Alexandria, VA

Health Savings Accounts

What a great idea!

Are you in a health plan with a deductible of $1,300 if single or $2,600 for a family? Yes? You are a member of approximately 22 million people with health insurance plans with high deductibles.

The good news is Health Savings Accounts.

You can set up a Health Savings Account for 2017 and shelter $3,400 in taxable income if single and $6,750 if a family.

The contribution to the HSA is

deductible

on your taxes. And when you take the money out to pay a medical bill there is no taxable income to worry about!

So this is better than a retirement account, because a retirement account only defers the income to when you are older. With a HSA there is not current or deferred tax to pay if you use the money for medical expenses.

Now there are restrictions. If you use the HSA money for a non medical expense, say the mortgage payment, then you have to pay ordinary income tax + a 20% penalty.

But if you wait til after your are 65 to use the HSA money to pay your mortgage then no 20% penalty and you just pay ordinary income tax – like a retire plan.

For 2018 the maximum contribution for single is $3,450 and $6,900 for a family.

And for 2017 and 2018 and over 55 year old, there is an extra 1,000 contribution allowed.

So the first thing to do is to find out if your health insurance plan qualifies as a High Deductible Health Plan (HDHP).

Be mindful that if the plan offers certain benefits, for example prescription drugs, before you have paid out the high deductible, this plan will not qualify as a HDHP. The insurance company should be able to tell you if the medical insurance plan qualifies as a HDHP.

When you think that a healthy 65 year old couple will spend over 260,000 on medical expenses over the remainder of their lives it is important to save for both retirement and medical expenses.