HSA advantages?

Hello All,
My medical insurance provider has recently set up Health Savings Accounts for it's members. We are allowed to make deposits to the accounts, up to specified limits, which are supposedly deductible for income tax purposes.
If the deductibility is correct, where does it get deducted? On Sch-A under medical insurance? If so, how is contributing $X to the HSA and deducting it on Sch-A medical any better than just writing a check to the medical provider and then deducting it on Sch-A medical?
I'm probably not understanding this correctly and hope someone can enlighten me.
Thanks.
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Reply to
Vic Dura

No, on Line 25 of form 1040. See the 1040 instructions. It is an adjustment to income, not a deduction.
You must however be in a "high-deductible health plan" (HDHP) for this to apply. You will want to look carefully at the advantages and disadvantages of such a plan. In my case, it was pretty clear that my health provider's HDHP's are disadvantaeous relative to their standard plans, for me. The kicker is that once I shifted down to the high-deductible plan, I was not allowed to shift back up to the standard plan in the future, so you sort of lose your position within their care system, and in a major medical situation this could cost a whole lot.
This is just one of many possible factors. For many the health plan characteristics are not as big a deal, and the HSA deduction is highly desirable.
Steve
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Reply to
Steve Pope
Schedule A lets you deduct only medical expenses over 7.5% of AGI.
An HSA can be applied starting with the first dollar spent.
For me, this is a key advantage of an HSA.
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Reply to
MyVeryOwnSelf
That's why I contribute to a medical FSA (Flexible Spending Account). It's limited (at least at this employer) to $5000, but it's an adjustment to wages, so it doesn't even appear explicitly on the 1040 or W2.
(If I have a double-signature, please delete it. I don't recall my Google groups signature.) -- Arthur L. Rubin
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Reply to
Arthur Rubin
Although an FSA plan is generally use it or lose it. An HSA stays around as long as you do, and then some.
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ArtKamlet  at  a o l dot c o m  Columbus OH  K2PZH
Reply to
Arthur Kamlet
On Tue, 6 Jan 2009 13:53:05 EST,
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(Steve Pope) wrote Re Re: HSA advantages?:
Thanks Steve and MyVeryOwnSelf. I understand how it works now.
Vic
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Reply to
Vic Dura

Andy writes:
I just wanted to caution you that the "high deductible" insurance plan that qualifies you for the HSA must NOT have a prescription drug benefit.
If it carries a prescription drug benefit, the insurance plan is NOT eligible for an HSA application.
That is a factor often overlooked when making such a decision. You need to research the HSA plan requirements for yourself from an IRS or .gov website to find out exactly what the rules are. Don't take my word for it, -- --- it is too important. Also, don't take the word of the person who is trying to enroll you in an HSA.
This drug benefit item is often not understood or is overlooked by many many people trying to set up an HSA for you...
Andy in Eureka, Texas
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Reply to
AndyS
The difference vs. an employer's FSA is that it's NOT use it or lose it.
Answered by other replies - "above the line."
There's also the fact that your total medical may not exceed 7.5% of your AGI. You get to deduct the amount when the money goes in, not when it comes out. Therefore, one can get a deduction which would not otherwise occur under Section 213 alone.
Note also: IF you choose to pay medical expenses NOT from your HSA, you may do so. However, you also need to track those payments as they may be subject to reimbursement from your HSA - meaning that at a later time (including a later year), you may withdraw an amount from your HSA to reimburse yourself for medical expenses that were paid using other funds - and therefore, such a reimbursement withdrawl is tax free. Note that the reimbursement is NOT tax free for amounts that exceeded 7.5% (or 10% for AMT) of AGI where a deduction occurred (but only to the extent of that deduction - IRC 111).
taken for ANY year where a medical deduction on Schedule A line 4 occurred. I disagree for open years. My view is that the reimbursement may be taken tax-free but the open year(s) must be amended to reduce the expense reimbursed. Why? Because statute says so -- subsection 223(f)(6) states that amounts paid or reimbursed don't qualify for Section 213 treatment. The IRS conclusion for open years is wrong because it results in the amount of reimbursement being taxed in the year of reimbursement where the Code states it's the removal of the deduction and the EARLIER year's increase in tax for the smaller deduction. The IRS has the WRONG YEAR for the tax on reimbursment for a deducted medical expense of an open year. The IRS's view is inconsistent with statute.
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Reply to
D. Stussy
There's one extra wrinkle, possibly, depending on where you live.
While an HSA has special provisions for federal income taxes, some states -- like California -- don't have the same provisions for state income taxes. This leads to adjustments when preparing a state income tax return.
Reference:
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Reply to
MyVeryOwnSelf
Not quite. The HSA rule is that the insurance plan must not have "first dollar" coverage. My HDHP covers prescription drugs the same way it covers everything else--it starts paying when I've met the deductible--and it's HSA compatible. HDHPs can only provide first dollar coverage for preventive care, such as physicals and immunizations.
To answer the original question, an HSA is a good deal if you're currently healthy, which gives you time to build up the balance in the HSA to a level where it can cover the deductible. Other advantages:
* My HDHP is from Blue Cross, so even when I pay the bills, the providers send them to BC first which adjusts them down to their negotiated price, often a lot less than the list price.
* You have the option to use pre-tax HSA money to pay for medical expenses not covered by the insurance, such as prescription glasses and dentist visits.
* The rules for HSA money not used for medical expenses are about the same as for an IRA, so it's a way to increase your retirement savings. Some people leave all the money in the HSA and don't pay current medical expenses.
If you set up an HSA, check out a variety of HSA custodians, because they vary a lot, both in services and prices. There's two basic approaches. One is to give you a bank account with a checkbook and debit card which you can use to pay expenses as they occur. The other is more like an investment account, you pay your expenses yourself, and reimburse yourself once or twice a year.
I'm happy with HSA Bank (
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) which offers a checkbook account and very low fees. They offer add-on mutual funds or a brokerage account, but in this market, their FDIC insured 2.71% looks pretty good.
Regards, John Levine,
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, Primary Perpetrator of "The Internet for Dummies", Information Superhighwayman wanna-be,
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, ex-Mayor "More Wiener schnitzel, please", said Tom, revealingly.
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Reply to
John Levine
A disadvantage is that a nonspousal beneficiary has to take the distribution pretty quickly and it's all taxable. An IRA allows as a minimum, a five year payout.
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ArtKamlet  at  a o l dot c o m  Columbus OH  K2PZH
Reply to
Arthur Kamlet

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