Health Savings Account Changes
Recently, regulations regarding the contribution limit= ations on Health Savings Accounts were passed into law. These changes will permit greater = tax free contributions for individuals and permit one time transfers from an in= dividual IRA into an HSA. In addition,= employees with residual balances in their Flexible Spending Account can rollover thei= r remaining FSA balances into an HSA.
Change #1: As long as the underlying annual health plan deductible exceeds $1,100 for an individual a= nd 2,200 for a family, individuals will be permitted to contribute up to the maximum Health Savings Account contribution limit permitted by law. For 2007, individuals may contribu= te up $2,850 per year and couples or families may contribute up to $5,650 per year. These limits apply whet= her you joined a high deductible plan at the start of the year or during the year. Whereas before this cha= nge, individuals were limited to contributions equivalent to 100% of their deductible, the new limit now exists regardless of deductible.
Effect of Cha= nge #1: For most participants in high deductible plans, this change obviously increases the amount of tax free contributions. However, it al= so adds more flexibility for those individuals who are also covered under anot= her plan with their spouse. As lo= ng as your spouse’s plan adheres to the HSA requirements, you will now be permitted to contribute up to the annual limits permitted by the new law.
Change #2: For those individuals with HSAR= 17;s who have Individual Retirement Accounts (IRA’s), the law now allows individuals to transfer their balances from an IRA into a tax free HSA on a= one time basis. The amount of the transfer will be subject to ordinary income tax rates and the individual mu= st make contributions (either directly or through their employer) into an HSA = over the following 12 months. Individuals who do not make contributions into the HSA over the following year will be subject to another 10% penalty tax on the amount of = the IRA transfer.
Effect of Cha= nge #2: For practical purposes, individual= s with small IRA’s may wish to consider this option, especially if upcoming medical expenses (like braces or an elective surgery) are certain. High income individuals probably w= ill not take advantage of this because of the high income tax rate that they are in. If you have $25,000 or le= ss in an IRA, have at least 15 years until retirement and want to save for future medical expenses, you should take advantage of this law change.
Change #3: Individuals who have enrolled in t= he Flex Spending Account are permitted to rollover any residual balances within their account into an HSA if they also contribute to an HSA over the ensuin= g 12 months. If the individual doe= s not contribute to an HSA over the next year, the amount of the transfer is subj= ect to ordinary income taxes and a 10% penalty tax.
Effect of Cha= nge #3: Individuals who, for some reason, overestimate their expected Flex Spending medical care costs, now have reco= urse to retain those funds and transfer any surplus balances into an HSA. However, you must participate in t= he HSA over that following year to avoid any taxation.
In addition to this regulatory change, please be aware= that, if you are over 55 years of age, you are permitted to contribute an additio= nal $800 in catch up contributions for 2007.&n= bsp; (This amount will increase to $900 in 2008 and $1,000 in 2009.)
These changes are effective January 1, 2007. Since the recent enrollment period
offered individuals with the chance to maximize their contributions below t=
hese
new limits, you may call or e-mail any of the following individuals to adju=
st
your annual contributions / payroll deductions.
&nbs= p; Chris Renner &= nbsp; rennerc@medamerica.com &= nbsp; (800) 842-2808
&nbs= p; Katrina Tange &n= bsp; tangek@medamerica.com &= nbsp; (800) 842-2808
&nbs= p; Denise Clayborne &nbs= p; clayborned@medamerica.com (800) 842-2808
&nbs= p; Jennifer Zheng zhengj@medamerica.com &= nbsp; (800) 842-2808