Incase anyone was wondering what Bush’s goal is with his Health Savings Account Plan, here’s some insight via Bloomberg…
President George W. Bush’s proposal to expand health savings accounts, intended to help contain spiraling medical costs, may prove a tax-free boon for the nation’s rich.
Both supporters and opponents of the proposal said the enhanced HSAs offer unprecedented tax advantages and may become more attractive than 401(k)s or Individual Retirement Accounts as a way for the richest and healthiest Americans to build savings.
The proposal would create “the mother of all tax shelters,” said Paul Caron, a professor at the University of Cincinnati College of Law.
Here’s the caveat for the high income folks that Bush loves to favor… No Income Limits…
Moreover, high-income people who already put the maximum $15,000 a year into their 401(k) retirement plans would be able to save an additional $10,500 in an HSA. And Bush has proposed no income limits on HSAs like those for contributions to individual IRAs, making them even more attractive to high-income individuals, Furman said.
The extra tax benefits, meanwhile, would allow a single contribution of $10,500 to grow to $25,486 over 30 years if it earns 3 percent annually, Furman concluded. The same amount deposited in a 401(k) plan would net only $16,190, largely because taxes would be owed on withdrawals.
Withdrawals from HSAs would be taxed as well if the proceeds are used for anything other than medical expenses, though at a lower effective rate than traditional retirement accounts because of the more generous upfront tax breaks. An additional penalty would be imposed for withdrawals from the accounts before the age of 65 that aren’t used for medical expenses.
“It’s not about health care,” Furman said. “No one needs to put away $10,000 a year and have it accumulate to hundreds of thousands of dollars to pay for health care.”