The Internal Revenue Service has announced the new tax year 2015 limitations on contributions and deductibles for health savings accounts and high-deductible health plans.
Health savings accounts are special accounts to which taxpayers can contribute money on a pre-tax basis to fund expected or possible future health care expenses. Any money distributed from health savings accounts to pay for qualified health expenses is tax-free. The catch: You can only contribute to a health savings account if you also own a qualified high-deductible health plan.
For 2015, health savings accounts owners can contribute up to $3,350 for an individual and up to $6,650 for a family – increases of $50 and $100 over tax year 2014, respectively. Those HSA holders who are age 55 and older can save an additional $1,000 per month, which is unchanged from 2014. The combined catch-up contributions and regular limits equate to a total of $4,350 for an individual and $7,650 for a family plan in 2015.
Contributions are 100 percent tax deductible from gross income, similar to a traditional IRA.
The federal government also announced the minimum allowable annual deductibles for high-deductible health plans: $1,300 for plans covering singles and $2,600 for family plans. Again, these reflect increases of $50 and $100 over 2014 levels, respectively.
The maximum out-of-pocket loss exposure was also defined at $6,450 per year for plans covering singles (up $100 compared to 2014) and $12,900 for family plans (up $200). That means that regardless of your medical expenses, your maximum out-of-pocket cost under a health savings account is either $6,450 if your plan covers only yourself, or $12,900 if your plan covers your whole family.
HSAs Vs. Flexible Spending Accounts
Furthermore, unlike flexible spending accounts, you get to keep money in an HSA even if you don’t spend it during the year. Where FSA balances are forfeited, HSA money is yours to keep, and it can compound year after year. If not needed for medical expenses.
If you don’t need the money by the time you turn 65, it is available for retirement, on a tax-deferred basis, just like an IRA. If you do spend the money before you are 65 on anything that is not a qualified medical expense, you will have to pay income taxes on the distribution, plus a 20 percent additional penalty.
The benefits of health savings accounts include:
- Tax-deductible contributions
- Tax-free growth (if used for qualified expenses)
- High deductible health plans may cost less than other plans.
- HSA balances can be tapped to pay qualified health expenses tax-free at any age.
- Your savings offsets the higher deductible.
- HSAs are portable. Balances are yours no matter where you go or where you work. You never forfeit your own contributions to an employer.
- HSAs are approved to pay for qualified long-term care premiums, Medicare premiums and out of pocket expenses.
- Income after age 65 (subject to ordinary income taxes)
- HSAs can be passed on to heirs, either as your surviving spouse’s HSA (but only if your spouse is a named beneficiary on the account)
To be eligible, you must meet the following criteria:
- You must be covered by a qualified high deductible health plan
- You must not be covered by any other health insurance (other than long-term care, disability, accidents dental and vision, critical illness, workers comp and/or fixed indemnity coverage).
- You must not be enrolled in Medicare
- You must not be listed as a dependent on another individual’s tax return.
ACBI can help counsel and guide you in the best options for your specific situation. Call us at 203-259-7580 or visit our website.