A new law signed last December makes Health Savings Accounts (HSAs) more attractive to taxpayers. The Tax Relief and Health Care Act of 2006 offers new ways to create an HSA and increases the amount you can contribute.
Health Savings Accounts are designed to help taxpayers pay the out-of-pocket medical expenses associated with certain health plans. The concept is fairly simple: You make tax-deductible contributions to an HSA and later withdraw the funds tax-free to pay for qualified health care costs. To participate, you must be under 65 and covered solely by a health insurance policy that is deemed a High Deductible Health Plan (HDHP).
With the new law comes two additional options for opening an HSA. Those who have funds in an employer-sponsored Flexible Spending Account (FSA) or a Health Reimbursement Account (HRA) can now make a one-time transfer to an HSA. In addition, the taxpayer may make a one-time transfer from his or her IRA into an HSA. This powerful feature allows you to use IRA dollars to pay medical bills without the income tax and 10 percent penalty normally associated with early IRA withdrawals. Keep in mind that the transfer is limited to the annual HSA contribution limit.
The maximum that you can put in an HSA has been increased as well. Before the new law, contributions were limited to the amount of your health plan’s annual deductible. Now, you can put in up to $2,850 for single coverage and $5,650 for family coverage. You can also contribute up to the full annual limit at any point during the year even on the last day.
Congress is getting serious about Health Savings Accounts and maybe it’s time that you did as well. Contact our office for an analysis on how the Tax Relief and Health Care Act of 2006 may benefit you.
IRS Solutions is a full service tax and bookkeeping company specializing in both business and personal tax issues. Look for us at our new address of 25115 Avenue Stanford, Suite 130 in Valencia.
If you have any questions or need any further assistance, please do not hesitate to call IRS Solutions at 661-775-6200.