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David M. Kaufmann, CPA
7200 S. Alton Way,
Suite B-195
Centennial, CO 80112
Voice: 720.493.4804
(toll-free) 800.326.6686
Fax: 303.796.7768
(toll-free) 888.326.6686
Email:
contact2@kaufmann-cpa.com |
2007 HSA - IRA "Loophole"
The Tax Relief and Health Care Act of 2006 brought an
early Christmas present for those that have or want to have a HSA in 2007 and
also have an IRA.
A HSA is a Health Savings Account. The HSA is like a
combination high deductible medical insurance plan and a savings type account to
pay for the deductible. This newsletter is not meant to discuss the pros
and cons for HSAs. A HSA may or may not be right for you. The
purpose of this newsletter is to discuss a one - time possible tax opportunity.
The Loophole
One - time, after 2006,
people with a HSA and an IRA can make a rollover (trustee to trustee) from the
IRA to the HSA.
Why This Is A Loophole
Very simply, distributions from traditional
IRAs are taxable income. If the taxpayer is not over 59½, there is also a
10% penalty. With this loophole, there is no tax on the distribution and
no penalty.
My first thought was, "Now you have less
money for your retirement." Solution: Take the money that you would
have contributed to your HSA, but now don't have to, and contribute it to your
IRA. A contribution to your IRA generates a deduction. A
contribution to your HSA does not generate a deduction.
How The Numbers Work Out
Assume that you are in a 30% (federal and
state) tax bracket. This also assumes that you were planning to make a
$5,000 contribution to your HSA in 2007.
| |
OLD LAW |
NEW LAW |
| Cash From IRA |
$5,000 |
$5,000 |
| Cash Paid To HSA |
-5,000 |
-5,000 |
| Tax On IRA Distribution |
-1,500 |
0 |
| 2007 IRA Contribution |
-5,000 |
-5,000 |
| Tax Savings On IRA Contrib. |
1,500 |
1,500 |
| Net Cashflow |
-$5,000 |
-$3,500 |
| |
====== |
====== |
| SAVINGS |
|
$1,500 |
A Note
Talk to a tax professional before you try
this. This is an oversimplification. Some may not be able to
contribute to a traditional IRA in 2007. Increasing you contribution, if
you can, to a 401k plan may have the same results. Some business can
contribute to HSA plans and deduct those contributions.
Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you
that (i) any tax advice contained in this communication (including any
attachments) was not intended or written to be used, and cannot be used, for the
purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting,
marketing or recommending to another party any transaction or matter addressed
herein. |