By the end of 2010, survey data showed that 6. 2 million health savings accounts had been opened. That represented an increase of 27 percent from just a year earlier. Account balances rose even faster with a 41 percent increase that brought combined total health savings account (HSA) holdings to almost $10. 1 billion. The survey was conducted by the Devenir investment firm that specializes in health savings accounts.
Will last minute tax planners push Health Savings Accounts still higher in 2011? Individuals can set up their account and contribute to it until April 18, 2011 to get federal income tax deductions for 2010. (The traditional April 15 deadline changes to April 18 this year. )#) Almost all states follow the feds and grant deductions on state income taxes, as well.
Health Savings Accounts Require Qualified Health Insurance Policies
To open an HSA, one of the high-deductible health plans that is eligible to be combined with it is required. These plans are available for both individual and family coverage. With this form of health insurance, individuals can deposit up to $3, 050 and take the entire amount as a deduction even without itemizing. With family coverage, the maximum contribution and deduction is now $6, 150.
Health Savings Account Balances Are Yours To Keep
Unlike flexible spending accounts that can also be used for health care costs, there’s no annual deadline by which HSA funds must be used. Any contributions not needed for health care in 2011 will roll over to subsequent years and continue to grow by earning tax-free interest.
Qualified Health Savings Account Withdrawals Are Not Taxed
When you do need to withdraw funds for qualified health care, it’s still not taxed. Just be sure to look over the list of which expenses are qualified as tax-free withdrawals. Until you turn 65, there’s a penalty fee of 20 percent of the withdrawal anytime you use your HSA for anything other than a qualified expense.
The list of qualified expenses is surprisingly long and ranges from dental care to maternity expenses, which are not covered by health insurance. For example, Ayurvedic Medicine, homeopathy, nutritional consulting, and special fees incurred by handicapped individuals are considered qualified expenses. That includes wheelchairs, telephone or TV equipment to assist with hearing, and the cost and care of guide dogs. You can even use your HSA to pay for qualified long-term care insurance premiums.
If the idea of an HSA is new to you, there’s a lot of online information available about how to find health insurance that’s qualified to work with an HSA and how to establish your savings account. Major insurers, such Aetna, Blue Cross Blue Shield, Cigna, Humana and Nationwide offer plans that will work with an HSA.
The first step is to get prices on what these high-deductible health plans will cost. As with any other health plan, it’s important to review the provider network to see if your doctor will still be available at in-network rates.
Health Savings Accounts Require Special Administrators
You’ll also need an authorized administrator, but there are a lot of financial institutions that now offer HSA services. A few banks even specialize in health savings accounts and provide no other form of service.