My First Health Savings Account

This is the year when I take the plunge and replace my comprehensive and expensive health insurance coverage with a "high deductible health plan".  By doing this, I become eligible to contribute to a Health Savings Account [HSA].

Before I explain why I would want to contribute to an HSA, let me give one big caveat.   Future changes to 'maximum out-of-pocket' provisions might make it less desirable for health insurance companies to offer HSA-compatible plans.  In addition, tax laws can and do change.  This means that starting an HSA does not guarantee that you will always be able to contribute to it.  As always, you need to check with your tax professional because everyone's situation is different.  You can also keep up-to-date via the HealthCare.gov website.

As an individual, I am able to contribute up to $3,250 ($4,250 for individuals age 55+) to my HSA this year (2013).  My account will grow tax-deferred and any distributions to cover qualified medical expenses will be tax-free per the IRS.

My plan is this:  Fully fund my account each year but NOT use it!  Why?  I want to accumulate a retirement health savings account that I can use in my later years to pay for medical expenses like medicare premiums, medicare supplement insurance premiums, drug plan premiums, long-term care premiums, dental and vision expenses and even alternative care modalities.

What's the worst that can happen?  I could take out distributions for non-qualified non-medical expenses.  Before age 65, a 20% tax penalty and ordinary income taxes would apply (except for death or disability).  After age 65, ordinary income taxes would apply but not penalties.

Here are some places to get additional information:

www.hsaAdministrators.com

IRS Publication 502 - Medical and Dental Expenses  

IRS Publication 969 - Health Savings Accounts and Other Tax-Favored Health Plans

Form 8889

Form 8889 Instructions  

For more information, go to http://www.laurawilcox.info

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 Wilcox Financial Advisors, s.c. - 10521 W. Layton Avenue, Suite 200 - Greenfield, Wisconsin  53228 - (414) 529-5599

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Registered Principal, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Wilcox Financial Advisors, s.c. are not affiliated.