Among the ways experts such as JoAnn Laing suggest individuals and families are gaining financial advantages are reflected in the charts below. Most Americans, 73% on average, do not spend $500 on medical expenses during the year. In addition, the monies from interest earned on HSA balances grow significantly over the years. Ms. Laing is the author of “The Small Business Guide To HSAs” available at our discount bookstore and “The Consumer Guide To HSAs” (released December 1). HSAs work like retirement accounts, allowing you to accumulate tax-free savings and even lower your tax rate, depending on your income. If you are self-employed, you get a double benefit from HSAs. 1. HSAs allow tax-free annual contributions of up to: $2,650 for Individuals, and $5,250 for Families (two or more people) Plus, there is a catch-up provision for those 55 years plus; an additional $500 can be contributed in 2004 (this amount increases by $100 annually until it reaches $1,000 per year in 2009 and beyond). Because 73% of the U.S. population uses $500 or less per year on medical expenses, many individuals will have money left in their HSA accounts at year-end. This amount rolls-over and accumulates tax-free. The charts below chronicle how funds will grow based on some reasonable assumptions. Health Savings Account Balance At Age 65
Based On $2,000 Remainder Each Year Start At | 5% | 6% | 7% | 8% | 9% | 10% | Age 25 | $253,679 | $328,095 | $427,219 | $559,562 | $736,583 | $973,703 | Age 35 | $139,521 | $167,603 | $202,146 | $244,691 | $297,150 | $361,886 | Age 45 | $69,438 | $77,985 | $87,730 | $98,845 | $111,529 | $126,004 | Age 55 | $26,413 | $27,943 | $29,567 | $31,290 | $33,120 | $35,062 |
Health Savings Account Balance At Age 65
Based On $1,200 Remainder Each Year Start At | 5% | 6% | 7% | 8% | 9% | 10% | Age 25 | $126,840 | $164,048 | $213,610 | $279,781 | $368,292 | $486,852 | Age 35 | $69,761 | $83,802 | $101,073 | $122,346 | $148,575 | $180,943 | Age 45 | $34,719 | $38,993 | $43,865 | $49,423 | $55,765 | $63,002 | Age 55 | $13,207 | $13,972 | $14,784 | $15,645 | $16,560 | $17,531 |
Health Savings Account Balance At Age 65 Based On $500 Remainder Each Year
Start At | 5% | 6% | 7% | 8% | 9% | 10% | Age 25 | $63,420 | $82,024 | $106,805 | $139,891 | $184,146 | $243,426 | Age 35 | $34,880 | $41,901 | $50,537 | $61,173 | $74,288 | $90,472 | Age 45 | $17,360 | $19,496 | $21,933 | $24,711 | $27,882 | $31,501 | Age 55 | $6,603 | $6,986 | $7,392 | $7,823 | $8,280 | $8,766 |
And, some view an HSA like a “Medical IRA,” a way to save even more money tax-free for retirement. 2. Those near a tax rate change point can lower their taxable income through contributing to their HSA. HSA contributions are tax-free and lower your taxable income.
2004 TAX RATE SCHEDULES | | | | | | | | | | | | | | Taxable Income at which You Move from Lower Tax Rate to Higher Tax Rate | Lower Tax Rate | Higher Tax Rate | | Schedule
X
Single | Schedule
Y-1
Married Filing Jointly or Qualifying Widow | Schedule
Y-2
Married Filing Separately | Schedule
Z
Head of Household | 15% | 25% | | $29,050 | $58,100 | $29,050 | $38,900 | 25% | 28% | | $70,350 | $117,250 | $58,625 | $100,500 | 28% | 33% | | $146,750 | $178,650 | $89,325 | $162,700 | 33% | | | | | | |
* Those who are looking for another way to save additional money, an HSA is like a “Medical IRA.” 3. Self-employed individuals get a double benefit from HSAs. They can deduct the cost of the insurance premium and the amount contributed to the HSA. Example for David Hoffman After Tax Cost of Health Insurance Assumptions: | | | | | | | Maximum allowable HSA deposit * | | $5,150 | | $5,150 | | $5,150 | Tax Rate (State + Federal) | | 33% | | 28% | | 15% | Self-employed (100% of premiums deducted) | | | | | | | | | Sample HSA Health Plan | | Sample HSA Health Plan | | Sample HSA Health Plan | Monthly Cost of Insurance ** | | $283.90 | | $283.90 | | $283.90 | Health Savings Deposit | | $429.17 | | $429.17 | | $429.17 | Total Monthly Cost | | $713.07 | | $713.07 | | $713.07 | Tax Deduction for Insurance
(Insurance Rate x Tax Rate%) | |
$93.69
| |
$79.49
| |
$42.59
| | | | | | | | Tax Deduction for Savings Deposit
(Savings Deposit x Tax Rate%) | |
$141.63
| |
$120.17
| |
$64.38
| | | | | | | Total Tax Savings | | $235.31 | | $199.66 | | $106.96 | Cost After Tax Savings | | $477.76 | | $513.41 | | $606.11 | Health Savings Deposit | | $429.17 | | $429.17 | | $429.17 | Net Monthly Cost of Insurance after Taxes | | $48.59 | | $84.24 | | $176.94 | Annual Health Savings Deposit | | $5,150 | | $5,150 | | $5,150 |
* For Family with no catch-up provision.
** Cost of an HSA Health Plan varies by location and other factors. NOTE: On this website, check “Calculate if an HSA will work for you”. Should you desire, there is an easy-to-use feature that provides an HSA high-deductible health plan quote for you and/or your business. One of our most popular pages is “Where to open an HSA Savings Account.” Because situations vary with each individual, it is always best to check with a qualified advisor pertaining to your situation. A list of Providers (accountants, attorneys, plan administrators; as well as insurance agents, HSA custodians, etc.) is available through this website; it is collected and managed without financial consideration by the editorial staff. |
