HSA (health savings account) can be used as an additional tool for saving money.
In some cases, the HSA qualifies for a substantial reimbursement of medical expenses. Holders of such accounts get several benefits at once: contributions to this account are tax-free, and you can use them at any time to pay medical costs.
Individuals and companies use HSA to pay for high medical costs. Many employers contribute to their employees’ medical savings accounts. Since this contingency plan has no expiration date, it can be used even after retirement as an emergency reserve. Below is a more detailed explanation of what a health savings account (HSA) is and what its benefits are.
What is HSA?
A health savings account is a tax-free savings account with a bank to help certain categories of people recover their health care costs. The HSA account can only be opened by a person with health insurance that has a large deducted amount. Many employers offer their employees to buy insurance with a high deductible and, in order to save money, combine it with the HSA account.
How does HSA work?
You make a pre-tax contribution to an employer-sponsored HSA, and your contributions are tax-deductible. You can withdraw tax-free amounts from your account at any time for medical expenses.
The limit for the annual contribution to the HSA account in 2017 is $3,400 for individuals and $6,750 for a family. If you are over 55 years old, you can deposit an additional $1,000 per year. Contributions to HSA are accepted until the last day for federal taxes.
HSA account rules and requirements
You don’t need to get permission from the IRS to open an HSA account, but there are certain rules and requirements that you need to follow. You must have health insurance with a high deductible, this year it is $1,300 for individuals and $2,600 for families. However, it is important to know that not all high deductible insurances are suitable for opening an HSA.
A health savings account can be opened by people who are not dependents of other taxpayers and do not have Medicare or any other supportive health insurance.
How to open an HSA account?
Only suitable trustees can open a medical savings account: insurance companies, banks and IRS-approved individuals.
Many companies have a dedicated HSA administrator, but you can choose any other suitable trustee to open and manage an account for you. Experts advise you to use the HSA administrator of the company you work for – this way you will not miss out on valuable contributions from the employer and your requests will be processed faster.
If you decide to do this yourself, take a look at HSASearch.com to find the plan that’s right for you. The site has a search function that allows you to compare over 350 HSA administrators.
Pros and cons of HSA
To understand if a medical savings account is right for your financial strategy, you need to understand its advantages and disadvantages.
Pros of HSA
There are a lot of them:
- You can withdraw money without taxes to pay for medical services;
- There is no deadline for withdrawing money;
- Most insurance companies offer simple accounting and medical billing systems;
- If you change jobs, the HSA transfer process is straightforward;
- HSA can be used as a retirement subsidiary account;
- Many employers help their employees contribute to a health savings account;
- Money from the HSA account can be used to pay any out-of-pocket expenses, including for co-pays.
Cons of HSA
There are several disadvantages to medical billing that may put you off this idea.
- Withdrawals for non-medical expenses incur a penalty of 20% plus taxes;
- HSA administrators and proxies charge a fee for their services;
- Your premiums may not cover all medical expenses.
HSA is suitable for you if your health insurance has a high deductible and you have significant medical costs.
Tags: account, funding issue, money