Health Savings Accounts
In 2003, as part of the federal Medicare Prescription Drug Improvement and Modernization Act, a new savings account was established to help consumers better oversee the cost of their own care. These accounts, known as Health Savings Accounts (HSA), provide a vehicle for individuals in high deductible health plans to set aside money on a pre-tax basis to pay for qualified medical expenses.
A high deductible health plan is defined by the IRS as a plan which has a higher annual deductible than typical health plans and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. IRS publication 969 provides a table which shows the those minimums and maximums as follows: one with a minimum annual deductible of $1,400 for self-coverage and $2,800 for family coverage and a maximum annual deductible and other out of pocket expenses of $7,050 for self-coverage and $14,100 for family coverage. Your employer or tax accountant should be able to help answer whether your specific plan qualifies as a high deductible health plan.
If you find that you have a high deductible health plan and are eligible for a Health Savings Account, it is an advantageous way to save money for deductibles, copayments, coinsurance and other eligible expenses. The funds are saved on a pre-tax basis, like funds you would put into a 401(k). Distributions from the HSA that are used for qualified medical expenses (see Publication 502 – Medical and Dental Expenses, ask your employer or insurance company for a list), which includes over-the-counter medicine (since 2019) whether prescribed or not, are not taxed.
You may find that due to the favorable tax treatment for HSA’s you can realize additional savings on medical expenses. I am not a licensed accountant and would recommend consult a professional to verify the tax savings you might experience with your unique financial circumstances. They will be able to provide you with advice regarding how much to contribute through this vehicle to maximize your potential savings.
The IRS places a maximum limit on contributions, and if your employer contributes a match it counts toward that limit. For a self-coverage HSA, the maximum contribution in 2022 is $3,650. For a family HSA, the maximum contribution in 2022 is $7,300. If you are age 55 or older, you may contribute an additional $1,000 catch-up contribution.
Please note: Health Savings Accounts, like IRA’s, are in the name of one individual, and are not a joint account even when the plan connected is a family plan. This may affect your ability to contribute a catch-up contribution and will impact each spouse’s maximum contribution limit as each spouse will be limited to half the family maximum contribution.
Once you determine your eligibility, please give Farmers and Mechanics a call. We will be happy to help you open a Health Savings Account and start enjoying the great benefits this account can offer. We can be reached at 812-384-4473.
Joshua Riggins is the president of Farmers & Mechanics Federal Bank in Bloomfield, and is committed to providing customers with a reliable and competent banking experience.
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