Health Savings Accounts (HSAs) have been slow to catch on with the public, but Congress is doing its part to champion their cause. It has tinkered with the law in recent years to make HSAs more appealing. In fact, you now have a once-in-a-lifetime opportunity — literally — to transfer funds tax-free to an HSA.
How does an HSA work? Assuming you're eligible, you can set up an HSA yourself or participate in a plan through your employer. Any contributions you make are deductible above-the-line on your personal tax return, while your employer can deduct contributions made on your behalf.
For 2009, the maximum contribution allowed is $3,000 for an individual or $5,950 for family coverage. Plus, you can add a catch-up contribution of $1,000 if you're age 55 or over. The big difference between an HSA and other tax-favored medical savings accounts is that the funds in an HSA can be invested, and the earnings grow tax-free.
Withdrawals used for medical expenses are not subject to income tax. Also, unlike funds set aside for medical expenses in flexible spending accounts, unspent funds in HSAs remain in the account to grow tax-free year after year. After age 65, withdrawals can be made and used for any purpose penalty-free but not income tax-free. To be eligible to participate in an HSA,
you: * Must have a qualifying high-deductible health insurance policy in effect.* Cannot be entitled to receive benefits under Medicare. * Cannot be claimed as a dependent on another person's tax return. * Cannot be covered by another health insurance plan other than a qualifying high-deductible health insurance plan.For 2009, a "high-deductible" policy is one with a deductible of at least $1,150 and out-of-pocket maximum of $5,800 for individual coverage; a deductible of at least $2,300 and out-of-pocket maximum of $11,600 for family coverage.Tax bonus. Under the tax law, you can roll over funds from a traditional individual retirement account (IRA), a health reimbursement account (HRA), or a flexible spending account (FSA) to a Health Savings Account without any income tax consequences. Normally, a rollover of this type would constitute a taxable distribution, with a 10% penalty tax if you're under age 59-1/2.
This tax break can be especially valuable to retirees and employees nearing the end of their careers. Also, a transfer from an FSA could make a lot of sense when FSA contributions can't be used up and would otherwise be lost.The catch. You can only do this rollover once in your lifetime, and if the rollover is from an FSA or an HRA, it must be done before 2012. Also, the transfer amount is subject to limits. Before you make the rollover election, be sure this is the right move for your situation. For details and assistance in deciding how this tax break might benefit you, give us a call.(508)679-6079 http://www.rodriguesandcompany.com
Thursday, January 29, 2009
Monday, January 19, 2009
What's New in Finances: Good news for retirees
Retirees saw trillions of dollars disappear from their retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets.
Some relief for those 70-1/2 and older was included in a year-end law passed by Congress on December 11, 2008. The Worker, Retiree, and Employer Recovery Act of 2008 included a provision that will let these older taxpayers forgo the required annual minimum distribution from their retirement accounts for the year 2009.
Normally, those 70-1/2 or older must take annual distributions from their retirement accounts or pay a 50% tax on the amount required to be withdrawn but not taken. Without the relief provided in this new legislation, retirees would have to take a 2009 distribution from an already depleted account, leaving even less in the account to recover once the economic situation improves.The law did not change minimum distribution requirements for 2008. For more information on the new law, contact our office at (508) 679-6079.
Some relief for those 70-1/2 and older was included in a year-end law passed by Congress on December 11, 2008. The Worker, Retiree, and Employer Recovery Act of 2008 included a provision that will let these older taxpayers forgo the required annual minimum distribution from their retirement accounts for the year 2009.
Normally, those 70-1/2 or older must take annual distributions from their retirement accounts or pay a 50% tax on the amount required to be withdrawn but not taken. Without the relief provided in this new legislation, retirees would have to take a 2009 distribution from an already depleted account, leaving even less in the account to recover once the economic situation improves.The law did not change minimum distribution requirements for 2008. For more information on the new law, contact our office at (508) 679-6079.
