Health Savings Accounts: An option worth considering

While the way you shop for a health insurance policy may be changing, the tax rules for combining your policy with a savings account remain in place. The combination of a high-deductible health policy and tax-advantaged savings is called a Health Savings Account (HSA).

To qualify for an HSA, you or your employer must first purchase a health insurance plan with a high deductible. The deductible is the portion of health care expenses you’ll pay out of pocket before your policy begins to pick up the bills. For 2014, a high-deductible plan is one with an annual deductible of at least $1,250 for individual coverage and $2,500 for family coverage. With an HSA, the maximum annual expenses you can be required to pay are limited to $6,350 for individual coverage and $12,700 for family coverage.

Once your health insurance plan is in place, you open an HSA with a bank or other custodian. The idea is this: You deposit money in the account to pay health care costs incurred before you satisfy the policy deductible. Maximum contributions for 2014 are $3,300 for individual coverage and $6,550 for family coverage. Catch-up contributions when you’re age 55 or older are $1,000.

Here’s the tax benefit: You put money in your HSA on a pre-tax basis when your employer offers the HSA, or you take an above-the-line tax deduction if you fund the account yourself.

Additionally, any account earnings such as interest or dividends grow tax-free. Amounts you take from the account are also tax-free when you use the withdrawals to pay qualified medical expenses. There’s a 20% penalty for withdrawals you use for nonmedical costs.

Give us a call as you shop for tax-advantaged ways to meet your health insurance requirements. We have the details you need to make an informed decision.

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