Updated: Nov 15, 2019
By Daniel Goodwin
Health Savings Accounts are growing by leaps and bounds. Over ten million people now have them as part of their current health insurance plan. Thinking about joining the masses but not sure you understand them enough to take the leap, here is the 411 on health savings accounts (HSA). An HSA is a tax-free savings account crafted for the sole purpose of paying medical costs.
HSA's blend high deductible health insurance with a tax benefit savings account. Use the money in this savings account to pay your health insurance deductible and other approved medical expenses. Once you meet your deductible, your medical insurance begins paying the remaining approved medical expenses. The funds in the savings account earn interest and keep growing tax-free. If you don’t need the money for health expenses, the funds accumulated can be used for retirement. Here are the four advantages of a health savings account (HSA).
1. Tax-deductible Contributions
All HSA Contributions up to your contribution limit are tax deductible.
2. Tax Free Withdrawals
When money is used to pay for qualified medical expenses you do not have to pay taxes on your withdrawals. Most medical, dental, and vision expenses are covered. For a list of qualified HSA medical expenses.
3. Pay less in monthly premiums
High deductible health insurance plans generally have lower premiums, which means you could see more money in your paycheck.
4. HSA money does not expire
As long as you have the HSA account, the money is yours to keep. The money will continue to grow deferred year after year. A HSA is much different than a flexible spending account (FSA). With a FSA, any money not used by December 31st is lost. You can even use the money to use as a retirement benefit.
Requirements for HSA
To take advantage of a HSA the government mandates that HSA must be partnered with a qualified health insurance plan. In most cases these plans have lower monthly premiums. In 2019, the minimum deductible needed to qualify for a HSA was $1,350 for single insurer and $2,700 per family. More details can be found at HSACenter.com.
Maximum contribution amount per family is $13,500 or $6,750 for individuals. If you are over 55 years old you can add another grand to your contribution amount.
If you want to lower your insurance premiums, a bigger savings account while pay less in taxes a HSA account may be right for you. To see how much you could save click here and use Wage Works HSA calculator. To find out more about your specific plan details contact your Benefits Administrator or your insurance company. Please note in most cases you can only enroll in a HSA during open enrollment.
Being smart with your money means paying attention to the little things; they add up. Happy Savings!