Making contributions to a Health Savings Account

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The Health Savings Accounts (HSAs) give great tax savings for folks under age 65. When you turn age 65 and are eligible for Medicare, you can’t make contributions to your HSA.

Whatever is in the account at age 65 isn’t lost. You can still use it to pay (or reimburse yourself if you paid) doctor, dentist, eye glasses and exams, prescriptions and all other medical bills. You can also use HSA money to pay premiums for Medicare Parts B and D and for Medicare Advantage plans.

Assuming you’re younger than age 65, the contributions to your HSA are deductible on page 1 of form 1040 (even under the new law). That reduces your income tax.

Distributions or payments from your HSA for medical expenses aren’t taxable!

Many folks don’t have enough medical expenses to get an itemized deduction. By using the HSA account provisions you get a deduction for contributions and the payment of medical expenses from the HSA are not taxable income. That’s about as good as it gets!

There recently was some confusion about the limit of contributions for family coverage. First IRS said the 2018 “inflation-adjusted” limit was $6,900. Then IRS said in March 2018, the limit was reduced to $6,850. The new tax law adjusted tax brackets, standard deductions and other items so IRS then said the limit for 2018 family coverage contributions was back to $6,900.

If the HSA account was just for you (one person known as “single coverage”), the 2018 contribution limit is $3,450.

The HSA account can be set up at a bank or with a stock broker. If you make contributions but don’t claim (or take) distributions, the account can be invested in many ways. If you plan to just let it accumulate then you might consider investing in good, large company stocks that pay dividends. The earnings in the HSA aren’t taxable.

The other main requirement for HSAs is your basic medical insurance must have an annual deductible of $2,700 for family coverage and $1,350 for self only coverage. The annual out-of-pocket expenses limit is $13,300 for family coverage and $6,650 for self only coverage. Out-of-pocket expenses are any medical expense, but not premiums. Your employer can make contributions to your HSA.

If you or someone you know might benefit from having an HSA account, why not consider it?

Did you hear? “There are three ways to get something done; do it yourself, hire someone, or forbid your kids to do it,” by Monta Crane.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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