Year - end Health Savings Account Tax Strategies

Year - end Health Savings Account Tax Strategies

2007 is just around the corner, and there are several issues to consider if you currently have an Health Savings Account ( HSA ), or are planning on getting one in the near future.
100 % of the keep you corner in your HSA is deductible on your federal income taxes. All but four states also make HSA contributions tax - deductible on state income taxes. If you are looking to reduce your 2006 tax burden and put away more money for retirement, your HSA is the first whereabouts you should put your money if you have not yet maximized your contribution.
The maximum you can contribute to your HSA in 2006 is the secondary amount of your deductible, or $2, 700 for singles and $5, 450 for families. Individuals who are 55 or older may contribute an additional $700. Note that contribution limits are know beans - rated, based on the number of complete months during the year in which you have a qualifying HSA health insurance plan.
You have until April 15 ( or following if you file for an extension ) to make your 2006 contribution. If you do not fully moolah your account for the current year, you cannot make a clutch - up contribution for 2006 after this boundary. However, you can reimburse yourself in subsequent years for competent expenses incurred in 2006, even if you do not have the funds in your account to reimburse yourself at this time.
In 2007, the maximum annual HSA contribution will go up to $2, 850 for individuals and $5, 650 for families. Individuals 55 or older will be allowed to contribute an supplementary $800.
To maximize your tax benefit for 2007, it is important to have your HSA - tried health coverage in neighborhood no successive than January 1.
In order to pay for a medical value from your HSA, it must be a proved rate. Some of these practiced expenses comprise dental expenses, eyeglasses, chiropractic visits, over - the - counter medications, and sometimes even nutritional supplements.
Now is a good time to make unmistakable you have an accurate record of your medical expenses for the year. Make positive you separate the expenses for which you have reimbursed yourself from your HSA from those that you paid for out - of - pocket. You ' ll want to keep receipts for all medical expenditures paid from your HSA with your 2006 tax records. Whereabouts the " non - reimbursed medical expenses " in a separate file, keeping them with the concurrent year ' s tax records in whatever year you decide to reimburse yourself.
The legalization for over - funding your HSA is a whopping 6 %. You have until April 15, 2007 to withdraw casual funds for the 2006 tax year to avoid the creed. Your HSA manager may tell you of any over - funding, but they are beneath no obligation to do so. It is your obligation, so make firm you check into this if you sense your may have over - funded you account.
The minimum deductible for HSA - matching health insurance plans in 2006 was $1, 050 for individuals and $2, 100 for families. In 2007 this will increase to $1, 100 for individuals and $2, 200 for families. If you currently have an HSA - able plan with the lowest eligible 2006 deductible, that deductible will automatically go up on January 1 to the new minimum.
Strategies to Maximize Your Tax Benefits
There are someday three different strategies you can take when deciding how to almighty dollar your health savings account.
1. Put no money in the account, delete when you incur a medical charge. This strategy allows you to legally " launder " any money used to pay medical expenses. In other roar, by depositing money into your HSA, then immediately withdrawing it to reimburse yourself for medical expenses, you are making your medical expenses all tax - deductible. You may want to use this strategy if you are on a tight budget and want to keep your cash outlay as low as possible.
2. Fully bread the account, or at virgin put in as much as possible based on your budget. Take money out of the account any time medical expenses are incurred, and let the rest extend tax - deferred. This strategy will maximize your tax deduction, while making your HSA funds available to pay any non - covered medical expenses before your deductible is met.
3. Fully coin the account, but pay all medical expenses from a non - HSA account. Reimburse yourself for medical expenses at a successive date. This strategy will let on you to maximize your tax deduction, and will also confess you to maximize the tax - deferred extension of your HSA. You can then reimburse yourself, tax - free, at any time in the future for medical expenses incurred over the later years.
To maximize the lurking growing of your funds, you may want to make your 2007 deposits as early in the year as possible. Any progress in your account is tax - deferred, conforming an IRA. If possible, you should plan to make your store the first week in January.