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Tony Novak, CPA, MBA, MT
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Health Savings Accounts offer generous benefits with a catch
by Tony Novak, MBA, MT, OnlineAdviser at FreedomBenefits.net
Health Savings Accounts (HSAs) are now available as a money-saving vehicle for all businesses and individuals covered by health insurance plans. These accounts work very much like IRAs for people under 65 who change their health insurance plan to the type recently authorized under the new Medicare reform law. The list of benefits seems almost too good to be true; but the catch is that you must replace your health insurance plan with an “HSA-qualified” insurance plan before becoming eligible for the H.S.A. benefits. Not everyone qualifies for this specific type of IRS-approved health insurance plan.
The benefits of a Health Savings Accounts include:
- Contributions to the account are tax deductible
- Tax deductions are not limited by income
- Contributions are allowed up to $2600 per year plus $500 for single person plans for those over age 55 are allowed. ($5200 for family plans)
- Interest or investment income is tax-free
- Withdrawals are tax-free
- Individual account set-up and administration is free
- Funds may be used to cover any medical expense recognized by IRS in Publication 502. This includes weight control costs and “over the counter” drugs.
- Funds may be used to pay for Long Term Care Insurance
- Funds may be used to pay for health insurance while unemployed
- Excess funds may be rolled over into an IRA.
- Accounts transfer tax free to a spouse at death or to a named beneficiary in a manner similar to an IRA account distribution.
Young healthy individuals who purchase their own health insurance are most likely to benefit from the new health savings accounts. Employees of businesses that use Health Reimbursement Arrangements (like those at www.freedombenefits.org) to pay for health insurance are also likely to jump at the chance to switch to an HSA plan.
HSAs will not benefit those over age 65, those without health insurance, employees with employer-provided health plans, or those individuals with significant pre-existing medical conditions.
More information, including a page of “Frequently Asked Questions”, is available online at www.healthsavingsaccount-hsa.com.
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