This article is targeted to our Sun City Residents who are between the ages of 55 and 65. The rising costs of health insurance have forced many of us to change our health care coverage to higher deductible plans to reduce the insurance premiums. If you find yourself in this situation, you may want to consider setting up a Health Savings Account (HSA) with your financial institution. An HSA is a tax-advantaged medical savings account for those enrolled in a High Deductible Health Plan (plans with a minimum deductible of $1,200 and maximum out-of-pocket of $5,950 for singles; $2,400 and $11,900 for a family). The funds contributed to an HSA account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account, funds roll over and accumulate year-to-year if not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements that are an alternate, tax-deductible source of funds paired with either high deductible or standard health plans. HSA funds can be used to pay for âqualified medical expensesâ without federal tax liability or penalty. Unfortunately, over-the-counter medications are no longer considered âqualified medical expensesâ unless they have a doctorâs prescription.
Your place of work may offer HSAs where you can have âbefore-taxâ amounts deposited directly from your paycheck to your HSA account. If you are 55 or older, you can contribute up to $4,050 (for singles) or $7,150 (per family) per year, pre-tax. If your employer does not offer HSAs, you can set up your own account at your bank and contribute after tax dollars to the account. You can then take a deduction from adjusted gross income on your Federal and Illinois tax returns up to the above limits.
Withdrawals from HSA accounts can be made at any time for âqualified medical expenses.â You want to make sure you deplete the HSA before you reach 65. Medicare kicks in then. Withdrawals for non-medical expenses are subject to tax and a 20% penalty up to the age of 65. After age 65, the penalty is waived.
Keep those letters coming, folks. Send in your ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142 or by email to: thefrugalforum@gmail.com.
