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FOCUS | ISSUE 1 | 2010

Tried an HSA? Even better with ‘catch-up’!

With the increasing cost of health care, many are looking to Health Savings Accounts. Despite their increased use, there are still many misunderstood beliefs about the way they work.

An HSA really consists of two parts. First, in order to be quali- fi ed to have one, you must fi rst have a High Deductible Health Plan or HDHP.

For 2010, the HDHP must have a minimum deduct- ible of $1,200 for an individual and $2,400 for a family. When you consider there are many other types of health plans with de- ductibles greater than that, this seems like a reasonable require- ment. Many plans recently have raised their deductibles to help hold down the increasing costs of health insurance premiums. Additionally the HDHP cannot have out-of-pocket expenses (deductible + coinsurance) of greater than $5,950 (individu- als) and $11,900 (families). The purpose of the higher deduct- ible is to save on premium, which is mitigated by the second part, the savings account. Re- member, just because your plan has a deduct- ible higher than $1,200 does not mean you are necessarily qualifi ed to have an HSA.

An example would be: If a father and children were covered by a HDHP, they could contribute the family maximum of $6,150 and if at least 55, another $1,000. The wife is covered by insurance at her work which is not a HDHP. Although she cannot contribute $1,000 as a catch-up provision

or have her own separate HSA account, she can be

an authorized signer and uti-

lize funds from the HSA account established by the husband.

While it may seem a bit com- plex, you can reverse any deposit mistake prior to April 15 of the following year or before you have fi led your tax return.

Health Savings Accounts were created in 2004 when there were only 438,000 of them. They have grown in popularity with over 6.1 million in 2008.

It is not necessary to itemize on your tax return in order to deduct your HSA contributions.

The second part of an HSA is the savings ac- count portion which allows the individual or family to make tax deductible contributions to their account of $3,050 and $6,150 respec- tively. These amounts are indexed to infl ation and should go up in future years. Health care expenses that are incurred can then be paid for out of the HSA. Because the savings are accumulated on a tax free basis and represent money you would have paid out of pocket any- way, it represents a signifi cant savings for you depending on what tax bracket you are in.


Insureds over 55 may contribute an additional $1,000/year as a “catch-up” provision but there are some rules. If a husband and wife are insured with an HSA and both are older than 55, they are subject to the family maximum contribution of $6,150 even though they may have separate insurance policies. In order for both to use the $1,000/year catch-up provi- sion, they must have separate HSA accounts. Not to worry, though, because either of them can access the other’s account as long as they are both authorized signers. It is no different than opening two savings accounts with both names on each account. In fact, HSA funds can be used to pay for a dependent’s health care even if they do not have a HDHP.

The HSA is extremely benefi cial for those who can afford to fund them. You are 100 percent vested immediately, and the funds can be used to pay for qualifi ed medical expenses

even if you no longer have an HDHP and for Medicare purposes.

We really feel that an HSA is very appropriate for a dentist and his or her family and is just one of the tools or strategies to use with the spiraling cost of health care today. When this is coupled with the ability for the self em- ployed to deduct their entire health insurance premium it is a win/win situation.

To discuss an HSA and other products and ideas regarding health care, contact MDIS at 800- 944-7550.

This article is not intended to provide tax or legal advice. For this purpose, you should consult your tax professional or attorney.

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