Some of our clients have asked me about Health Savings Accounts (or “HSAs”). HSAs started out as a way to help pay medical expenses. There are tax advantages to HSAs, and they may also be a way to save for retirement. To qualify, you had to sign up for a health or medical insurance plan with a high deductible. The deductible amount necessary was $1,100 for individuals and $2,200 for family coverage. The rule used to be that you could then contribute money up to the amount of your deductible (the maximum in 2007 was $2,850 for individuals and
$5,650 for families).
Congress changed the law in December to allow you to contribute the maximum amount to your HSA regardless of your deductible. This makes it a more attractive tool for long-term savings instead of purely a medical expense payment plan. The tax benefits are also an important consideration. Contributions are tax-deductible, and the money grows, taxdeferred. Regardless of your age, withdrawals are tax-free if you
use the money for medical expenditures. Withdrawals for other reasons are taxable, plus there is a 10 percent penalty. After age 65, the money can be withdrawn penalty-free, and you are only liable to pay income tax on any amount used for nonmedical purposes.
An injured client who may need medical care in the future, but who is not currently being treated, may want to look into an HSA. Because the first $1,100 would come out of the HSA (if that is the deductible agreed
upon when setting up the account), the insurance premiums might be lower than if there was a low deductible. And, if no major medical intervention was used in the first several years, the account could grow
without taxation to provide for future care, with perhaps an even higher deductible in order to reduce the premiums paid in later years.
Some HSA administrators and financial planning firms may offer mutual funds for long-term savers. You can also roll over money from an IRA to an HSA and use it (tax-free) for medical expenditures. As with all
important financial and economic decisions, you should meet with your financial adviser or planner before starting any long-term medical care, savings, retirement, or other account.
For more information on HSAs, go to HSAinsider.com or HSAfinder.com.