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Year-end Health Savings Account Strategies for 2007 - Bloodborne ...

Health Savings Accounts can be an important part of an individuals tax and money-management strategy. Not only can you reduce your health insurance premiums, but when you fund your account you get a nice tax break. If you stay healthy, your money grows tax-deferred like an IRA, and can amount to a lot of money in retirement.

Every year around this time you should assess your finances and see what you need to do to optimize your situation. Making the most of your HSA is one area that can really make a difference. Here are the key things you need to know to get the greatest tax reduction and the most growth out of your Health Savings Account.

Maximizing Your Contribution May Reduce Your Taxes By 36 or More

If you own an HSA-qualified health insurance plan that has an effective date no later than December 31, 2007, you qualify to make a tax deductible contribution to your Health Savings Account. This will immediately reduce your tax bill come April 15.

The contribution limit is not pro-rated based on the number of months in 2007 in which you had coverage, as it was in the past. However, you do need to remain an HSA-eligible individual throughout 2008, or the extra amount contributed will be counted as income and subject to an additional 10 percent tax.

The maximum Health Savings Account contribution in 2007 is 50 for families, and 50 for individuals. If you are 55 or older, you may also contribute an additional 0.

Your HSA contribution is deductible on your federal income taxes, and every state (except AL, CA, NJ, and WI) also gives a deduction on state income taxes. So by maximizing their HSA contribution a family in a 28 percent tax bracket, paying 4.5 percent state income taxes, will reduce their April 15 tax burden by 36.25.

Though your HSA-qualified health insurance must be in place before the end of the year, you do have until April 15 to make your 2007 contribution. Though you cannot put any more 2007 money in if you miss this deadline, you can reimburse yourself in later years for qualified expenses incurred in 2007, even if you do not currently have the money in your account.

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