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A tax-saving health care option

By Kay Bell ·
Tuesday, October 8, 2013
Posted: 3 pm ET

Are you officially sick of hearing about Obamacare? I share your pain, which is not covered by any type of medical insurance.

The Oct. 1 opening of health care exchanges under the health care reform law, officially known as the Affordable Care Act, combined with the government shutdown that day because of Republican opposition to the national health care law, has made Obamacare the topic du jour every jour this month.

Help from HDHPs and HSAs

Well, if you still need medical insurance, let me change the topic slightly from Obamacare to health savings accounts, or HSAs. These are tax-advantaged savings accounts that are available to individuals who enroll in a high-deductible health plan, or HDHP.

Basically, they let you set aside money that you can deduct from your taxes as long as you're willing to take a chance that you won't need medical coverage except for very costly incidents, such as an automobile accident.

Typically, lower-cost HDHP coverage is appealing to younger folks who tend to be healthier. And the new health care program depends on these young people to buy insurance so that it can work optimally. With younger, healthier individuals included in the insurance pool, the prices should go down for everyone since the companies won't be paying just for more sickly folks' treatments.

My nonrelated Bankrate colleague Claes Bell detailed how HSAs work under Obamacare, so I won't duplicate his efforts. I'm lazy smart that way.

HSA tax breaks, limits

But I do want to point out the tax advantages of these accounts.

HSA contributions are tax-deductible. Account earnings, such as interest and dividends, are exempt from federal taxes. HSA withdrawals are tax-free as long as you use the money to pay for qualified medical expenses.

There are, of course, limits on this tax-advantaged health account.

In 2013, HSA owners can save up to $3,250 for individual coverage and up to $6,450 for a family. HSA holders who are 55 and older can save an extra $1,000 -- or a total of $4,250 for an individual and $7,450 for a family. These contributions are 100 percent tax deductible.

As with other tax-related items, inflation regularly bumps up HSA amounts.

The Internal Revenue Service has announced that in 2014 individuals opting for high-deductible insurance coverage can set aside up to $3,300. The family limit goes up next year to $6,550. The catch-up contribution for people 55 or older remains at an additional $1,000 for each category.

Have fun shopping for health care coverage. And more importantly, stay well so that you don't have to use it.

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Veteran Contributing Editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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October 17, 2013 at 2:27 pm

kg--No, you do not lose the money. If you don't use it for qualified medical expenses it stays in the account and can be used at a later time. You can draw it out for nonrelated expenses but will pay taxes and a penalty if you do so.

john emmert
October 11, 2013 at 11:45 pm

kg: not only does hsa contributions and earnings roll over year to year if not used if you can pay your bills and wait for reimbirsement you can reimburse yourself from the account years after the service...this way you continue to earn tax free money. Great deal if you can delay reimbursement

October 11, 2013 at 12:25 am

Dear Manager,
I have a couple friend who became Christian recently. They applied for asylum and they can't do anything(work or study and more) until they get an answer from the asylum office as you know this process takes at least 5 mount and more . We are helping them for food and housing. They need a car to go around(go to the Church, shopping, go to Bible study and more). we are appreciate you if you can give them a car. If not please let us how we can do it for them.
Thank you so much

October 10, 2013 at 9:57 am

I have a question. If you don't use the money up in one year can it be saved for upcoming years or do you lose it?