Thursday, January 8, 2009
What's New in Finances: IRS releases inflation-adjusted tax numbers for 2009
The IRS adjusts many tax numbers for inflation each year. Other numbers change as a result of tax law revision. In your tax planning for 2009, take the following changes into account:* The maximum earnings subject to social security tax increases to $106,800 for 2009. As before, all earned income (wages and self-employment income) is subject to Medicare tax.
The social security earnings limit for retirees under full retirement age increases to $14,160. There is no earnings limit for those who have reached full retirement age.
* The top estate tax rate remains at 45%, but the exemption amount increases to $3.5 million for 2009. The annual gift tax exclusion increases to $13,000 per donee.* The nanny tax threshold increases to $1,700 for 2009. If you pay household workers more than this amount during the year, you're responsible for payroll taxes
*The kiddie tax threshold increases to $1,900. If your child has more than $1,900 of unearned income in 2009 (e.g., dividends and interest income), the excess could be taxed at your highest rate if your child is under age 19 (under age 24 if the child is a full-time student).
* The first-year business equipment expensing limit goes back to its 2007 amount (as adjusted for inflation). Unless Congress changes this limit (and the expectation is that they will), the limit for 2009 is $133,000. The phase-out level is $530,000.
*The standard mileage rate for business driving in 2009 goes down to 55¢ per mile, and the mileage rate for medical and moving expenses is 24¢ a mile. The general rate for charitable driving remains at 14¢ a mile.
* The adoption credit increases to $12,150 for 2009 adoptions.There are some changes to the retirement plan contribution limits for 2009. The maximum contribution for an IRA remains at $5,000 for those under age 50, and at $6,000 for those 50 and older. The SIMPLE plan limit increases to $11,500 for individuals under age 50, and to $14,000 for those 50 and older.
The 401(k) limit increases to $16,500; those 50 and older can contribute up to $22,000.
For details or for assistance as you begin your 2009 tax planning,
give our office a call at 508-679-6079.
The social security earnings limit for retirees under full retirement age increases to $14,160. There is no earnings limit for those who have reached full retirement age.
* The top estate tax rate remains at 45%, but the exemption amount increases to $3.5 million for 2009. The annual gift tax exclusion increases to $13,000 per donee.* The nanny tax threshold increases to $1,700 for 2009. If you pay household workers more than this amount during the year, you're responsible for payroll taxes
*The kiddie tax threshold increases to $1,900. If your child has more than $1,900 of unearned income in 2009 (e.g., dividends and interest income), the excess could be taxed at your highest rate if your child is under age 19 (under age 24 if the child is a full-time student).
* The first-year business equipment expensing limit goes back to its 2007 amount (as adjusted for inflation). Unless Congress changes this limit (and the expectation is that they will), the limit for 2009 is $133,000. The phase-out level is $530,000.
*The standard mileage rate for business driving in 2009 goes down to 55¢ per mile, and the mileage rate for medical and moving expenses is 24¢ a mile. The general rate for charitable driving remains at 14¢ a mile.
* The adoption credit increases to $12,150 for 2009 adoptions.There are some changes to the retirement plan contribution limits for 2009. The maximum contribution for an IRA remains at $5,000 for those under age 50, and at $6,000 for those 50 and older. The SIMPLE plan limit increases to $11,500 for individuals under age 50, and to $14,000 for those 50 and older.
The 401(k) limit increases to $16,500; those 50 and older can contribute up to $22,000.
For details or for assistance as you begin your 2009 tax planning,
give our office a call at 508-679-6079.
Monday, January 5, 2009
Will your gifts bring a tax surprise?
When it comes to gift giving, surprises are part of the pleasure. When it comes to gift taxes, surprises are the last thing you want. To help protect you from the unexpected, here are answers to common questions about federal gift tax law.
Question: How does the annual exclusion work?
Answer: The annual exclusion lets you make certain gifts up to a specified dollar limit each year ($12,000 for 2008), to anyone you want, without having to pay gift tax or file a gift tax return. The exclusion is automatic, so you don't have to make an election to claim it.
