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Health Savings Account Enhancements

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In an attempt to make health insurance and health savings accounts more attractive to consumers and businesses, Congress has revised HSA legislation in 2007. The new laws make HSA’s for individuals, families and businesses more beneficial which may likely increase the popularity of these plans.

The intended result may be that more Americans purchase high deductible health insurance/HSA plans over traditional insurance. The affordability of these plans could decrease the number of uninsured consumers across America.

1. Account Holders Can Contribute More Money

HSA contributions are no longer limited by the deductible of the health insurance policy. Individuals account owners can contribute up to $3,050 while families can deposit up to a maximum of $6,150 as of 2011.   Each year these  amounts will increase.

Additionally, deposits are no longer limited by the 1/12th systematic contribution rule. Account holders can deposit the maximum allowance in a lump sum no matter when their insurance plan was purchased.

2. Account Holders May Transfer Tax Deferred Funds From an IRA to a HSA

HSA  owners can now make a lump sum distribution from a qualified plan like an IRA (Individual Retirement Account). This would not be considered a taxable event by the Internal Revenue Service.

This way funds will be available immediately for qualified medical expenses.   Should the owner not have access to a qualified plan, then s/he can contribute ordinary post-tax, non-qualified funds and write the contributions off for that taxable calendar year.

3. Employer/Employee Account Holders May Fund with Lump Sum Deposit

Employers and employees may make one-time, lump sum contributions to a qualified account such as a FSA (Flexible Spending Account), HRA (Health Reimbursement Arrangement) or Health Savings Account.   As a result, qualifying group health insurance plans will be easier to manage.

This will be appealing to employers who are switching over from traditional plans as they will no longer need to make systematic contributions, but rather can do so one time per year. Again, funds will be available immediately for qualified medical expenses.

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These are the main benefits of the new legislation. They should make Health Savings Accounts less complicated to setup and maintain for individuals, families and businesses.

Additionally, increased contribution limits and funding options will allow consumers to save more for qualified health expenses on a tax advantaged basis.

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Category: Health Insurance, Health Savings Accounts