the funds. And, you can still deduct that expense from your adjusted annual income so you pay less in taxes.
A Health Savings Account is similar to an Individual Retirement Account or an IRA. HSA money that you don’t spend for health (or dental) care by the end of the year rolls over to the next year and continues to grow with tax-free interest. HSA contributions, which can be made by you or your employer, are considered above-the-line deductions on Federal Tax Form 1040.
If you pull funds from your Health Savings Account for something other than eligible healthcare before you reach age 65, you will have a 20-percent penalty on the withdrawal. Once you are 65, you are free to use your HSA funds for other purposes without a penalty fee. You could use those funds for a Medicare supplement plan or long-term care plan.
To enroll in an HSA, you need to have a qualified high-deductible health plan in place and not yet be eligible for Medicare. As of 2012, HSA Plans must have a deductible of at least $1,200 for individuals or $2,400 for family coverage. Your plan must also have an out-of-pocket maximum or limit of $6,050 for individuals or $12,100 for family plans.
This year, the maximum contribution that can be deposited in an HSA increased. The HSA contribution threshold is $3,100 for individuals and $6,250 for families. If you are at least 55, you can make a “catch-up” contribution of $1,000.
Compared to a flexible spending account, an HSA has a big benefit for account holders. With an HSA, you don’t have to use the savings by the end of the year. All unused FSA funds are forfeited when the year ends.
Changes To Health Savings Accounts Due To The Health Care Reform Law, over-the-counter drugs without prescriptions are no longer considered an HSA-qualified medical expense. You need to get a prescription from your doctor if you plan to use HSA money for medications like aspirin. Also, the penalty for HSA withdrawals for non-medical purposes was increased from 10 percent to 20 percent.
HSA Tax Strategy
Since contributions are exempted from annual income taxes, many people try to fully fund their Health Savings Account before tax-filing deadlines. That way, they can deduct their full contribution to save on taxes whether they ever need the money for health care expenses or not. With tax-free earnings, an HSA can grow into a pretty nice retirement fund.