Medical Savings Account Questions
What is a medical savings account?In the United States of America, medical savings accounts are accounts that a person can open, typically if they are self employed, to deposit tax-deferred money to cover certain qualified medical expenses. When a person withdraws money from their medical savings account, the money that they deduct is tax free if it is used to pay for qualified medical expenses. A medical savings account can be used for expenses related to most forms of health care, disability, dental, vision care, and long-term care regardless if the expenses are billed through the qualifying insurance or not. Listed below are questions on medical savings accounts answered by the Experts.
Can a corporation with only two employees set up a tax-deductible medical savings account where the two employees are also corporate owners? And can they put away a sum of money each month into an account to be used for their monthly medical expenses? If so, would this money be exempt from taxes?In most cases, a corporation can set up a medical savings plan that the owners of the corporation can participate in as normal employees. They can create a small account and can perhaps choose a company like Fidelity that specializes in small accounts to help them.
If a person’s relative died and left their Individual Retirement Account (IRA) and medical savings account to them, would the person be liable for taxes on both accounts or would the amount be added to the person’s income and then taxed?When it comes to the IRA, the person would be taxed on the funds that are taken from the account since it would be considered to be a part of the person’s ordinary income for the year that the distributions were taken. The person could also check the possibility of withdrawing the funds over a period of time to lessen the impact of the tax. However, in case the person’s relative made any non-deductible contributions or after-tax rollovers, the person could receive these amounts tax-free. With regard to the medical savings account, this would be taxable in the same year that the relative died. For more information, see page 13 - http://www.irs.gov/pub/irs-pdf/p969.pdf
If an individual had an early distribution of their IRA due to a disability and medical expenses, would this money be counted as income and would the individual have to pay taxes on it?If the individual is disabled, they would need to file Form 5329 with their return. The person would need to enter code 03 on line 2 of this form. The individual would also need to meet the IRS’s definition of disability by providing proof that they are unable to sustain a job in their field of expertise. If the individual were to receive Social Security Disability, they would automatically meet this qualification. Also, the person will most likely be taxed on the money received from the IRA.
If a person owns a corporation and wanted to determine what insurance they should have, would a medical savings account be something that they would need to consider getting?A medical savings account is an account that a person can deposit money into to help pay for future medical expenses. When a person owns a corporation, they would be considered an employee of the corporation and can deposit money into the medical savings account. A medical savings account can be opened and dealt with through any financial institution or insurance broker.
A medical savings account is an account that helps a person save money to pay for future medical care or deductibles. When a person is considering a medical savings account, they may have several questions. These questions can be about who can qualify, how the medical savings account works and so on. Whatever the query, put them to Tax Professionals now for information and insights on the case.