Among the many uses for Health Savings Accounts is paying premiums for long-term care insurance with pre-tax income.
An estimated 14 million Americans have these accounts.
The 14 million American individuals who have health savings accounts were encouraged to use this benefit to pay for long-term care insurance protection.
“Millions of Americans now have high-deductible health insurance coverage which enables them to take advantage of Health Savings Accounts, a tax advantaged medical savings account that can be used for many costs including long-term care insurance,” Jesse Slome, executive director of the American Association for Long-Term Care Insurance and author of the Guide To Tax-Qualified Long Term Care Protection, said in a statement. “This is a tax advantaged way to obtain protection few are aware of.”
Health Savings Accounts were established in 2003. Their primary advantage is the ability to make pre-tax contributions prior to the Federal Insurance Contributions Act tax and Medicare Tax deduction, which amounts to a savings of 7.65 percent.
“Since everyone is now paying two percent more in withholding than they did last year, the tax advantage is even greater,” Slome said.
For 2013, the contribution limits are $3,250 for a single individual and $6,450 for a family. Those over age 55 can make an additional $1,000 catch-up contribution.
“The amount one can contribute to an HSA is going to be more than the cost of long term care insurance,” Slome said.
The association’s yearly Price Index revealed that a valuable policy for someone age 55 could be obtained for between $100 and $140-per-month.
“Far too few take advantage of the many tax advantages available to individuals,” Slome said. “People thinking about long term care planning have a double advantage.”
Slome outlined a strategy that he noted few are aware of. People can use the HSA to pay for all or part of premium costs during ones working years when they may not meet the threshold necessary to make health and medical expenses deductible. After retiring, when income is lower, meeting the deductible limits for health costs is much easier.
“In retirement, many people will find they are able to deduct the cost of long-term care insurance at a time when those tax deductions really matter,” Slome said.
