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Money Girl
084 MG Get to Know Health Savings Accounts
Hey, Fidelity. What's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on US stocks and ETFs. Hmm, that's music to my ears. I can only talk. Investing involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Sell or assessment fee not included. A limited number of ETFs are subject to a transaction-based service fee of $100. See full list at Fidelity.com/commissions. Fidelity brokerage services LLC member NYSE SIPC. Introducing Wendy's new saucy nugs, the nugs you love covered in your favorite sauces. So no matter what flavor you're craving, Wendy's has you covered. Grab Wendy's new saucy nugs today. Open until midnight or later. At participating US Wendy's, ours may vary by location. Hello and welcome to Money Girl's Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. In today's episode, I'm going to discuss how to pay for medical expenses and save for retirement using a tax-advantaged health savings account. Health savings accounts are extremely flexible savings vehicles that offer many advantages called HSA's for short. These programs are available for United States taxpayers to provide a tax advantage that offsets our growing health care expenses. First I'll discuss who is qualified to have an HSA. Then I'll explain more about the specifics of HSA's, how you open one and the benefits. To qualify for a health savings account, you must meet the following five requirements. Number one, you must be 18 years of age. Number two, you must have a high deductible health plan, or HDHP. More details about these in a moment. Number three, you cannot have any general health coverage other than a high deductible health plan. Number four, you must not be enrolled yet for Medicare benefits. And number five, you cannot be claimed as a dependent on someone else's 2007 income tax return. If you meet these five criteria, congratulations! You're eligible to have a health savings account, and if you're not eligible right now, stay with me because you might become eligible in the future. So what's considered a high deductible health plan? Well, it's exactly that. It has a higher than typical annual deductible. A deductible is the maximum amount of out-of-pocket medical expenses that you would pay during the year before your insurance takes over. High deductibles mean lower monthly premiums. So high deductible plans can be the logical choice for you or your employer as the cost of health insurance steadily rises. If you qualify to have an HSA, it's easy to open one up. This is done through a qualified HSA trustee, which could be a bank, an insurance company, or anyone who's already approved by the Internal Revenue Service to be a trustee of IRAs. You may be wondering how much you can deposit into a health savings account each year. While the maximum amount that can be contributed for the 2008 tax year is $2,900 for an individual policy and $5,800 for a family policy. If you're aged 55 or older, there is a catch up policy that allows you to contribute an extra $900 a year to either an individual or family policy. If you're qualified to have an HSA but still have an open one, I really want to encourage you to do it. The program offers a great once-in-a-lifetime funding opportunity to open your HSA using money you may already have saved in your IRA. The trustee of your IRA simply transfers the money to the trustee of your new HSA. This distribution is not included in your income nor is it tax deductible. You can also roll over funds from other types of qualified medical savings accounts into HSA's. There are many benefits you'll enjoy when you have an HSA. Consider the following eight advantages. Number one, contributions that you make to the account up to the legal limit are tax deductible. Number two, any contributions made by your employer are excluded from your gross income, so you get to spend them as pre-tax dollars. Number three, all contributions remain in your account indefinitely until you choose to use them. There's no penalty if you don't use the money. Number four, interest you earn on the account accumulates over the years tax deferred and if used to pay for qualified medical expenses is tax free. Number five, withdrawals used to pay qualified medical expenses for you, your spouse and your dependents are never taxed. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel, planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. With policy genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same day approval and avoid unnecessary medical exams. Policy Geniuses technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace and if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork and advocate for you throughout the process. It's never too late to plan ahead. Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. Introducing Wendy's new Saucy Nugs, the nugs you love, covered in your favorite sauces. So no matter what flavor you're craving, Wendy's has you covered. Grab Wendy's new Saucy Nugs today. Open till midnight or later. Participating U.S. Wendy's hours may vary by location. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit that's linkedin.com/results. Terms and conditions apply. Linked in the place to be, to be. Number six, the account is portable, which means that you'll always own the account even through life changes, such as marriage, divorce, changing jobs, being unemployed, retirement, moving out of state or out of the country, changing your insurance provider or even becoming uninsured. Number seven, paying for qualified expenses directly from your HSA is very convenient. Most institutions offer checks, a debit card, and even online banking. And lastly, number eight, the money you save in your HSA will be there to pay for qualified expenses in the event of job loss, unexpected health needs, or to bridge the gap between retirement and the start of Medicare benefits. Plans in an HSA are meant to be used for payment of current and future qualified medical, dental, and vision expenses that are not covered by the high deductible health plan. There are many qualified expenses and some that you might not expect, like acupuncture, bandages, capital expenses for home improvements related to medical needs, addiction therapy, and lead-based paint removal. Check out the complete list of qualified medical expenses in IRS Publication 502. You'll find a link to this document in the show notes. And remember, you can search for any IRS topic at irs.gov. Be aware of something very special about HSA's, even though non-prescription medicines are not considered a qualified medical expense for deduction from income taxes, non-prescription medicines do qualify as valid expenses for HSA purposes. So think about the beauty of being able to pay for eligible over-the-counter medications with pre-tax money. This could include items such as antacids, allergy medications, pain relievers, cold and cough medicines, first aid ointments, motion sickness pills, etc. According to the U.S. Department of the Treasury website, a qualified medical expense must be, quote, "primarily for the prevention or alleviation of a physical or mental defect or illness," end quote. This means you can't use HSA funds to pay for items that would be considered toiletries, such as toothpaste or cosmetics. If you use your HSA money to pay for anything other than qualified medical expenses, the money will be taxed as income, plus be subject to a 10% tax penalty. This penalty is waived, however, if you're 65 years of age or older or are disabled. So if you have remaining funds in an HSA at age 65, they can be used for retirement, penalty-free. Remember that any non-qualified expenses would still be subject to regular income tax. I hope the benefits I've reviewed will encourage you to investigate more about HSA's or to have a goal to invest the annual maximum if you already have one. Think about HSA's as a way to pay medical bills with tax-free money and a way to save for retirement, all wrapped up in one great program. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. Send email comments and money questions to money@quickanddirtytips.com or call into the Money Girl voicemail line. That's 1-877-6-Ritcher. You might just make it on the show. Money Girl is part of the QD now network. You can find show transcripts, contact information, and all the other great Quick and Dirty Tips podcasts at quickanddirtytips.com. I'm glad you're listening. Introducing Wendy's new Saucy Nugs, the nugs you love, covered in your favorite sauces. So no matter what flavor you're craving, Wendy's has you covered. This is Wendy's new Saucy Nugs today. Open till midnight or later. 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