Should You Consider a Health Savings Account

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Oct 01, 2016

As we start to move into Open Enrollment time for group health plans at businesses, we wanted to talk with you about the Health Savings Account (HSA). Many employers offer them. These accounts, which combine a savings account and a high-deductible insurance policy, pre-date the "Affordable Care Act." But the rules are still in effect and you can still benefit.

Here is an overview.

The basics: An HSA has two parts: a high-deductible health insurance policy and a medical savings account.

To qualify as a high-deductible policy for 2017, the minimum deductible remains at $1,300 ($2,600 for family coverage) with a $6,550 cap on out-of-pocket expenses ($13,100 for family coverage).

In conjunction with purchasing a qualifying health insurance policy, you need to open a savings account with a bank or brokerage firm and begin making contributions. You use the money in your account to pay qualified medical costs.

The income tax benefits: Contributions to your HSA are deductible on your federal income tax return, even if you do not itemize. For 2017, you can put as much as $3,400 ($6,750 for family coverage) into your account. If you are age 55 or older, you can make additional annual catch-up contributions of up to $1,000.

Earnings on the balance in your account, such as interest or dividends, grow tax deferred, and can be tax-free when withdrawals are used for qualified medical expenses.

The professionals at Terry Lockridge & Dunn are here to help you with this process. Contact your accountant at 319.364.2945 in Cedar Rapids or 319.339.4884 in Iowa City if you are interested in learning more about HSAs. We will help you evaluate the costs and benefits.