Putting money into a health savings account is an excellent way to save on your taxes while protecting yourself against unforeseen expenses. You can take a tax deduction for the money you put into a health savings account, even if you do not itemize your deductions. You can then use the money in the account to pay for eligible health care expenses, including medications and doctor visits.
No Income Limits
Unlike individual retirement accounts and other savings programs, health savings accounts are not subject to income limits. As of 2011, there are no income limitations on eligibility for a health savings account, and any individual who holds an HSA-eligible health plan can fund such an account. That makes the HSA a good choice for many consumers, since the money you put in can provide you with a valuable tax break when you file your return.
Types of Income
Unlike an IRA, which allows you to invest only earned income, there are no such restrictions for health savings account contributions. If you wish, you can use unearned income, such as capital gains, interest and dividends, to fund your HSA. You can, of course, also contribute earned income like wages by diverting a portion of each paycheck to your health savings account. No matter the source of the income, you can still take a tax deduction for the amount of money you put into your HSA, up to the applicable limits imposed by the Internal Revenue Service.
Even though there are no income limits for participation in a health savings account, there are limits on the amount you can contribute each year. The government reviews these limits each year and adjusts them as necessary, based on a number of factors, including health care inflation. For 2011, you can contribute up to $3,050 to a health savings account that covers an individual. If your health savings account covers your entire family, you can contribute up to $6,150. In addition, those 55 and older can contribute an additional $1,000 to their plans.
Eligible Health Plans
Before you can contribute to a health savings account, you must have an eligible health insurance plan in place. The health insurance plan must be in place prior to the date you open the HSA. To qualify, the health insurance plan you choose must have a deductible of at least $1,200 for individual coverage or $2,400 for family coverage. This deductible level meets the requirement for a high-deductible health plan, which is currently the only type of health plan you can use with an HSA. These deductible level requirements are as of 2011 and are subject to change. Always check with your health insurance broker to make sure your plan is HSA-eligible.