An acronym standing for Heath Savings Accounts, HSAs are designed for average consumers who wish to have more control of their health care plans while saving tax-free money that would be used to pay for their health care expenses at a later date.
In order to become eligible to open up your own Health Savings Account you must enroll in a high-deductible health plan. Any health plan counts as a high-deductible health plan if it has a deductible greater than $2,220 for families or $1,100 for individual, these plans are usually PPOs as well.
There are two distinct ways to make contributions to your HSA, one is by having the money come autodraft from your paycheck, the second is by simply making deposits into the savings account yourself. If you’re depositing the money straight out of your paycheck you’ll gain access to a tax savings by avoiding to pay taxes on the money before it’s deposited – this is better than being taxed on your income then using the post-tax dollars to pay for health insurance. If your employer doesn’t offer automated deposits into a HSA you can make the deposits yourself then apply for a refund when you file your annual tax return.
Any monies in your Health Savings Account can be used to pay for all HSA-qualified expenses (“Qualified Expenses” as defined by the IRS). Most health care costs are also covered, including:
- Medical Equipment
- Hospital Care
- Specialist Care
If you withdraw money from your HSA for any expenses that do not qualify as a “qualified expense” you will be taxed at the standard income tax rate, PLUS being taxed another 10% tax premium.
Keep in mind that your HSA is a SAVINGS account and is in-fact interest bearing on a per annum basis. They’re also fully portable and can be used as a long-term savings instrument; at 65 years old you’ll be able to withdraw money from your HSA without paying the 10% tax penalty.