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October 2008 return to the table of contents

Deadline Draws Near for 2008 Health Savings Account Tax-Savings

With the upheaval in the economy, there has been quite a surge in the number of people applying for an HSA-qualified health plan.

In times like these people are looking for ways to reduce their health insurance expenses and they certainly don't want to pay more taxes than they have to.  

Health Savings Accounts, or HSAs, allow people to put aside pre-tax money to cover future medical expenses. Anyone with a plan effective no later than December 1st is qualified to make a 2008 tax deductible contribution to their HSA, and may be able to reduce the taxes they owe on April 15th by $1900 or more.

While conventional co-pay plans continue to be popular, more people are choosing to invest in plans that work with a Health Savings Account. According to Wiley Long, President at HSA for America, "In times like these people are looking for ways to reduce their health insurance expenses and they certainly don't want to pay more taxes than they have to." HSA plans have premiums that are much lower than conventional copay plans. And any money deposited into the HSA is tax deductible, which will directly lower your taxable income.

In addition to reducing their premiums and lowering their taxes, HSA holders also are able to begin building a tax-deferred medical retirement account. Any growth to this account is tax-deferred and if a withdrawal is made for medical expenses, that withdrawal is tax-free.

If people have seriously considered making changes to their current health care plan, now is the time to act. HSA-qualified health insurance must be in force no later than December 1 in order to take advantage of the 2008 HSA contribution, and receive the accompanying tax reduction. Because the underwriting process can sometimes take a few weeks, most experts recommend that people apply for a plan as soon as possible.

Anyone who does have a plan in place before December 1st will be able to contribute to their HSA for 2008 up to $2,900 as an individual, or up to $5,800 as a family. People over 55 years old can also make an additional contribution of up to $900 to their account. Someone in a 28% tax bracket who makes a $5,800 contribution will reduce their April 15th tax bill by $1,624 - even more when they count the savings on state income taxes.


 

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