If you are looking for the best way to take care of your extra medical expenses then you might consider using a Health Saving Account (HSA). They have been around since about 2003 and they have a lot of benefits to offer since not only are the contributions to your account deductible from your taxes, when you use it to pay for allowed medical costs the amount is free of tax. They allow you to pay for medical costs that you might not find covered on your insurance plan and can also give you a lower monthly premium. So, let’s look at a few important facts about Health Savings Accounts (HSA).
Is This Type of Account Allowed For You?
There are federal regulations regarding who can use Health Savings Accounts (HSA). You might be able to open one if:
- You have coverage under a health plan with a high deductible on the first each month.
- You aren’t receiving coverage on any other plan. Here are a couple of exceptions to this rule for some plans with their coverage limited.
- You aren’t covered by Medicare
- You aren’t a dependent on another person’s tax return.
High Deductible Health Plans
This doesn’t just mean that you feel like you are paying a lot for your deductible on your health insurance. A High Deductible Health Plan (HDHP) is established along certain guidelines. As of 2014 they have to have a minimum deductible amount of $1250 for a single person and $2500 for a family group. In addition, the maximum cost out of your pocket can’t be more than $6350 for a single person and $12700 for a family group.
Is There a Contribution Limit On a Health Savings Account (HSA)?
There are limits on the amount that can go into your account every year by the IRS. The highest amount set in 2014 is $3300 for a single person and $6550 for a family group. There is also a stipulation where you are allowed to add $1000 in addition if you are over the age of 55 at the end of the fiscal year.
How to Use Your Savings Account
You can use your Health Savings Account (HSA) in order to pay for allowable medical costs and the IRS decides what is allowable. Usually that does not include any kind of cosmetic cost or things like vacations. In most cases, you are able to use your account for preventative medical care without the deductible. You can get a list of these approved services from your provider.
The Disadvantages of a Health Savings Account (HSA)
There are a couple of important things to keep in mind about this type of account. If you use the money held in it for an expense that is not allowed before the age of 65, then you have to pay taxes on that amount. In addition, you will also be levied a twenty percent penalty. If you are disabled or you are older than 65, then you will still have to pay the taxes but won’t have any penalties.
It’s also important to note that if you don’t use the money that is in your Health Savings Account (HSA) by the end of the year, you do not lose it. It stays in the account for you to use for allowable medical costs. This applies even if you retire, change jobs or if you use a different insurance plan.
Setting it All Up
Before you can set up your account you have to have a High Deductible Health plan in force. You can then speak to your insurance company and see if your job offers the savings account. If they do not then you can go through the insurance company itself to see what institution they recommend for use. Of course, you can also look on the internet for a bank. After this, all you have to do is finish the enrollment into your new savings account.
A Health Savings Account (HAS) is a great way to use money for your medically related costs. For example, some insurance plans don’t cover vision or dental related expenses. You can easily use your savings account to pay for those and get some breaks on your tax situation. It is important to pay attention to the amount that you usually spend on the regular medical costs, however. If you have higher costs in that area, then you might not want to take on the additional stress of the higher deductibles that would be required for your insurance plan to allow you to use a savings account. Remember though, in many cases they can be a fantastic option to take some of the burden off of your medically related costs as long as you do not try to withdraw the money that you have contributed before it’s available.