Introduction:
Many people don't realize the importance of using a Health Savings Account. This is because they don't know what it even is. A Health Savings Account, or HSA, is a savings account that allows you to pay for your medical care with pre-tax dollars. If you take full advantage of this kind of investment and use every dollar in this account on your healthcare costs, you will be surprised at how much money you're making each year.
Health savings accounts are the perfect way to save for medical expenses, and can turn into a significant tax break! Here's everything you need to know about this popular investment for individuals and families.
HSA funds roll over from year to year
If you have a high deductible plan, you may already be familiar with the Health Savings Account (HSA) concept. An HSA is an account that allows you to pay for medical expenses out-of-pocket and then deposit those funds into your account. The money in your HSA grows tax-free and can be used toward the cost of qualified medical expenses — including deductibles, copays, and coinsurance.
Why You Need to Start Using a Health Savings Account
While HSAs are great for high-deductible plans, they're also great for people who don't have one — or even if you currently have one but aren't using it to its fullest potential. Here's why:
HSA funds roll over from year to year: When you deposit money into an HSA each year, it will roll over from one year to the next until you reach the maximum amount allowed by law (which is currently $3,400 for individuals or $6,750 for families). This means that even if your employer has a high deductible plan where you have to pay out-of-pocket 100% of each claim until reaching a deductible amount (say $2,000).
HSA funds are yours forever
Health savings accounts (HSAs) are a great way to save for your health care expenses. They're especially useful for people who don't have insurance or who have high deductibles.
You can use HSA funds to pay for qualified medical expenses, including doctor visits and prescriptions, as well as dental and vision care. You can use the money in your HSA to pay for preventive care too — anything from annual checkups to screenings.
The money in an HSA is yours forever. Once you've opened an account and contributed the maximum amount allowed by law, you can withdraw it at any time without a penalty or tax deduction.
HSAs offer tax advantages
HSAs are a great way to save for retirement and save money in the present. But they also offer other advantages that are important for your financial health.
They offer tax advantages. With an HSA, you pay taxes on what you contribute to your account and any interest or other earnings you earn from those contributions. You don't have to pay taxes on any withdrawals from the account until you use them, so long as you make them for qualified medical expenses.
They're portable across jobs. You can take your HSA with you if you change jobs or retire and have access to insurance through a former employer's plan.
They're portable across insurance plans. If you stop working at one job but continue receiving coverage under another employer's health plan, your HSA will continue working with either plan as long as it's available to you under both programs — neither one can limit access to the account based on who owns it or where it's stored electronically in the system (although some employers might ask that they be put into an offline version of the account). This means that even if there's a gap between jobs, people can maintain their savings in their own name without having to worry about losing.
You can use HSAs for dental and vision expenses
If you have high-deductible health plans, you may be eligible for a Health Savings Account (HSA). You can use an HSA to cover most medical expenses, including out-of-pocket costs such as deductibles, co-pays, co-insurance, and coinsurance. In addition to those medical expenses, you can use your HSA to pay for dental visits and vision care.
You can open an HSA with any bank or financial institution that offers HSA accounts. The investment options are the same as those with other savings accounts — stocks, bonds, and mutual funds — but you may not get the best interest rates on your investments if you don’t put enough money into the account each year.
You can use HSAs for qualified long-term care expenses
Long-term care (LTC) is any type of assistance with activities of daily living (ADLs) that are provided to a person who needs help with activities of daily living because he or she has a disability or certain chronic health conditions. Long-term care may include help in the home, such as meal preparation and housekeeping; help in the community, such as assistance with shopping and transportation; or a combination of both.
If you're paying for long-term care on your own, you may qualify for Medicaid coverage through the state health insurance program for low-income residents (Medicaid). You also may qualify for Medicare at age 65 if you have worked for at least 10 years and paid Medicare taxes based on those earnings.
If you're financially responsible for someone else's LTC expenses, you can use an HSA to cover these costs — up to $6,550 per year ($1 million in assets). When used this way, an HSA doesn't affect eligibility for Medicaid or Medicare benefits.
Conclusion
When you're young and healthy, it seems like a good health plan is just not something you need to worry about. But life has a tendency of doing unexpected things to people, and it gets harder to bounce back with each passing year. Using an HSA may seem like a short-term sacrifice now, but it's a small price to pay for the long-term security of good medical coverage and healthcare.
A health savings account is a great option for many different people, but the best one for you will depend on your particular situation. But the fact that these accounts are so flexible means that there's sure to be an option out there for you. All it takes is a little bit of research to get started on finding the best HSA plan for your needs. And don't forget—there's no time like the present to begin saving for next year's medical bills now!
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