Health Savings Accounts Offer Consumers a Way to Save Tax Free for Medical Care

Business Wire reports:

“As you sit down to do your taxes this year, take a look at line 25 on Form 1040. It reads “Health savings account deduction,” which can mean more affordable health care coverage for your family with tax advantages to boot. 

You can count contributions to your health savings account (HSA) through April 18, 2011, the tax filing deadline, toward your 2010 taxes. HSA contributions are tax deductible up to $3,050 for individuals and up to $6,150 for families.

HSAs have two components: a tax-advantaged savings account coupled with a lower-premium, high-deductible health insurance plan. HSA-qualified high-deductible health plans often cost significantly less in premiums than more traditional health insurance while still providing quality coverage, including preventive care.

Money you save on your health insurance premiums can be deposited into an HSA and qualify as a tax deduction on line 25 on your Form 1040. Your HSA dollars grow tax deferred and can be withdrawn tax free as long as you use them for qualified medical expenses, which includes your health plan deductible as well as vision and dental care not covered by health insurance plans.

While the new health care reform law changed a few aspects of HSAs, their triple-tax advantages remain – money deposited into an HSA is still tax deductible, interest on these savings still grows tax deferred and funds withdrawn for qualified medical expenses are still tax-free. Any money left in the account at the end of the year rolls over to the next year. You own your health savings account and it goes wherever you go.

What’s more, if you are 55 or older, but not yet entitled to Medicare, an extra tax advantage allows you to make an additional contribution of $1,000 annually. Also, if you are 65 or older, there is no penalty if you use HSA funds for non-medical expenses, as long as you pay ordinary income taxes. Of course, you can still use your HSA dollars tax-free for qualified medical expenses even in retirement.

“HSAs make sound financial sense for many families because they enable you to save tax free for medical expenses,” said Richard A. Collins, CEO of UnitedHealthcare’s Golden Rule Insurance Company. “As the money in your HSA grows, savings are built up to be used for current and future medical care. Since the money in the HSA belongs to you – not your insurance company or bank – you decide when to spend and when to save. When you do spend from your HSA for qualified medical expenses, your withdrawals are tax free.”

Many HSA providers offer investment options including mutual funds, stocks or bonds. This can help consumers build up a “medical nest egg,” which will come in handy later in life when medical needs – and costs – can increase significantly.

In addition, consumers can make a one-time transfer from an IRA to their HSA as long as it does not exceed the annual contribution limit.”