How A Health Savings Account Can Help You
When it comes to your health insurance, every penny counts, especially with every-rising insurance rates and premiums and increasing hospital and drug costs. It’s important to utilize every opportunity to help save money with health coverage for you and your family - a health savings account is one of those opportunities.
A health savings account, or HSA, is essentially a way to set aside money to pay for insurance and your medical bills, but save money on taxes in the process. In this article, we’ll visit what a health savings account is and how it can help.
What is an HSA?
When you have a high deductible health plan or HDHP, it means you can qualify to open an HSA. Sometimes employers or health plans will offer you the option of opening this type of account, but you’re also able to open one privately at most financial institutions. There are certain deductible limitations set forth by the IRS, however, that you’ll need to qualify for in order to open an HSA:
- Individual out of pocket maximum is $6,500
- Individual minimum deductible is $1,300
- Family out of pocket maximum is $13,100
- Family minimum deductible is $2,600
You contribute financially to your account, however, the amount you can contribute each year is mandated by the government. The limitations are as follows:
- Individual yearly contributions limits are $3,400
- Family yearly contribution limits are $6,750
- Seniors 55 and older can add $1,000 over the preset limitations
- Seniors who have Medicare cannot contribute to an HSA
How Can You Use an HSA?
When you open an HSA, you receive either a debit card or checks, which will enable you to use the money in your account. You can use these funds to pay for copays, coinsurance, deductibles, and other medical expenses. The only drawback is that you cannot usually spend the money from your HSA on paying your premium payment. You also need to be aware that any money spent on non-qualified health care costs is then subject to tax that you will be responsible for paying.
The money that you have in your account never expires and can be continued to be used for qualifying medical expenses. Seniors who are no longer able to contribute can also still use the money in their HSA to cover medical costs.
What are the Tax Benefits of an HSA?
The tax benefits to having an HSA are substantial; this is because the money placed into the account is not taxed, the money taken out of the account is not taxed, and the money can grow in your account tax-free as well. Another benefit is that your income will be taxed minus your HSA contributions, which lowers your tax responsibility. Utilizing an HSA can potentially be a large money-saving opportunity for you and your family and make it easier to afford proper health care.
Additional Investment Benefit of Your HSA
An HSA account offers a unique investment opportunity, as well. You are able to invest the funds in your account into stocks, mutual funds, and in other opportunities. When you invest using your HSA, your funds are not taxed and you don’t have any required distribution limitations. If your account is funded through a company payroll, it also does not need to follow guidelines in the Federal Insurance Contributions Act or FICA. FICA has to do with income taxes that fund Medicare and Social Security. Some investment professionals state investing with an HSA is more beneficial than investing with an IRA, 401k, or other retirement accounts.