Health Savings Account :: HSA :: HealthPlan Express

HEALTH SAVINGS ACCOUNT (HSA)

What Health Insurance Plans are qualified to work with a Health Savings Account?

What are the Tax Advantages of Health Savings Accounts?

WHAT ARE THE TAX ADVANTAGES OF HSAs?

Tax Benefits of Contributions to a HSA

Contributions by an “eligible individual” to a HSA are deductible up to certain limits. Specifically, contributions will reduce the adjusted gross income of the eligible individual and therefore are not subject to federal or state income tax whether or not the individual (taxpayer) itemizes deductions.

Contribution Guidelines

Contributions which exceed the maximum amount are not deductible to the extent they exceed the limits. The maximum deduction for tax purposes is equal to the deductible selected for the qualifying health plan.

Health Savings Account Maximum Deductibles for 2004

Comparison Of Tax-Advantages With Various Alternatives

Tax advantages of a Health Savings Account Vs. a Traditional IRA and a Roth IRA

Illustration is based on contributions of $3,000 annually ($2,160 net for the Roth IRA) for 20 years. Income taxes are calculated at 28% where applicable. It is assumed no penalty applies. Example is predicated on distribution at 20 years.

Health Savings Account Tax Advantage Table

Health Savings Account Taxation

Qualifying contributions are tax deductible. Withdrawals for eligible medical expenses are not subject to income tax, whether before or after retirement age (age 65). Other distributions are subject to income taxes and subject to an additional 10% penalty if taken prior to age 65.

Traditional IRA Taxation

Qualifying (deductible) contributions are not subject to income tax. Generally, withdrawals prior to age 59 ½ are subject to income tax and a 10% penalty. At age 59 ½ the penalty is eliminated, but distributions continue to be subject to income tax.

Roth IRA

Contributions are not tax deductible. Distributions prior to age 59 ½ generally are subject to income tax and a 10% penalty to the extent they exceed contributions. Distributions at age 59 ½ and later are generally not subject to income tax.

Roth and Traditional IRA’s do not treat withdrawals for medical expenses any differently than other withdrawals, with the exception of eligible medical expenses that exceed 7.5% of the taxpayer’s adjusted gross income.

Any tax related information is for general purposes only and is not intended to be your tax advice. Consult with your tax advisor to determine the specific tax consequences of an HSA for you.

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