Health-care`s IRA fosters retirement savings while serving as `health insurance` too.
Carol McEvoy
So what`s all this talk about medical savings accounts? If you aren`t sure, you`re not alone. Although the medical savings account (MSA) has been around for over a year, it was brought to market with very little information about just how much it has to offer.
But now the word is out and the MSA is catching the attention of more and more self-employed individuals, particularly medical and dental professionals. The MSA can provide a cost-effective health-care option and fill a big gap in your tax-planning, while providing a handsome supplement to your retirement savings. It also is a cost-savings way for you to offer a °benefits program to your full-time staff members, enabling you to attract and retain quality employees.
If you qualify for the account - and dentists with their own practices surely can - read on and see why you shouldn`t delay in setting up your own MSA!
What is it?
It`s a tax-exempt custodial or trust account that can be used to pay for medical care. Think of it as an IRA for health care. You get to deduct contributions to the account when you make them and there`s no current tax on the fund`s year-to-year earnings.
What makes the MSA even better, though, is that withdrawals for eligible medical expenses aren`t subject to income taxes. Only funds withdrawn to pay for noneligible medical or other expenses are subject to taxes and penalties. If you don`t need the money for health-care purposes, it can be saved for retirement. Some MSAs also enable you to transfer balances, once they`ve reached a certain level, into a brokerage account, where they can be invested in a wide variety of mutual fund and equity investments. The MSA gives you complete control over your health-care choices, while saving substantially over what you would spend through a traditional health-insurance plan.
Who is eligible? Keep the following in mind:
+ You must be self-employed or an employee of a business with 50 or fewer employees.
+ Your MSA must be coupled with a qualified, high-deductible health-insurance policy.
+ You cannot be covered by another health-care plan (with certain exceptions).
Your high-deductible, health-insurance policy must have an annual deductible between $1,500 and $2,250, with annual out-of-pocket expenses no greater than $3,000 for individual coverage. For family coverage, the annual deductible must be between $3,000 and $4,500, with annual out-of-pocket expenses no greater than $5,500.
Contributions and distributions
Each year, you can contribute up to 65 percent of the health-insurance deductible for an individual policy and 75 percent of the deductible for a family policy. The amount depends on the number of months that you have qualified, high-deductible coverage and the deductible amount.
Like IRAs, you have until April 15 of the following year to make a deductible contribution.
It`s your decision when and where you use your MSA. Depending on where you open your account, you may be able to make convenient withdrawals by check, ATM or debit card swiped through a credit-card terminal. Eligible medical expenses include those expenses otherwise deductible under the Internal Revenue Code, other than insurance expenses (with certain exceptions).
Employee coverage
Again, a great advantage of the MSA is that it can lower the cost of providing employee health-care coverage. The cost of a high-deductible, health-care policy is much less than that of a traditional policy. Either you or your employees can make deposits to the MSA. Your employees also have the security of knowing that the funds already deposited to their accounts stay with them through employment changes. If you currently are not providing health-care coverage for your employees due to the high cost, the MSA may be the answer.
What`s the hurry?
You can open a medical savings account with a bank, insurance company or other financial institution that offers these accounts. The sooner you sign up, the sooner you benefit from the freedom of choice and tax benefits offered by the MSA. Also, MSAs are being established as part of a four-year pilot program and there is a limit to the number of accounts that can be opened. If you are interested, you shouldn`t delay in setting one up.
For more information, call (800) 767-PLAN.
