| 2007 is just around the corner, and there are several | | | | The penalty for over-funding your HSA is a whopping |
| issues to consider if you currently have an Health | | | | 6%. You have until April 15, 2007 to withdraw excess |
| Savings Account (HSA), or are planning on getting one | | | | funds for the 2006 tax year to avoid the penalty. Your |
| in the near future. | | | | HSA administrator may notify you of any over-funding, |
| 100% of the deposit you place in your Health Savings | | | | but they are under no obligation to do so. It is your |
| Account is deductible on your federal income taxes. All | | | | responsibility, so make sure you check into this if you |
| but four states also make HSA contributions | | | | think your may have over-funded you account. |
| tax-deductible on state income taxes. If you are | | | | The minimum deductible for HSA-compatible health |
| looking to reduce your 2006 tax burden and put away | | | | insurance plans in 2006 was $1,050 for individuals and |
| more money for retirement, your HSA is the first place | | | | $2,100 for families. In 2007 this will increase to $1,100 for |
| you should put your money if you have not yet | | | | individuals and $2,200 for families. If you currently have |
| maximized your contribution. | | | | an HSA-qualified plan with the lowest eligible 2006 |
| The maximum you can contribute to your HSA in | | | | deductible, that deductible will automatically go up on |
| 2006 is the lesser amount of your deductible, or $2,700 | | | | January 1 to the new minimum. |
| for singles and $5,450 for families. Individuals who are | | | | Strategies to Maximize Your Tax Benefits |
| 55 or older may contribute an additional $700. Note | | | | There are basically three different strategies you can |
| that contribution limits are pro-rated, based on the | | | | take when deciding how to fund your health savings |
| number of complete months during the year in which | | | | account. |
| you have a qualifying HSA health insurance plan. | | | | |
| You have until April 15 (or later if you file for an | | | | 1. Put no money in the account, except when you incur |
| extension) to make your 2006 contribution. If you do | | | | a medical expense. This strategy allows you to legally |
| not fully fund your account for the current year, you | | | | "launder" any money used to pay medical expenses. In |
| cannot make a catch-up contribution for 2006 after | | | | other words, by depositing money into your HSA, then |
| this deadline. However, you can reimburse yourself in | | | | immediately withdrawing it to reimburse yourself for |
| later years for qualified expenses incurred in 2006, | | | | medical expenses, you are making your medical |
| even if you do not have the funds in your account to | | | | expenses all tax-deductible. You may want to use this |
| reimburse yourself at this time. | | | | strategy if you are on a tight budget and want to keep |
| In 2007, the maximum annual HSA contribution will go | | | | your cash outlay as low as possible. |
| up to $2,850 for individuals and $5,650 for families. | | | | 2. Fully fund the account, or at least put in as much as |
| Individuals 55 or older will be allowed to contribute an | | | | possible based on your budget. Take money out of |
| additional $800. | | | | the account any time medical expenses are incurred, |
| To maximize your tax benefit for 2007, it is important | | | | and let the rest grow tax-deferred. This strategy will |
| to have your HSA-qualified health coverage in place | | | | maximize your tax deduction, while making your HSA |
| no later than January 1. | | | | funds available to pay any non-covered medical |
| In order to pay for a medical expense from your HSA, | | | | expenses before your deductible is met. |
| it must be a qualified expense. Some of these qualified | | | | 3. Fully fund the account, but pay all medical expenses |
| expenses include dental expenses, eyeglasses, | | | | from a non-HSA account. Reimburse yourself for |
| chiropractic visits, over-the-counter medications, and | | | | medical expenses at a later date. This strategy will |
| sometimes even nutritional supplements. | | | | allow you to maximize your tax deduction, and will also |
| Now is a good time to make sure you have an | | | | allow you to maximize the tax-deferred growth of |
| accurate record of your medical expenses for the | | | | your HSA. You can then reimburse yourself, tax-free, |
| year. Make sure you separate the expenses for which | | | | at any time in the future for medical expenses incurred |
| you have reimbursed yourself from your HSA from | | | | over the ensuing years. |
| those that you paid for out-of-pocket. You'll want to | | | | To maximize the potential growth of your funds, you |
| keep receipts for all medical expenditures paid from | | | | may want to make your 2007 deposits as early in the |
| your HSA with your 2006 tax records. Place the | | | | year as possible. Any growth in your account is |
| "non-reimbursed medical expenses" in a separate file, | | | | tax-deferred, like an IRA. If possible, you should plan to |
| keeping them with the concurrent year's tax records in | | | | make your deposit the first week in January. |
| whatever year you decide to reimburse yourself. | | | | |