Benefits of Health Savings Plans

Health Savings Accounts ("HSA") are often called the IRA for medical expenses. HSA medical insurance plans are similar to your traditional medical health insurance plans but HSA's do have certain unique features:

1. Contributions can be deducted as a deduction against adjusted gross income for an individual or an employer can make tax deductible contributions on behalf of their employees. Health Savings Accounts also allow both employers and employees to make tax deductible contributions to the employees plan/account.

2. Maximum contributions to a single individual plan may not exceed $3,000 for 2009 (indexed for inflation in subsequent years).

3. Maximum contributions to a family plan may not exceed $5,950 for 2009 (indexed for inflation in subsequent years).

4. Employees age 55 or over may make a $1,000 per year "catch-up" contribution.

5. Single plan deductibles must be at least $1,150 for 2009 (indexed for inflation in subsequent years).

6. Family plan deductibles must be at least $2,300 for 2009 (indexed for inflation in subsequent years).

7. Single plans must cover all out-of-pocket medical expenses in excess of $5,800 for 2009 (indexed for inflation in subsequent years).

8. Family plans must cover all out-of-pocket medical expenses in excess of $11,600 for 2009 (indexed for inflation in subsequent years).

9. Individuals under 59 1/2 may make a once in a lifetime only rollover from a traditional IRA to a Health Savings Account without incurring a 10% penalty or incurring any income tax on the rollover amount. This is particularly beneficial for any individuals nearing retirement. The maximum amount of the rollover may not exceed the maximum allowed contribution for the year. Once this rollover election is made, it is irrevocable.

10. Earnings on HSA plan funds are not subject to current income taxation.

11. Distributions from HSA plans to pay for qualified medical expenses are tax free.

12. Funds not used for the year may be accumulated inside the plan for use in future years.

13. Individuals age 65 or over are ineligible to contribute any more money to their HSA, however, they may use HSA funds to pay for qualified medical expenses not covered by Medicare.

14. Distributions from an HSA must be for qualified medical expenses. Any distributions made for any other reason (called "disqualified distributions") are subject to income taxation as well as a 10% penalty.

15. Distributions from an HSA for individuals age 65 or older are subject to income tax but are not subject to the 10% penalty for disqualified distributions.

Health Savings Account Financing Benefits Tax Advantage

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of "Rich Habits".