Health Savings Accounts Still Popular
Health Savings Accounts are still popular with small businesses and their popularity continues to grow as traditional group health plans get more expensive.
When Health Care Reform was passed back in 2010, some industry experts believed that Health Savings Accounts (HSA’s) would lose their popularity due to imposed contribution limits and increased penalties for withdrawals that were written into the law. And even though Lawmakers were able to make some changes to HSA’s – thinking that they afforded too many tax breaks for Americans – The premise of the original Health Savings Account still remains pretty much the same except with the following changes:
- Increased penalty for non-medical withdrawals. As of January 1, 2011, if you are under age 65, withdrawals from your HSA that are not used for qualified medical expenses, will be taxed as ordinary income and you will also incur a 20 percent penalty. Previously, the penalty was 10 percent.
- Exclusion of most over-the-counter medications. As of January 1, 2011, most over-the-counter medications will not be considered to be a qualified medical expense unless they are prescribed by a physician. Previously, over-the-counter medications could be included as a qualified medical expense.
In fact, HSA’s are gaining in popularity and enrollments were up in 2013 to 7.2 million from 6.6 million according to a recent article by Investment News. And why wouldn’t HSA’s remain popular? They allow American workers to make tax-free contributions into a savings account and pay for qualified medical expenses tax free.
Background on Health Savings Accounts
Health Savings Accounts (HSAs) were established in January 2004 as a way for Americans to take control of their own health care.
Federal regulations require HSA owners to have a minimum deductible on their health insurance from all sources in order to make tax-deductible contributions to their Health Savings Account.
In 2014 the contribution guidelines are as follows:
Minimum Deductible Single/Family: $1,250/$2500 Maximum out of Pocket, Single/Family: $6350/$12,700
Contribution Limit: Single/Family: $3,300/$6550 55 years and over, additional $1000 per year
HSAs combine the benefits of a qualified retirement plan such as a 401k or IRA by allowing participants to receive a 100% income tax deduction on annual contributions and withdraw funds tax-free to reimburse themselves for qualified medical expenses. Unlike 401k’s and IRA’s, funds can remain in HSA’s indefinitely without penalties and may never have to be withdrawn.
It is now being predicted that the more Americans learn about their options under Health Care Reform, the more they will