Health Savings Accounts (HSA)
It’s no secret that health care continues to get more complicated and more expensive. If you’re looking for more control over what you pay for health care and the services that you (or your family) actually use, a health savings account (HSA) might be a good place to direct your dollars. HSAs are used in combination with high deductible health plans,—heath insurance plans that carry a high deductible. One important benefit of an HSA is the tax break: you can make deposits with pre-tax dollars and any interest you earn is also tax-free. This can help your account grow quickly, but before opening an account you should check with a tax advisor.
HSAs go hand-in-hand with high deductible health plans (HDHP) because they allow you to spend pre-tax dollars on qualified medical expenses that your insurance doesn’t cover.
Here’s how it works: a HDHP generally has a lower monthly cost (premium) than traditional health insurance, but a higher deductible (money you pay before your health insurance policy kicks in). So you pay less for your insurance, but potentially more for your health care until you meet your deductible. To help meet those costs, many people with HDHPs direct the money they save in monthly premiums to a special bank account designed just for medical expenses—an HSA.
But there are other benefits to opening an HSA, too.
First off, unlike a flexible spending account (sometimes also called a cafeteria plan), all the money you set aside in an HSA is yours to keep. So anything you don’t spend this year isn’t lost. The money remains in your account year after year, where it can be invested, grow and then spent on future health care expenses.
As long as you spend the money and any earnings on qualified medical expenses (as defined by the IRS), you won’t pay taxes on it.
Is an HSA right for me?
You must have:
- A high deductable health plan (HDHP)
- A valid social security number
- A primary U.S. residence
You may not be:
- Covered by any other type of health plan, including Medicare
- Claimed on anyone’s tax return as a dependant (except your spouse)
Contributions are made with pre-tax dollars; your account grows tax-free, too
Each year the IRS sets new contribution limits. Below are the limits for 2014.
Maximum contribution limit
Catch-up contribution (55+)
Your HSA is free when you maintain a balance of $500. Otherwise, there is a modest $3 maintenance fee each statement period.
You can pay for your medical expenses using a Visa® debit card, writing a check, or by making an electronic transfer or cash withdrawal
You can use this money for other kinds of expenses, but those withdrawals will be taxedShow More Show Less
Pay less in taxes, save more for your actual healthcare costs
When you meet the minimum balance
No “use it or lose it” penalty
Access funds with a Visa® debit card, checks or cash withdrawals
Q Why open an HSA?HSAs were created to give people more control over the money spent on health care. They go hand-in-hand with high deductible heath plans (HDHP). HDHPs generally combine lower insurance premium costs with higher deductibles and less comprehensive coverage.
Q What’s the difference between an HSA and Flex Spending?The biggest difference is timing. Flexible spending accounts (sometimes also called a cafeteria plan), must be spent within the same year you set the money aside. With a HSA, the money you don’t spend remains in your account year after year.