With the start of a new year, you enter a new cycle of financial planning. You need to arrange for the impending expenses and make arrangement for investments, insurance, taxes and health care plans. It is necessary that one takes note of policy changes related to insurance, health care plans or investments at the start of a new year, which can help recalibrate investment decisions. For people who have a High Deductible Health Plan (HDHP), one of the important things to note, are the Health Savings Account (HSA) contribution limits for the year.
What is a Health Savings Account?
In December 2003, Health Savings Account, as a financial instrument and alternative to health insurance was created through a special act passed by President George Bush named - 'Medicare Prescription Drug, Improvement and Modernization Act'.
These accounts were created on the lines of an Individual Retirement Account (IRA). For those of you who are clueless about what is a HSA, let me provide a brief overview of what it's all about, before sharing the latest updates.
HSA is like a bank account, wherein you can deposit money, which can only be exclusively used for your current and future medical expenses. The money deposited there and the interest earned is completely tax free. Unlike a health insurance investment, HSA account holders are in complete control of the money invested in it.
You or even your employer may contribute to the account. The money invested, along with the interest earned keep accumulating over time, letting you pay for your medical expenses during retirement.
A HSA can only be opened by people who have an HDHP and are not covered by any other health care plan. They shouldn't be insured under Medicare and be listed as dependents in the previous year's tax returns of any other person.
New HSA Contribution Limits
After that brief overview of all the aspects related to a HSA, let us see what are the new contribution limits for the current year. The limits for 2012 entirely depend on the kind of HDHP you have opted for. An individual may have a self only HDHP or a family HDHP.
If an individual has a self only HDHP, the HSA contribution limit is $3100. This amount may be contributed by the individual himself, his employer or any other person in cash.
On the other hand, if you have a family HDHP, the contribution limit is higher. In that case, an individual may contribute up to $6,250 to the HSA account. For people who fall in the 55 plus age group, an addition contribution of $1000 is allowed. There are additional conditions, which need to be satisfied by the HDHP that individuals opt for.
Their minimum deductibles need to be $1,200 for self only and $2,400 for family HDHP coverage. Besides this, the maximum annual deductible and out-of-pocket expenses cannot exceed $6050 for self only and $12,100 for family coverage.
As stated before, there are no changes in the contribution limits for HSAs in 2012. For more information regarding the benefits of opening an HSA, the best source of information is the IRS website, which has detailed notes regarding all aspects of this novel financial instrument created to help the common man pay his medical bills.
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