Check Out the New
Health Savings Accounts
The Medicare law signed by President Bush
last month contains good news for taxpayers. The law permits new "health
savings accounts" (HSAs) for people under age 65 who carry
high-deductible health insurance.
Tax-deductible contributions can be made to
an HSA, earnings on the fund are tax-free, and withdrawals used for
out-of-pocket medical expenses are tax-free.
Individuals are permitted to contribute up
to 100% of the deductible on their health insurance policy, with a limit
of $2,600 for 2004 ($5,150 for family policies). Those aged 55 to 65 may
make additional "catch-up" contributions of $500.
While funds not used by year-end in other
medical savings accounts are forfeited, funds in HSAs carry over and
continue to grow tax-free. After age 65 they may be withdrawn and used
for any purpose, though they'll be subject to income tax if they're not
used for medical expenses.
These accounts could become as popular as
IRAs as a means of building a nest egg that can be used if needed to pay
for medical expenses with tax-free dollars. For more information and
guidance in deciding whether an HSA is right for you, give us a call.
Return to 2004 Tax Tips
