The US Treasury Department in conjunction with the IRS recently announced the new Health Savings Account (HSA) annual contribution limits for 2012.
The 2011 HSA contribution limit is $3,050 for an individual and $6,150 for a family.
The 2012 HSA contribution limit is $3,100 for an individual and $6,250 for a family.
This means that a family could deduct up to $6,250 in 2012 if contributions to the HSA are made. The real power of the HSA is its triple-tax-free advantage. The money going in is tax deductible, the earnings in the HSA are tax-deferred and the money going out when used for qualified medical expenses is tax free. There is no other savings vehicle that has the triple-tax-free advanatage of the HSA.
Babyboomers should pay particular note to the annual catch-up contribution. If age 55 or older you can contribute an additional $1,000.
Any adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:
- the individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;
- the individual’s employer can make contributions that are not taxed to either the employer or the employee; and,
- employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.
Learn more about the HSA and other tax-favored health plans here.
Individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA. Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA. Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years.
Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Chesapeake Financial Advisors or Taylor & Company in Towson, MD. Tom believes that the greatest benefit of planning includes incorporating tax strategies with financial planning. Tom’s clients receive both services in one advisor. He is a member of NAPFA and the MACPA and AICPA.
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