insurance

Qualifying for a Health Savings Account

You don't have to have earned income -- just a high-deductible health insurance policy -- to sign up for one of these tax-advantaged accounts.

I am 60 and retired with sources of income from investments and pensions, but no earned income. Would I qualify for a health savings account if I took out a high-deductible policy?

You sure can, and it's a good idea. Unlike with IRAs, you don't need to have earned income to qualify for a health savings account. Instead, you just need to open a high-deductible health insurance policy. For 2008, the deductible must be at least $1,100 for individual coverage or $2,200 for family coverage.

Then you can make tax-deductible contributions to a health savings account. In 2008, most people can contribute up to $2,900 to an HSA if you have individual coverage, or up to $5,800 for family coverage. People who are age 55 and older also can make a $900 catch-up contribution in 2008. You can't contribute to an HSA after you sign up for Medicare at age 65.

You don't need income from a job to take advantage of the tax deduction. "They can deduct their contributions from any type of taxable income, such as earnings from investments, even if it is not earned income," says Roy Ramthun, president of HSA Consulting Services in Washington, D.C.

The money accumulates tax-deferred in the account, and you can use it tax free for medical expenses in any year. After age 65, you can use the HSA money for anything without a penalty. But it's still best to reserve the account for health care costs, which can spare you the tax bill.

If you're on Medicare, the HSA should still come in handy for plenty of out-of-pocket expenses, such as co-payments and deductibles as well as premiums for Medicare, Medicare Advantage or Part D (but not medigap premiums). You also can use the money for part of the premiums for qualified long-term care insurance policies.

For more about HSAs, see Health Savings Account Answers.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS updated its popular online tool so that you can track the status of your second stimulus check.
January 9, 2021
Biden Calls for $1,400 Payments as Part of $1.9 Trillion Relief Package
Coronavirus and Your Money

Biden Calls for $1,400 Payments as Part of $1.9 Trillion Relief Package

Under Biden's plan for a third stimulus check, the $600 second-round stimulus checks would be increased to $2,000.
January 14, 2021
6 Reasons Why Your Second Stimulus Check Might Be Delayed
Coronavirus and Your Money

6 Reasons Why Your Second Stimulus Check Might Be Delayed

The IRS started delivering second-round payments in December. If you're still waiting for your money, here's why your second stimulus check could be l…
January 9, 2021

Recommended

12 Ways the Biden Stimulus Package Could Put (or Keep) Money in Your Pocket
Coronavirus and Your Money

12 Ways the Biden Stimulus Package Could Put (or Keep) Money in Your Pocket

President-elect Biden's "American Rescue Plan" includes several proposals to assist people financially harmed by the pandemic.
January 15, 2021
What You'll Pay for Medicare in 2021
Healthy Living on a Budget

What You'll Pay for Medicare in 2021

For Medicare premiums 2021, look for modest increases in premiums and out-of-pocket costs.
December 16, 2020
Making Wise Choices During Open Enrollment
health insurance

Making Wise Choices During Open Enrollment

Contributing Editor Lisa Gerstner runs through the new variables of the 2020 open enrollment season. Also, hosts Sandy Block and David Muhlbaum talk a…
November 17, 2020
What the New President Means for Your Money
Politics

What the New President Means for Your Money

President-Elect Biden wants more consumer protections and perks for the middle class and seniors.
November 17, 2020