Health Savings Accounts

With all the talk this year on health care I thought I would share a little bit on some things that can help in medical coverage. For many years  I have enjoyed very good medical care from my employer and haven't had to shop around for medical coverage. Of course times have changed and Patti & I are both self employed.

What is interesting is that you have to carefully look at what you spend each year on medical, dental and Rx. Also, include your share of the medical cost after insurance has been applied. We chose a high deductible to reduce the outflow of cash because the monthly premiums were to high to justify.

If your like us and have medical and dental expenses that are less that 7.5% of your annual income you won't be able to write any of these expense off on your taxes. Your only able to write off in medical & dental expenses beyond 7.5%. Example: If you make $100,000 annually. The first $7,500 is completely out of pocket, you are not able to write this off on your taxes. If you spent 8,000 in one year on medical & dental you would get to write off $500 because it exceeds the 7.5% of adjusted income.

This is why we like the Health Savings Account (HSA). HSA's allow you to deposit funds to a limited amount each year that is not subject to the Federal Income Tax. When you open an HSA you get an HSA debit/credit card that you use on your medical, dental and prescriptions for the year. What you don't spend rolls over to the next year and so on. It's kind of like being self insured, but your basically building a savings account upfront on purchases you spend anyway through-out the course of the year.

Let me try another example: The average grocery store shopper will spend $7,000 per year on groceries to feed there families. That is about $583 per month. We know you can't write off your groceries, but if there was a special Food Savings Plan that gave you that ability reduce your taxable income you would be all over it.

I know this is a little out in left field but the point I'm trying to make is that you will spend money on your Medical and Dental insurance deductibles each year. You will have medical expenses that insurance won't cover. You will most likely have out of pocket prescription expenses through-out the year. If you don't the savings will roll over and you'll have it the next year. And you'll be taking full advantage of the tax breaks and reducing your tax burdens.

Dave Alexander
JustGoFishin.com
Corpus Christi, Texas