What exactly is a health savings account? It’s like a personal savings account, but it can only be used for qualified healthcare expenses. To be eligible for an HSA however, you must be enrolled in a high-deductible health plan (HDHP). How do you know if an HSA is right for you?
There are many advantages to health savings accounts:
Many Expenses Qualify
Yes, a wide range of medical, dental, and mental health services are considered eligible expenses and are explained in more detail in the IRS Publication 502, Medical and Dental Expenses.
Others Can Contribute
Your employer, a relative, or anyone else who wants to add to your Health Savings Account can do do, within limits. This year, the limit is $3,600 for individuals and $7,200 for families, plus an additional $1,000 “catch up” contribution for anyone age 55 or older by the end of the tax year.
Pre-Tax Contributions & Tax Deductible After Tax Contributions
Since contributions are usually made with pretax dollars through payroll deductions at your employer, they are not included in your gross income and are not subject to federal income taxes.
If you make contributions with after-tax dollars, you can deduct them from your gross income on your tax return, thus reducing your tax bill for the year.
Withdrawals from your hSA are not subject to federal taxes if you use them for qualified medical expenses.
Any interest or other earnings on the money in the account is tax-free. Most HSA accounts earn a minimal amount of interest, usually less than .1%.
If you have any money left in your HSA at the end of the year, it rolls over to the next year. This offers more flexibility than Flexible Spending Accounts, which normally can only be carried over in an amount up to $550 or 2.5 months into the following plan year.
HSA is considered to be portable because the money stays available for future qualified medical expenses even if you change health insurance plans, work for a different employer, or even retire.
These days, most HSAs issue a debit card to allow for payment for things like prescription medications and other eligible expenses right away. You can even reimburse yourself out of an HSA if you have paid a medical bill with an alternative form of payment.
Essentially a Health Savings Account is a bank account, in your name, and you are able to decide how and when to use the funds.
Interested in learning more about Health Savings Accounts and whether or not they would be a right fit for you? Give us a call today! Our award-winning agents from Coral Springs and Parkland are ready to help!