YOUR FUNDS
Should you take advantage of a health savings account?
REBECCA WARREN is a certified financial planner professional and certified senior adviser in Mesa. She can be reached at (480) 357-8380 or by e-mail at Rebecca@ WarrenFinancialServices.com.
Fall is approaching, which means for many workers that open enrollment is coming. Open enrollment is a specified time period during which companies let their employees sign up for various health and retirement savings benefits as well as smaller benefit options that may be unique to a company. One of those options might be a health savings account, also known as an HSA. Anyone under age 65 who buys a qualified high-deductible health plan (HDHP) can open an HSA. However, you can still own an HSA and be covered under other types of insurance policies that cover liability, dental, vision and long-term care needs. Companies offer these plans because a high-deductible health plan option allows them to save money while giving their employees a shot at lower or stable monthly individual and family premiums. What’s the big advantage to choosing one? Contributions are made to HSAs on a pretax basis where they are allowed to grow tax-deferred and spent out on a tax-free basis for medical expenses. HSA contributions could be made through a company’s cafeteria plan if allowed by the company’s cafeteria plan document, and can potentially save FICA/Medicare taxes on the contribution along with federal and state taxes. However, before jumping in, you should speak to your tax professional as well as a financial adviser about how an HSA should fit into your overall financial strategy. For 2008, the following covers the maximum contributions you can place in an HSA and the minimum and maximum out-ofpocket amounts for a HDHP insurance plan:
• Maximum HSA contribution — $2,900 for individual, $5,800 for families.
• Annual out-of-pocket maximum — $5,600 self-only coverage, $11,200 family coverage. If you are 55 or older and your HDHP is in effect, you are eligible to deposit catch-up contributions, and in 2008, the additional amount is $900. One important difference between an HSA and a medical flexible spending account (FSA) is that HSAs allow balances to be rolled over from year-to-year, growing on a tax-free basis as long as they’re used for medical expenses. Medical FSAs, however, require that the money you contribute each year to be spent by year-end (or a brief grace period if provided by the plan) or you’ll lose it. But in certain cases, such as when you incur medical expenses early in a year, you can be reimbursed by your FSA without having to fully fund it — so FSAs might be a bit more flexible in this regard. In some situations, you may be able to have both an HSA and an FSA. If your FSA provides for limited reimbursement for items not covered by your health insurance plan (such as dental, vision or wellness care), you can use an HSA for items covered by your plan and your FSA for medical expenses that are not. Obviously, double-check this with an expert. There’s a 10 percent penalty for nonmedical withdrawals from an HSA, plus any withdrawals will be taxed at ordinary income tax rates. After age 65, you’re free to use the funds for any purpose without penalty, but nonmedical withdrawals are still taxable. The rules let individuals roll over money from an IRA once so people can use the money taxfree for medical expenses, but the amount of the rollover is limited to the HSA maximum contribution for the year minus any contributions already made.
