A Health Savings Account (HSA) is one way that working people with high deductibles, including self-employed individuals, can offset their medical, dental, and eye care costs. Families may put in up to $6,750 per year and individual people may put in $3,500 per year into a savings account for their healthcare expenses. However, members of the latter group can save an additional $500 starting next year. Workers over the age of 55 are even allowed to put in $1,000 more per year to help them make up for lost time.
The Good Points
Having an HSA is a good way to save money for future expenses because the money put in these accounts is taken out of a paycheck before taxes, meaning it’s tax-free. Once an account has been started, these funds can then be used to pay for any approved medical expense that occurs. Although the money will grow more quickly if it is invested in mutual funds or other investment opportunities, this cash will still build up over time if it is not used.
Of course, individuals can take it out for qualified medical expenses at any time without paying additional taxes on it. They don’t even have to close out their HSA if you change employers. Should they end up with a non-qualifying plan at their new job, they can still use the money they have saved up to cover medical expenses. Those that reach the age of 65 without using the money, can also use it to pay for retirement associated costs with no penalty fees or taxes for doing so.
Some Other Considerations
As with any sort of savings plan, there are some downsides to consider. In some states, such as California, consumers may not be able to count HSA contributions off of their overall income costs for tax purposes.
Another problem is that HSAs are not available to everyone. People who don’t already have insurance can’t get one. Consumers are also prohibited from having an HSA if they or their spouse already has a flexible spending account or another policy that will cover high medical costs.
Individuals should also be aware that HSA funds can’t be used to pay for most people’s basic health insurance or Medigap fees. However, the money in these accounts can be used to cover the cost of COBRA if the individual in question is no longer working for the same company that offered the plan previously. These accounts can be used to cover certain forms of Medicare (Advantage, Part B, and Part D) and work-related insurance premiums, but only for seniors who are 65 or older.
Consumers will need to remember when their plan was started in order to use it effectively because it only covers costs incurred after the fact. On some plans, individuals must save all medical receipts and have them approved before they get reimbursed. Other organizations will give account holders a credit card for these expenses. Although the money in an HSA account can indeed be used to pay for things other than medical expenses, people who do so will face a tax as a result of using these funds.
Image Credit: ArtisticOpperations via Pixabay.