Investments & Retirement Planning
HSAs
When deciding if you can afford to retire early, the cost of health insurance will be a key factor in the financial equation. Unless you're lucky enough to have retiree health benefits through your employer, or are entitled to coverage through your spouse's plan, you may need to obtain individual health coverage and pay the entire premium cost - which can be high - until you become eligible for Medicare at age 65. If you're looking to bridge the gap between the time you retire and the time you enroll in Medicare, one option worth considering is a Health Savings Account (HSA).
The HSA has three major tax savings: the money contributed into the account is tax deductible, it grows tax free, and certain withdrawals are tax free if they are for qualified medical expenses.
An HSA is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can be put into the Health Savings Account.
You own and control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.
What Is a “High Deductible Health Plan” (HDHP)? TOP
You must have an HDHP if you want to open an HSA. Sometimes referred to as an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
For 2007, in order to qualify to open an HSA, your HDHP minimum deductible must have been at least $1,100 (self-only coverage) or $2,200 (family coverage). These amounts are indexed annually for inflation. The annual out-of-pocket (including deductibles and co-pays) for 2007 cannot exceed $5,500 (self-only coverage) or $11,000 (family coverage). HDPDs can have first dollar coverage (no deductible) for preventive care (copays allowed) and higher out-of-pocket (copays and coinsurance) for non-network services.
How much does an HSA cost? TOP
An HSA is not something you purchase; it’s a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.
As an employer, do I own my employees’ HSAs? Can I control how they spend the money in them? TOP
No, you do not own your employees’ HSAs. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation.
My employees want to contribute to their HSAs but want to make sure they get a tax benefit out of doing so. How does that work? TOP
Employee contributions can be made to HSAs on either after-tax or pre-tax basis. If made on an after-tax basis they should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free. If they want to make the contribution pre-tax it can be done through a Section 125 (also called a “salary reduction” or “cafeteria plan”).
How much do I have to contribute to my employees’ HSA, as an employer? TOP
As much or as little as you want (while staying below the legal limit on the account of $2,850 for employees with self-only coverage or $5,650 for employees with family coverage in 2007).
Do HSA contributions have to be made in equal amounts each month? TOP
No, you can contribute in a lump sum or in any amounts or frequency you wish. However, keep in mind that the funds belong to the employee after they are deposited.
Where can I get an HSA application? TOP
To download and print an HSA application, click on the link below and fax to your closest Bank of Missouri branch.
