5 Ways to Make Your
Health Savings Account
Work for You
January 1, 2015
Vol. 11, Issue 1
As I ring in the New Year, I reflect back on 2014 and set my goals for 2015. I look at how I can improve my personal life, my business life and my financial life. While analyzing my financial choices, I always take care to evaluate the status of my health savings account (HSA). Here are a few things I look at:
- Have I maximized my contributions?
- Have I overfunded my HSA, which can carry penalties?
- Have I use my HSA funds on HSA-qualified expenses to avoid penalties?
- Have I adjusted my payroll contributions to reflect an increase in contribution limits for 2015?
HSA Contribution Limits
As you can see below, contribution limits and out-of-pocket maximums have changed for health savings accounts in 2015.
|$6,450||$6,350||Maximum Out of Pocket/Individual|
|$12,900||$12,700||Maximum Out of Pocket/Family|
Let Your HSA Do the Work
A health savings account can provide a wealth of savings if you maximize your contributions and optimize its benefits. Here are just a few ways your can make your HSA work for you:
Maximize Your Contributions. You have until April 15, 2015 to make contributions to your health savings account in order to claim it on your 2014 tax return. All contributions are considered an "above the line" tax deduction, and you don’t have to itemize to claim this. An individual can save as much as $1,089 in taxes and a family as much as $2,161 in taxes (based on a 28% federal rate and 5% state tax rate).
Qualify for a Premium Subsidy. Because HSA contributions are an “above the line” tax deduction, this directly lowers your modified adjusted gross income (MAGI), which is how premium subsidies are based.
If you find yourself on the cuff of an income bracket for a premium subsidy, reducing your MAGI could help you qualify for a premium subsidy and potentially save thousands of dollars each year in health insurance premiums. Here’s an example:
An individual earning $46,681 does not qualify for a premium subsidy and must pay their health insurance premiums in full regardless of what percentage of their income this turns out to be. By contributing just $1 to a health savings account, this individual qualifies for a premium subsidy and limits their premiums to no more than 9.5% of their income.
Pay Medical Expenses with Tax-Free Dollars. As long as HSA funds are used for HSA-qualified expenses, your money remains tax free! Should you use funds for non-qualifying expenses (before age 65), you’ll be hit with a 20% tax penalty.
Save for retirement. Any funds remaining in your HSA at the end of the year are not forfeited-they roll over to the next year and remain tax free - and continue earning interest. They can then be used during retirement. After age 65, any funds withdrawn for non-qualifying expenses are taxed as regular income and do not incur a penalty. Here’s an example of how your savings can accumulate:
An individual contributing $3,300 per year over 35 years (assuming a 28% federal tax bracket and 5% state tax bracket) with an average of 6% earnings per year and annual medical expenses of $500 and expect to save $312,017.38 for retirement!
Pay Long-Term Care Insurance Premiums. Should the day come that you need assistance with daily living or nursing home care, this expense is not covered by Medicare. Long-term care insurance plans are available, and you can use your HSA to help pay these premiums, although there are limitations based upon your age.
You still have until April 15, 2015 to make maximize your HSA contributions and claim them on your 2014 tax return. If you find you have overfunded your HSA, check out our blog, Health Savings Account: Frequently Asked Questions, for information on how to correct this potentially costly mistake. I hope 2015 proves to be a healthy and prosperous year!
To your health and wealth!
"Happy New Year - from
my Family to Yours!"
President - HSA for America