Can you believe it’s already July? The 4th has come and gone and here we sit, a little over halfway through 2013! It seems as though this year has flown by, so we thought we’d steady the ship here at our “halfway point” and shoot out a friendly reminder about funding your health savings account and all the benefits to doing so.
There are a few different scenarios and variables when it comes to funding your HSA, such as whether your policy is “single” or “family”. Or whether you’re over 55 or not, which would allow you to make the additional $1,000 catch-up contributions. We’ll do our best to cover the basics, but if you have a question or there’s something we didn’t cover, let us know in the comments or give us a call and we’d be glad to answer any questions you’ve got!
Year-To-Date HSA Snapshot
Let’s get started here and break down what your HSA contributions should look like at this “halfway point” if you were funding on an even, monthly basis to max out your annual contribution limit. We’ll give you a breakdown of single vs. family coverages, in addition to the optional “catch-up” contribution you can make if you happen to be over age 55.
It’s important to keep in mind while you’re reading this, that regardless of what you’ve contributed thus far this year, there’s no reason to panic. You can fund your HSA any way you would like, and at any time throughout the calendar year all the way up into the following year prior to filing your taxes or April 15th, whichever comes first. You can fund it all in one lump sum, in chunks here and there, or steady even payments throughout the year. It’s your money, your choice, and this is just a guideline and/or friendly reminder to take a look at what you’ve funded so far this year to stay on track.
Single Coverage Snapshot
The standard, generic version of the health savings account is one that is tied to a single coverage (no dependents) high-deductible health plan. As with any health savings account, there are certain deductible limits that qualify your policy to be eligible to open an HSA in the first place. For more information on HSA-qualified plans, visit our website on HSA Deductible Requirements.
So with that out of the way, for 2013, the annual maximum contribution for a single coverage HSA is $3,250. If you’re planning on fully funding your HSA, you’re going to want to currently be sitting at a year-to-date of $1,625.
How did we come to this figure? We simply took the annual maximum allowed ($3,250) and divided by 12 to get your monthly contribution amount ($270.83). We then multiplied that by 6 to show where all of us should be at this halfway point, if we were planning on funding on a steady monthly pace.
If you’re 55 or older, you would add an additional $1,000 to the front end of that equation to account for your optional catch-up contributions, which would look like this: Take $4,250 divided by 12 to get your monthly contribution amount ($354.16). Multiply that monthly amount by 6 to get your “halfway point” and you’d arrive at $2,124.96, which is your current year-to-date if you’re staying on track.
Family Coverage Snapshot
An HSA that is tied to a “family coverage” HDHP (insurance policy includes dependents) allows you to contribute significantly more money every year than the standard “single coverage” variety. For 2013 with “family coverage”, you can contribute an annual maximum of $6,450.
With that in mind, let’s calculate what your year-to-date should reflect, halfway through 2013. We would take the $6,450 and divide by 12 to get your monthly contribution amount ($537.50). From there, we simply multiply that by 6 to get your projected “halfway” figure, which would be $3,225.
If you happen to be 55 or older, you’re eligible for the $1,000 “catch up” contribution, which alters those totals. Your annual maximum increases to $7,450, so here are the figures for that scenario:
$7,450 divided by 12 is $620.83, which is the monthly amount you would want to contribute to your HSA to stay on track to maxing out throughout the year. $620.83 multiplied by 6, will give us our halfway point that should be reflected in your current year-to-date contribution totals if you’re planning on staying on track. That total is $3,724.98.
Benefits to Funding Your HSA
The reason we want to point out these “halfway” figures, is because we want to be sure everyone is taking full advantage of their health savings account and all the benefits that come along with funding it.
One of the strongest benefits is the triple tax advantage you receive when you fund your HSA. The money is tax-free when you deposit it, which effectively reduces your taxable income. The money is spent on HSA-qualified medical expenses tax-free, allowing you to pay for both planned and unplanned medical expenses with tax-free money throughout the year. And lastly, remember that an HSA is literally a savings account, which means it earns interest on the balance, tax-free.
It’s also worth highlighting here, that the HSA is a very powerful tool for retirement planning. The unused funds you contribute to your HSA roll over year after year, allowing you to build up a significant balance in the event of a major medical expense, but also as a sort of “Medical IRA”. Once you turn 65, you can continue to use those funds to pay for normal HSA-qualified medical expenses, your Medicare and/or Long-Term Care premiums, or you can pull the funds out altogether as supplemental retirement income to add to your nest egg.
Please remember however, that if you decide to pull your funds out for non HSA-qualified expenses after age 65, that money is considered taxable income. If you pull your funds out for non HSA-qualified expenses prior to age 65, those funds will be considered taxable income and you will be hit with a 20% penalty from the IRS for doing so.
Here’s a great flyer from our website you can print off & use however you want to remind you of some of the benefits to funding your health savings account. Hand it out to employees, friends & family, your clients (if you’re an agent), etc.
Don’t Stress, Contact Us with Questions
We hope we’ve provided a nice friendly reminder about funding your HSA and the benefits to doing so. As we said above, it’s important to remember there’s no need to panic if you’re planning on taking full advantage of the maximum contribution limits, but you’re nowhere near the year-to-date averages we highlighted in this post. You can fund your HSA however you want (as long as it’s under the annual maximum allowed) and whenever you want, all the way through calendar year 2013 and into calendar year 2014 prior to filing your income tax returns, or April 15th, whichever comes first.
If you have any questions at all about HSA funding, HSA rules and regulations, the benefits to funding your account, or even if you’d just like to sit and chat…please don’t hesitate to contact our office! We look forward to hearing from you and walking you through whatever questions you may have, from the simple, short and sweet to the most complicated and technical scenarios. HSAs are what we do, and we would love the opportunity to help you get the most out of your health savings account any way we can.
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