New Health Savings Accounts Useful for Tax Avoidance

The IRS has released some more thorough guidelines as to how to establish, offer and use Health Savings Accounts. HSAs are a new, legal way for people to hide a portion of their income from the tax man.

I’ve been trying to keep Picket Line readers up-to-date as the IRS continues to try to decide what Congress had in mind when they enacted them. Previous Picket Line entries about HSAs, with more details about what they are and why they’re useful, include:

And the latest news can be found at:

One interesting part of the update: “HSA owners can carry over expenses from year to year for later tax-free reimbursement. For example, a 40-year old taxpayer starts an HSA in August 2004. Each year he incurs $2000 in out-of-pocket health costs, so over 25 years he has incurred $50,000 in unreimbursed medical expenses. If he hasn’t withdrawn any funds from his HSA for 25 years, he can withdraw up to $50,000 tax-free. The catch: he has to be able to document those old expenses.” It’s another way in which these new plans are much more flexible and liquid than IRAs (which they otherwise resemble).