HSA provisions expand in 2007, consumers benefit

The U.S. Congress gave final approval to H.R. 6111, the “Tax Relief and Health Care Act of 2006,” which included provisions expanding health savings accounts, on Dec. 8, 2006.

Here is a quick summary of the most important changes that will affect HSA participants:

1. Allowance of a one-time rollover from an IRA to an HSA.

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This is an amazing opportunity as it allows a person to roll over their IRA assets to an account that will allow for tax-free disbursements for health care, dental, vision or long-term care. This will allow those who might have some hesitancy to carry a larger deductible in trade for much lower premiums to be reassured they will have the funds in the unlikely event of a large claim. The amount rolled over cannot exceed the annual contribution.

2. HSA participants can roll over both HRA (health reimbursement account) and FSA (flexible spending account) balances to HSAs.

3. Participants will now be able to contribute and deduct the maximum amount to the HSA regardless of their deductible

You used to only be able to contribute up to your deductible if your deductible was lower than the IRA stated maximum. Remember, you are able to deduct insurance premium and the contribution to the HSA but your claims are not deductible.

4. Participants can now contribute the maximum allowable regardless of their HSA plan start date.

This used to be limited depending on the month you began your HAS.

5. Finally there was an increase in allowable contributions.

New 2007 contributions are as follows: for a single, $2,850; family, $5,750; catch-up for over age 55 $800.

A family in a 40 percent state and federal tax bracket could save more than $2,400 in taxes each year by contributing the maximum to their HSA account. The catch-up for over age 55 is per HSA, so if a couple only has one HSA between them they can only contribute $800.

As health insurance costs increase many employers are leaning toward plans with higher deductibles to keep costs down. HSAs are specially designed high-deductible health plans that also allow you to contribute to an additional medical IRA. This money is yours and not the insurance company’s. It can earn interest, be invested and grow tax-deferred until you need it to pay future medical expenses. According to the IRS, balances are then available for withdrawal without taxes or penalties for eligible medical expenses including some expenses that may not covered by your medical insurance, like hearing, dental, over-the-counter medications, chiropractic, vision expenses and many others.

Any money put into the account can be deducted from your gross income (within IRS limits) whether you use the HSA money or not. Unlike the old flexible spending account, there is no time frame in which to use the money. Balances roll over year to year allowing you to create a possibly large amount of tax-free money to pay for future care when you need it.

Please contact Professional Financial Specialists Inc at 303-444-1234 or 877-HSA-PLAN or visit www.HSAspecialists.com for more information on how health savings accounts can work for you.