A reader writes in, asking: “After last week’s article discussing the rules for inherited IRAs, I would be interested to hear about the rules for inherited HSA accounts. We have been using my HSA effectively as a ‘third retirement account’ contributing the max each year regardless of likely medical expenses, since we can take no-penalty distributions for any purpose after age 65. So there’s a good chance that the account will outlive me…or even both of us.” This is an easy one. There’s no such thing as an inherited HSA — at least not in the sense that there is with an inherited IRA (in which a beneficiary can continue to own the inherited IRA, with its own set of … [Read More...]

A tax cliff occurs when one additional dollar of income beyond a certain threshold causes a sudden increase in your tax bill (or, in some cases, health insurance costs). Most tax provisions don’t include tax cliffs. Instead, the effect of additional income is “phased in” over time. For example, with the American Opportunity Credit (for higher education expenses), you can claim the full credit if your income falls below a given threshold ($80,000 if single, $160,000 if married filing jointly). Then, as your income passes that threshold, the amount of credit you can claim is gradually reduced (“phased out”) until it reaches zero. But with provisions that include tax cliffs, the change happens all at once. You either get the full deduction/credit … [Read More...]