Kelly Bullis: Is a Health Savings Account a good idea?

If you have never heard of Health Savings Accounts, or HSA for short, you must have been stuck on a desert island for the last 25 years. Do you currently have an HSA? Have you had one in the past?

Basically, an HSA is structured very similar to an Individual Retirement Account (IRA). You usually use a qualified bank, you make contributions and pay medical bills in and out of the HSA account. Each year, the HSA administrator issues two tax reporting documents. The first, what you contributed to it. The second, what you paid out of it.

So what’s the big deal? Deducting medical expenses. Most folks do not itemize any longer and those who do, are usually unable to deduct any medical expenses due to the 7.5% of Adjust Gross Income limitation. You get to deduct any HSA contributions on the face of your tax return, in essence getting a tax deduction for medical expenses even if you do not itemize.

You are allowed to contribute up to $3,850 per individual, $7,750 per family and add an extra $1,000 to either if you are age 55 or older. Many folks are offered HSAs through their employer. So making contributions can be quite painless over time.

To qualify, you have to have a medical insurance plan with a “high” deductible. For a single individual, your plan annual deductible limit is at least $1,500 and your out-of-pocket is capped at $7,500. For family coverage, the plan has a minimum annual deductible of at least $3,000 and maximum out-of-pocket limit of no more than $15,000.

HSAs are portable. When you leave your employer, you can have your account transferred to a different HSA administrator quite easily.

Here is one you may not know about. HSA account holders can take a once-in-a-lifetime IRA distribution and roll it into their HSA in a tax-free transfer. It’s called a qualified HSA funding distribution. Same annual limits apply. So, it doesn’t move a large amount out of an IRA, but, every little bit out of an IRA in a non-taxable way is a good thing.

Finally, there is no time limit on when you must use up your HSA. Many folks have loaded up their HSAs, then when they got old enough to go on Medicare (which means they can’t make any more HSA contributions), they have a “backstop” of funds available to tap if/when Medicare refuses to pay for a special medical treatment that they want/need.

So, in conclusion, if you qualify, it is strongly recommended that you take advantage of getting an HSA account started and maximize your annual funding of it.

Have you heard? Prov 20:4 says, “The sluggard will not plow by reason of the winter; therefore he shall beg in harvest, and have nothing.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.