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 season you part 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 corner 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 subordinate amount of your deductible, or $2, 700 for singles and $5, 450 for families. Individuals who are 55 or older may contribute an further $700. Note that contribution limits are competent - 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 next if you file for an extension ) to make your 2006 contribution. If you do not fully money your account for the current year, you cannot make a catch - up contribution for 2006 after this bound. However, you can reimburse yourself in succeeding years for know onions 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 further $800.
To maximize your tax benefit for 2007, it is important to have your HSA - instructed health coverage in site no succeeding than January 1.
In order to pay for a medical market price from your HSA, it must be a tried charge. Some of these instructed expenses comprise dental expenses, eyeglasses, chiropractic visits, over - the - counter medications, and sometimes even nutritional supplements.
Now is a good time to make indubitable you have an accurate log 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. Hole 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 authority for over - funding your HSA is a whopping 6 %. You have until April 15, 2007 to withdraw fortuitous funds for the 2006 tax year to avoid the fairness. Your HSA director may apprise you of any over - funding, but they are below no obligation to do so. It is your care, so make undeniable you check into this if you take your may have over - funded you account.
The minimum deductible for HSA - parallel 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 - war-horse 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 in consummation three different strategies you can take when deciding how to coin your health savings account.
1. Put no money in the account, miss when you incur a medical cost. This strategy allows you to legally " launder " any money used to pay medical expenses. In other vociferation, 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 kitty the account, or at rudimentary 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 age 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 greenback the account, but pay all medical expenses from a non - HSA account. Reimburse yourself for medical expenses at a successive date. This strategy will own you to maximize your tax deduction, and will also confess you to maximize the tax - deferred expansion of your HSA. You can then reimburse yourself, tax - free, at any time in the future for medical expenses incurred over the close years.
To maximize the hidden heightening of your funds, you may want to make your 2007 deposits as early in the year as possible. Any augmentation in your account is tax - deferred, selfsame an IRA. If possible, you should plan to make your care for the first week in January.