Monthly Archives: January 2017

Health Savings Accounts (HSA’s),
The Super Roth

With the high cost of health insurance these days, many people are opting for high deductible health plans (“HDHPs”). Also, with rising incomes and spousal coverage in retirement plahsa-as-a-retirement-accountns, those same people are finding that they can no longer contribute to IRA’s due to income phase-outs. If you find yourself in that position, there may be a savings solution for you. If you are lucky enough (yes, I said lucky enough) to have an HDHP, a Health Savings Account (“HSA”) may prove to be the alternative retirement solution you have been looking for.

An HSA is a tax deductible account you set up with a financial institution to pay for certain medical expenses, or to reimburse you for certain out of pocket medical expenses. Think about this: A deductible IRA offers a tax deduction up front, but becomes taxable on withdrawal. A Roth IRA gives you tax free withdrawals, but no deduction upon contribution. An HSA gives you both a tax deduction AND tax free withdrawals (provided they are used for medical expenses). If it seems like you are getting the best of both worlds, a tax deduction and tax free treatment, it’s because you are!

Some caveats: Deductibles in your HDHP must be high enough to qualify. For calendar year 2017 the HDHP deductible requirements for an HSA are $1,300 for self-only coverage and $2,600 for family coverage. Also, maximum out-of-pocket amounts (not including premiums paid for health insurance) must be $6,550 for self-only coverage and $13,100 for family coverage.

If you clear the hurdles, deductible HSA contribution limits for 2017 are $3,400 for individuals (self-only coverage) and $6,750 for family coverage. If you are 55 and over you can contribute an extra $1,000 as a catch-up contribution. You do not have to contribute the whole amount, the limits are just the ceiling. HSA’s are not “use it or lose it.” You can carry the balances over from year to year. You don’t even have to use the HSA monies contemporaneously with the medical expenses. If you are fortunate enough to be able to pay the medical expenses now, you can hold onto the medical receipts and take the money out tax free at a later time. You can allow the money to grow tax free for as long as you want/need. Interest and other earnings within the HSA aren’t subject to tax.

Although not meant to be a retirement savings vehicle, if used properly, it certainly can be utilized as tax free retirement savings.  Beware, if you use an HSA to pay for unqualified medical expenses, the tax penalty is 20% of the HSA distribution.

Check with your employer (or insurance broker) to see if your health plan qualifies for an HSA. I will be happy to answer any other questions you may have regarding this tax saving vehicle.

Tracy Badgley, CPA, CDFA, CGMA


The IRS’s New Year Resolution to Secure Your Tax Identity

This resolution of the IRS is similar to many resolutions we all make, in that they tend to be the same each year. In the IRS’s case, they seem to be making progress toward making your “tax identity” more secure. With their annual Security Summit partnership with various states, software industry leaders, and payroll and tax preparation processors, they have focused on specific areas to resolve identified issues.

Authentication is one focus with the IRS expanding its W-2 verification code pilot program from 2 million in 2015, to 50 million W-2s issued for 2016. The program adds a code to the form so that when that return is tax-idtheft-square-logo-dates-2017electronically filed, it provides validation of a legitimate filing. The partnership has also focused on identifying new data elements on returns that will help identify possible identify theft scams on both a corporate and individual level in a more immediate time frame.

Taxpayer awareness has been a cornerstone to this initiative, including a marketing campaign of “Taxes. Security. Together.” as well as a “Taxpayer Identity Theft Awareness Week” starting January 30, 2017. Their primary goal is to make taxpayers cognizant that their tax documents and information are valuables that should be secured at all times. Taxpayers should make sure physical copies are secure and digital copies are in locations where they are encrypted and protected by a complex password. When sharing your information with third parties, make sure you are doing so via a secure and encrypted method. Never include sensitive data in an unsecured email or text message. Also, be comfortable with whom you are sharing the data with, and that they are taking similar precautions.

They also want to raise awareness of tax scams alleging to be the IRS, pointing out that the IRS never contacts individuals via telephone or online, therefore information should never be given out to anyone contacting you by those methods.

Many of the remaining initiatives involve addressing how the financial industry and tax professionals handle current security safeguards as well as coordinated anticipation of evolving new risks. The IRS believes these ongoing efforts have led to the halting of approximately $1.1 billion in fraudulent refunds claimed in the 2016 tax season. In addition, the IRS Identity Theft Victim Assistance function reported a drop of 48% in the first half of 2016 as compared to the previous year.

All these signs are positive, but make sure you’re doing your part so both you and your “tax identity” can have a happy and secure new year!

Ray Neubauer, CPA, CGMA