A health savings account, or HSA, is a pre-tax account that a person with a high-deductible health plan can use to pay for approved medical expenses. A trustee, usually a bank or credit union, holds your HSA funds. You can use it to pay for or reimburse certain permissible expenses. Most people who use health savings accounts have a high-deductible health plan. The term HDHP describes an insurance plan that has a minimum deductible of $1,400 for an individual and $2,800 for a family. It offers an out-of-pocket maximum of $7,000 for individuals and $14,000 for families.
Health Savings Accounts: Their Advantages
- In addition to the maximum contribution limit, your employer or another authorized family member can contribute to your health savings account. Payroll deductions for yourself and your family members are not taxable income.
- Your Health savings account is portable, and you can change your trustees once every twelve months. Banks and credit unions typically do not require deposits to open HSA accounts. A Health savings account offers up to $250,000 in protection.
- It is possible to withdraw funds after retirement to pay for Medicare or Medicare Advantage plan premiums (but not for Medigap policies).
- You can use funds to pay for qualified medical expenses even if your spouse and children are not covered under your health insurance plan.
- Even if you are not working, you can contribute to your health savings account. It is not possible to claim tax deductions for these contributions; however, you can write them off on your tax return.
- When necessary, you can withdraw money from the investment portion of your account (usually mutual funds or stocks) to pay for approved medical bills.
- According to Health savings account rules, after age 65, withdrawals for non-medical reasons do not result in a 20 percent penalty even though the tax is due. Some people have invested their HSA nest egg in rental properties.
Health Savings Accounts: Disadvantages
- You may have to invest a minimum amount before you can make a profit. Options for investment are limited, and no one can even guarantee investments.
- Tax penalties may apply if you do not stop contributing to your HSA six months before applying for social security benefits.
- Over 65-year-olds are no longer eligible to contribute, regardless of their employment status.
- The IRS assesses a 20 percent penalty for withdrawals made before age 65 for non-medical purposes.
- If you attempt to use your HSA card at big box stores and other merchants. You will need to request reimbursement from your health savings account trustee.
- HSAs are not available to people claiming themselves as dependents on another’s tax return.
- A health savings account has low-interest rates. Also, some trustees charge a monthly fee if the account balance falls below a certain amount.
Do you need a health savings account?
A health savings account, like any other insurance policy, has its advantages and disadvantages. As you consider your options, take your finances and your healthcare needs into account. A health savings account is a good option for you if you are healthy and want to save money for future medical expenses. Alternatively, if you are about to retire, an HSA is a promising idea. Health savings account rules allow you to use those funds to pay medical expenses after you retire. However, if you anticipate that you will need expensive medical care in the next year. Or, you will have trouble meeting a high deductible, then a health savings account and a high-deductible health plan is not the best choice for you.
Contribution rules for HSAs
A tax year does not require a withdrawal or use of HSA contributions. If contributions are not used, funds can be rolled over to the next year. Additionally, HSAs are transferable, so employees can keep their accounts even if they change employers. A tax-free transfer of an HSA plan is possible following the death of an account holder to a surviving spouse. No one treats HSA accounts without a spouse as HSAs. In most cases, the beneficiary is subject to taxes based on the account’s reasonable value. you can adjust it to reflect any eligible medical expenses paid from the account within one year after the decedent’s death. Since its launch, Fidelity Health Savings Accounts have managed health care spending and savings for 2 million people.
Choose the best for you
For your current medical costs and future medical bills, setting aside pre-tax funds is the best idea. Health Savings account’s savings roll over from year to year, allowing you to accumulate unspent funds. They can become a source of financial security as you grow old. Particularly when medical bills that are not covered by insurance may pose a major financial problem. When medical expenses become overwhelming, you can always spend the money on something you really want. You can also leave it to a beneficiary of your choice if you do not need it for medical expenses. It is a clever idea to open a Health Savings Account at an early age. If you qualify for one, let it grow for some time to safeguard your financial future.