Dear Tom and Alan:
Tax time is right around the corner. Since I do have some income, I’m usually looking for deductions this time of year.
My CPA says I could look at an HSA account because I would be able to deduct whatever I put in the account.
She says I can take my contribution right off of my gross income as long as I don’t put in too much. I know you don’t do taxes, but what do you think about HSA health plans?
Will Try Anything
Tom: OK, let me tell you how this works. I personally have an HSA eligible health plan. This means I can establish and fund an account. I happen to do this once per year, yes on Jan. 1, because it’s easier to remember.
Because my family is covered under the health plan, I can deposit the maximum amount. For 2017, this is $6,750. But wait, there’s more: since I am over age 55, I get to contribute an additional $1,000, named by the IRS as the “catch up” feature.
To be sure I comply with the IRS regulations, I have a list of qualified expenses and use the HSA account to reimburse myself for those expenses that are eligible. I have a separate file for my HSA expenses. I recommend a monthly log and to keep all receipts.
Oh, and how about this nifty feature: if you don’t spend the money in any year, the accrued amount rolls over to the next year and builds a fund of money for future use.
Al: Julie Appleby, writing in CaliforniaHealthline (produced by Kaiser Health News), titles her article: “HSA’s: ‘Tax-Break Trifecta’ Or Insurance Gimmick Benefiting the Wealthy?”.
Her title hearkens back to the original discussions regarding Medical Savings Accounts (MSA) in the Reagan-Bush years when such programs were often dismissed as tax breaks for the wealthy.
The first MSA’s, signed into law by President Clinton, were restricted to self-employed and small business owners. In the first year of the program, Congress was mainly concerned that everybody was going to jump on it.
So, in addition to annual limits on contributions, it was only to be available up to the point where across the country only 100,000 would be able to sign up.
I clearly remember that in the first several months of MSA’s not even 10,000 had enrolled nationwide. I also remember speaking to tax preparers who had never heard of it.
Tom: Lynn Asinof, Boston Globe correspondent, has some additional tips for those considering an HSA.
1. Look for low fees for the annual administration and transaction charges.
2. Fully fund your account if you can afford it.
3. Shop around for your financial provider.
I like to shop locally, so my account has been with Rabobank for several years.
One last note: according to the IRS website, to be an eligible individual and qualify for an HSA, you must meet the following requirements:
-You are covered under a high deductible health plan.
-You have no other health coverage, with certain exceptions.
-You aren’t enrolled in Medicare.
-You can’t be claimed as a dependent on someone else’s tax return.