Tuesday, March 15, 2005
Nuts and bolts of HSAs explained
[Kelly Greene, "Nuts and Bolts of HSAs," The Wall Street Journal, 13 March 2005.]
The Wall Street Journal continues its focus on Health Savings Accounts with this third installment in an ongoing series of articles that explain how HSAs work and how to go about obtaining one. This column features Roy Ramthun of the US Treasury, who will be presenting at a Flint Hills Center Workshop on HSAs in Wichita this April:
Many readers seem interested in opening health savings accounts -- but need help with the nuts and bolts.
One reader asked for clarification about how to deduct HSA contributions on tax returns. It's "literally a straight reduction from your income" that you enter in a new line on your tax form, says Roy Ranthum, senior adviser for health initiatives to the Treasury secretary in Washington. So, for example, if your taxable income would have been $40,000, and you contribute $5,000 to an HSA, your income on which you are taxed would fall to $35,000.
Can you transfer assets from an individual retirement account to an HSA without incurring taxes or penalties? Not under current federal law, Mr. Ranthum says. If you're at least 59½ years old, you could use an IRA distribution to fund an HSA, but you still would have to pay tax on the distribution.
Another reader asked if you can set up an HSA if you're unemployed and not yet on Medicare. The answer is yes. "Your employment status just doesn't matter," Mr. Ranthum says. "You don't even have to have earned income." Instead, you can take the deduction for HSA contributions against investment income.
It also doesn't matter whether you get the high-deductible insurance you need to qualify to open an HSA on your own or through a current employer or a former employer, "as long as you have it and don't have other coverage that disqualifies you," he adds.
["All About HSAs," U.S. Treasury Department, 18 August 2004.]
[Kelly Greene, "Nuts and Bolts of HSAs," The Wall Street Journal, 13 March 2005.]
The Wall Street Journal continues its focus on Health Savings Accounts with this third installment in an ongoing series of articles that explain how HSAs work and how to go about obtaining one. This column features Roy Ramthun of the US Treasury, who will be presenting at a Flint Hills Center Workshop on HSAs in Wichita this April:
Many readers seem interested in opening health savings accounts -- but need help with the nuts and bolts.
One reader asked for clarification about how to deduct HSA contributions on tax returns. It's "literally a straight reduction from your income" that you enter in a new line on your tax form, says Roy Ranthum, senior adviser for health initiatives to the Treasury secretary in Washington. So, for example, if your taxable income would have been $40,000, and you contribute $5,000 to an HSA, your income on which you are taxed would fall to $35,000.
Can you transfer assets from an individual retirement account to an HSA without incurring taxes or penalties? Not under current federal law, Mr. Ranthum says. If you're at least 59½ years old, you could use an IRA distribution to fund an HSA, but you still would have to pay tax on the distribution.
Another reader asked if you can set up an HSA if you're unemployed and not yet on Medicare. The answer is yes. "Your employment status just doesn't matter," Mr. Ranthum says. "You don't even have to have earned income." Instead, you can take the deduction for HSA contributions against investment income.
It also doesn't matter whether you get the high-deductible insurance you need to qualify to open an HSA on your own or through a current employer or a former employer, "as long as you have it and don't have other coverage that disqualifies you," he adds.
["All About HSAs," U.S. Treasury Department, 18 August 2004.]
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