2007 Year-end Health Savings Account Strategies
A Health Savings Account can be an important part of your tax money and strategy management. Not only can you reduce your health insurance premiums, but when you fund your account, you get a tax break to Nice. If you stay healthy, that money grows tax-deferred like an IRA, and they can represent a lot of money in retirement.
Every year this time you should evaluate your financial situation and see what you need to do to improve your situation. Making the most of your href = "http://www.health–savings–accounts.com"> Health Savings Account (HSA) is an area that can really make a difference. The main things you need to know to get the biggest tax reduction and the highest growth of your HSA.
Maximizing Your contribution HSA May reduce your taxes in 1836 $ or more
If you have an HSA-qualified health insurance plan that has an effective date no later than December 31 2007, you are eligible to make a tax deductible contribution to your health savings account. This will immediately reduce your tax bill come April 15.
The contribution limit is not prorated based on the number of months in 2007 in which you had a coverage, as it was in the past. However, you do not need to keep an HSA-eligible individual throughout 2008, or the additional amount contributed will be counted as income and subject to an additional tax of 10 per cent.
The maximum HSA contribution for 2007 is $ 5650 for families, and $ 2,850 for individuals. If you are 55 years or more, you may also contribute an additional $ 800.
Your HSA contribution is deductible on your income federal taxes, and every state (except AL, CA, NJ, and WI) also gives a deduction on state taxes income. Thus, maximizing their HSA contribution a family in a slice of 28 per cent tax, paying taxes on 4.5 percent on average, will reduce their April 15 tax expense in 1836.25 $.
Though your HSA-qualified health insurance must be in place before the end of the year, you have until April 15 to your 2007 return of contribution. Although you can not put more money in 2007 if you miss this deadline, you can repay in the years following for eligible expenditures in 2007, even if you do not currently have money in your account.
Strategic Withdrawals
You can withdraw money from your HSA at any time to pay eligible medical expenses. Keep in mind that this includes over-the-drugs counter like aspirin or cough syrup cons, dental and vision expenses, and even alternative care such as acupuncture or homeopathy.
A strategy that many of our members to take is to save their medical receipts, but to delay repayment of the HSA so that funds have the possibility of tax-sheltered deferred. There is no time limit within which you must withdraw money. As most people will facing large medical expenses during retirement, it is likely that the withdrawals would not be subject to tax.
If you are not fully funding your Roth, another strategy would be to reimburse medical expenses from your HSA, and place it in your Roth. Your HSA reimbursement is tax free, and place it in your Roth would also give you tax-free growth while enabling you to withdraw money Tax on retirement, free for any reason, including non-medical expenses. You should also avoid state taxes extra in states that currently tax HSAs.
Remember to keep good records
You should keep a register of all charges eligible medical you incur. This will ensure that you have documents to support any tax-free withdrawal you make from your HSA. To pay medical expenses from your HSA, it must be an eligible expense.
You can go low-tech and just put the recipes in a file, or obtain a little more organized and track your online files.
Deductible contribution limit in 2008 and changes
In 2008, the annual maximum HSA contribution limit will rise again, this time to $ 2,900 for individuals and $ 5,800 for families. People over age 55 are allowed to contribute an additional $ 900 to their accounts.
The maximum deductible will rise next year to $ 5600 for individuals and $ 11,200 for families. If you've now got some money Socked away in your HSA, it might be wise to move to a higher deductible to reduce increase your premiums.
Health reimbursement arrangements
If you are currently implemented as an S-corp, you should seriously consider establishing a health care reimbursement arrangement (HRA). An HRA allows your S-corp to reimburse you for a tax-free fringe for the cost of your individual health insurance. It is the only way S-corp can legally pay individual health insurance, and saving our average S-corp member over $ 3,000. The HRA must be established by December 31st to take advantage of it in 2007.
It may also be useful to establish an HRA if you have a spouse who works in your business. In addition, many small businesses use an HRA to reimburse their employees' insurance premiums individual health (which is much less expensive than obtaining coverage group). More information and an application Online is available on our Health Reimbursement Arrangement page.
What to do now
Here are the steps you should take now:
1. To maximize the potential growth of your funds, you should try to fund your account earlier in the year as possible. Each months of the tax deferred growth does add up over time. You can keep the money in a savings account or invest in stocks or mutual funds.
2. If you have your health insurance in place, but not yet have your HSA in place, you can do so online or possibly your local bank.
3. If you do not already have an HSA qualified health insurance plan, you must insurance as soon as possible. Your plan must be effective before January 1 in order for you to enjoy the tax deduction 2007. By obtaining your HSA-qualified health insurance in place by January 1, you not only able to maximize your tax benefits, but you also may be able to block the 2007 rates for the next 12 – 24 months.
4. If you have a small business with employees, are set as an S-Corp, or have a spouse who works in business with you, you should establish a formula for reimbursement of Health.
With HSA and HRA, individuals who pay for their own health insurance policies have tax cut power to them. December 31 is the deadline for deductions fiscal 2007, so you must act quickly if these ideas make sense for your situation.
About the Author
By Wiley Long – President, HSA for America (http://www.health–savings–accounts.com) – The nation’s leading independent health insurance firm specializing in individual and family coverage that work with Health Savings Accounts.
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