PyraMax Bank Advises Consumers on What to Look for in HSAs Before Jan. 1 Deadline

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Consumers with High Deductible Health Plan (HDHP) are eligible for the triple tax benefits of a Health Saving Account (HSA). PyraMax Bank advises consumers to shop around for a financial institution offering HSAs with good interest rates and low to no fees or minimum balances. Individuals and businesses must contribute to an HSA by Jan. 1 for Coverage in 2010.

“HSAs give you the freedom and flexibility to make your own health care choices. You can spend the money or save it," says Karen Murphy, a senior vice president at PyraMax Bank in Milwaukee.

A tax-exempt Health Savings Account (HSA) may be one of the best ways to protect individuals and small business owners from rising health care costs. According to PyraMax Bank in Milwaukee, anyone employed, self-employed or otherwise can invest in this tax-advantaged medical savings account if they have a high deductible health insurance plan (HDHP) of $1,200 or more. However, individuals must contribute to an HSA account by Jan. 1 to be covered in 2010.

While the current plan for a health care overhaul faces an uncertain future in the U.S. Senate, the uncertainty does not appear to have any effect on the growth of HSAs. The number of employers opting for HDHPs is on the rise because they dramatically lower insurance costs. The benefit for employees is also lower premiums and more control over what they spend on routine health expenses. Even better, the money employees contribute to an HSA has triple tax advantages. The contributions are pre-tax, any interest earned is tax exempt and withdrawals are tax-free as long as the money is spent on qualified medical expenses. Individuals can make contributions even if they don’t itemize their tax deductions and employer contributions are not counted as income.

Another benefit of the HSA is that individuals who remain healthy and don’t have to pay any medical expenses can grow the money in their account from year to year. Over time, HSA contributions of more than $10,000 can be directed to long-term investments like mutual funds to maximize the value of the HSA.

In 2010, the IRS says individuals can contribute up $3,050 to an HSA if single and up to $6,150 in a family plan. The IRS allows individuals over the age of 55 to make a “catch up” contribution of an additional $1,000 for single and family plans.

As long as the money in an HSA is used for qualified medical expenses, there is no penalty for removing the money. While the list is lengthy, HSA contributions can be withdrawn for medical expenses that include medical co-pays, over-the-counter medications, tests and diagnostic procedures associated with preventive care, immunizations, dental and eye care expenses, screening services, tobacco cessation and weight loss programs, and long-term care. Much like an IRA, if the money withdrawn from an HSA is used for anything other than a qualified medical expense, the money withdrawn is subject to a 10 percent penalty in addition to paying the applicable income taxes.

HSAs are typically managed by banks, credit unions, or insurers. An employer can also set up an HSA for employees. It pays to shop around to see what various institutions offer and what they charge to administer an HSA account. When determining an administrator, make sure the financial institution is FDIC-insured. It is the individual's responsibility to keep track of deposits and expenditures. From time to time, questions may arise about an account, so it may be helpful to deal with an institution that’s close to where the individual lives live or works like a community bank.

“Fees can eat up any money you earn in interest,” says Karen Murphy, a senior vice president at PyraMax Bank in Milwaukee. “Some banks offer higher interest rates, but charge fees for every transaction you make. They may also require you to make a minimum contribution each month to avoid additional fees.”

Some other fees to watch out for are charges for setting up an account, checks, online bill payment and check cards.

An HSA is something the individual owns. Whatever money is invested stays with the individual no matter where they work or which insurance company insures them. Individuals can grow the money and after age 65, use the contributions to pay for Medicare premiums. At age 65, individuals can also use the money to pay for things other than medical expenses. Any money withdrawn is considered taxable income, but the individual is not subject to any penalties.

Proponents of HSAs say this form of savings for medical expenses makes people wiser consumers, because they have the freedom and flexibility to make your their own health care choices. Individuals can spend the money or save it. It’s the consumer's choice.

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