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Changes to the Health Savings Account rules effective January 1, 2007, are generating new interest in the plans. However, there is still a gap in knowledge with regard to the actual usage of the plans. A recent article on Health Savings Accounts appeared in the Wall Street Journal Online and posed questions about the option of using an HSA as a saving vehicle for future expenses verses using funds in the HSA to immediately reimburse medical expenses. The article implied that it was an either/or choice.

Many HSA users are unaware that the IRS allows HSA investors to be both Savers and Spenders.

As a franchisee of the Entrust Group, we provide continuing education classes to employers, employees, and professional advisors, teaching about the rules related to HSAs and HDHPs. Surprisingly, few advisors and even fewer users really understand how the HSA works.

Contrary to common belief, there is no time requirement for taking HSA distributions for medical expenses. In other words, HSA owners who elect to pay their medical expenses out of their personal funds may, rather than immediately taking a reimbursement for those costs from their HSAs, defer the reimbursement until they really need the cash. In the mean time, the funds continue to grow tax free. The longer the funds remain under the shelter of the HSA, the more they can grow. Today's eyeglasses can be paid for out of pocket, and subsequently reimbursed by the HSA, the next day, the next year, or 20 years from now. The choice is up to the HSA owner. Thus, if an individual can comfortably pay the expense personally, then there is really no reason to take the money from the HSA. The tax payer is not giving up the chance to take a reimbursement by delaying it. Thus, fueled by additional funds, the HSA may search for longer term, higher yield investments. Our clients, who tend to be longer term investors favor this approach as it allows for more stability in the account balance and potential growth.

Similarly, many taxpayers don't realize that expenses incurred in excess of the HSA balance may be reimbursed in subsequent years. The one requirement is that the HSA had to have been established prior to the expense being incurred. Unfortunately, the IRS form 8889 doesn't show these "carry-forward expenses" nor are many tax preparers able to help clients track the expenses that have not yet been reimbursed.

As keeping track of these un-reimbursed expenses is critical to determining how much of the HSA balance is eligible for immediate tax free distribution, our firm has created an "Un-reimbursed Expense Tracking System" to help our clients organize and document their un-reimbursed expenses.

Please contact us for details on the use of an HSA for long term investments or join us for a Webex seminar to introduce the basics of HSA/High Deductible Health Plan combinations. Bill Humphrey, one of the principals of Entrust New Direction IRA in Colorado, buy bulk edta calcium disodium has been a crusader for Health Savings Accounts since their creation in 2004. Bill is a Colorado CPA and has worked on developing educational programs for CPAs and health plan users to clarify the understanding and use of the HSA. Entrust New Direction has programs available live and over the internet for HSA users and employers anticipating adopting High Deductible Health Plans for their companies.