How Much Can I Contribute Annually To An HSA

Category: Finance, Insurance.

Since Health Savings Accounts( HSAs) were created by the Medicare bill signed into law in 2003 they are being considered by more and more Texans as a health insurance option. Here is a quick overview on the important tax considerations of HSAs.

Anyone under age 65 who buys a qualified high- deductible health insurance policy can open an HSA. How much can I contribute annually to an HSA? If you' re 55 and older, you can make a catch- up contribution of$ 80Legislation approved at the end of last year allows you to contribute up to these limits, even if your insurance deductible is less. For 2007, you can contribute up to$ 2, 850 for individual coverage or$ 5, 650 for families. Do I fund an HSA with pre- or post- tax dollars? If you open an individual HSA, your contributions will be deductible when you file your taxes, even if you don' t itemize.

If your employer offers a high- deductible health insurance policy, you may be able to make pretax contributions, like a flexible- spending account. Are there income restrictions on the tax benefits, similar to an IRA? Anyone under age 65 who buys a qualified high- deductible policy can benefit fully from the tax advantages of an HSA. Unlike a number of other tax breaks, there aren' t any income limits associated with the tax- favored treatment of HSAs. What's the difference between HSAs and flexible- spending accounts? The most important difference is that your HSA balances can roll over from year to year and continue to grow tax- free.

The tax benefits of both plans seem the same, but there are differences. Legislation passed last December allows a one- time transfer of funds tax free from a flexible- spending account to an HSA. If my employer offers both an HSA and flex- spending account, can I have both? The newly revised law also allows individuals to make a one- time tax- free direct transfer of funds from an IRA to an HSA up to the HSA's annual contribution limit. Generally, no. However, if your flex plan restricts reimbursements to wellness care, such as annual physicals, and vision and dental care, you can also have an HSA. You can' t have an HSA if you have a flexible- spending account to pay health- care costs or if you have other medical coverage, such as a spouse's policy.

If I set up HSA through my current employer, can I take it with me when I switch jobs? Another benefit of HSAs is that if you are unemployed or laid off and are collecting State or Federal unemployment insurance, you can use funds from your Health Savings Account to pay for your health insurance premiums and for your routine health expenses- all tax- free. You can keep your HSA account money even after you leave that job, similar to a 401( k) . What happens if I want to use the money in my HSA account for non- medical expenses? Can a couple that is planning to retire early open an HSA? You' ll incur a 10% penalty- plus an income- tax bill- if you use any of the money for non- medical expenses before you turn 6After the age of 65, you can use the money in your HSA account for anything you please and you won' t be hit with the 10% penalty, but you will have to pay income taxes on that money. Yes.

This catch- up contribution amount will increase by$ 100 per year until it reaches$ 1, 000 in 200 Do my HSA contributions affect my IRA contributions? Anyone under age 65 can contribute to an HSA if he or she buys a qualified high- deductible health insurance policy, and he or she can contribute an extra$ 800 in 2007, if you' re 55 or older. No. Your HSA contributions won' t affect your IRA limits of$ 4, 000 per year or$ 4, 500 for those over 5It's just another tax- deferred retirement savings account.