Example: You give $10,000 cash to five different friends during 2008. Though you've given away $50,000 in total, each gift is less than $12,000. No gift tax return is required, and neither you nor your friends will owe gift tax.
Since the exclusion applies on an annual basis to the first $12,000 of gifts you give to any one recipient, there's no carryover of unused amounts, either to another person or to the following year. In addition, the exclusion typically covers only gifts of "present interests," which means the person to whom you give the gift has immediate unrestricted rights to the property.
Question: Are any other exclusions available?
Answer: You can use the education exclusion to make direct payments to a school for tuition with no gift tax consequences, no matter the amount.
Medical expenses you pay directly to the provider on behalf of a friend or family member are also excluded from federal gift tax.
A third exclusion is marital: You can generally give unlimited tax-free gifts to your spouse. (Special rules apply to spouses who are not U.S. citizens.)
Question: What is gift splitting?
Answer: Gift splitting lets you and your spouse apply both of your annual exclusions to a gift. In effect, you elect to make a joint gift.
Example: You give $24,000 to your son during 2008. Your spouse consents to gift splitting, which allows you to treat the gift as if each of you made one-half of it. In most cases, you'll both have to file a gift tax return, but your combined exclusion will shelter the gift from tax.
Question: What is the lifetime exemption?
Answer: Gifts you make in excess of your $12,000 annual exclusion that are not sheltered by gift splitting or other exclusions may still be tax-free. Under present law, you can make cumulative taxable lifetime gifts of up to $1 million before the gift tax kicks in.
Note: Although no tax is due on gifts qualifying for the lifetime exemption, you're still required to file a gift tax return.
In addition to the satisfaction of making a friend or family member happy, gift giving can be a valuable estate planning tool. Please contact us with your questions about federal or state rules. We'll be happy to discuss gifting strategies.
Question: How does the annual exclusion work?
Answer: The annual exclusion lets you make certain gifts up to a specified dollar limit each year ($12,000 for 2008), to anyone you want, without having to pay gift tax or file a gift tax return. The exclusion is automatic, so you don't have to make an election to claim it.
Example: You give $10,000 cash to five different friends during 2008. Though you've given away $50,000 in total, each gift is less than $12,000. No gift tax return is required, and neither you nor your friends will owe gift tax.
Since the exclusion applies on an annual basis to the first $12,000 of gifts you give to any one recipient, there's no carryover of unused amounts, either to another person or to the following year. In addition, the exclusion typically covers only gifts of "present interests," which means the person to whom you give the gift has immediate unrestricted rights to the property.
Question: Are any other exclusions available?
Answer: You can use the education exclusion to make direct payments to a school for tuition with no gift tax consequences, no matter the amount.
Medical expenses you pay directly to the provider on behalf of a friend or family member are also excluded from federal gift tax.
A third exclusion is marital: You can generally give unlimited tax-free gifts to your spouse. (Special rules apply to spouses who are not U.S. citizens.)
Question: What is gift splitting?
Answer: Gift splitting lets you and your spouse apply both of your annual exclusions to a gift. In effect, you elect to make a joint gift.
Example: You give $24,000 to your son during 2008. Your spouse consents to gift splitting, which allows you to treat the gift as if each of you made one-half of it. In most cases, you'll both have to file a gift tax return, but your combined exclusion will shelter the gift from tax.
Question: What is the lifetime exemption?
Answer: Gifts you make in excess of your $12,000 annual exclusion that are not sheltered by gift splitting or other exclusions may still be tax-free. Under present law, you can make cumulative taxable lifetime gifts of up to $1 million before the gift tax kicks in.
Note: Although no tax is due on gifts qualifying for the lifetime exemption, you're still required to file a gift tax return.
In addition to the satisfaction of making a friend or family member happy, gift giving can be a valuable estate planning tool. Please contact us with your questions about federal or state rules. We'll be happy to discuss gifting strategies.
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