Health Savings Accounts (HSA) – Information and Benefits

Health Savings Accounts (HSA) essentially are a savings account that is available to US citizens to cover medical expenses. With this health insurance alternative the funds added to the account are not subject to federal income tax at the time of deposit nor is the interest earned. Here are some HSA facts and information.

People under the age of 65 that are enrolled in a qualifying High Deductible Health Plan (HDHP) can open an HSA. You may not be covered by another policy that isn’t a qualified high deductible health plan but other disability, dental, vision and long-term care is allowable.

A high deductible health plan is one that meets the following criteria as of the 2008 tax year:

1. Minimum deductible for a single person $1100

2. Minimum deductible for a family $2200

3. Max out of pocket expenses for a single person $5600

4. Max out of pocket expenses for a family $11200

If you meet the above requirements, you can open a health savings account at any time. The maximum amount you may deposit for the 2007 tax year is $2850 for an individual and $5650 for a family. All deposited funds are the property of the policyholder. Deposits also may be made through an employer (who could match) payroll deduction or by any individual. For taxpayers age 55 or over, an additional $800 may be deposited.

These funds may be withdrawn penalty free for qualified medical expenses incurred after the HDHP deductible is met. Unlike a Flexible Spending Account or similar any funds not withdrawn or used within the year is carried over to the next year. If you are young and in reasonably good health in a few years you could realize a sizable amount of money in a Health Savings Account. How much will depend on if your employer makes deposits, your age and of course your health. One good benefit of a HSA plan is their portability, when you leave your current employment you can keep your plan and same health savings account provider. Basically, tax free, you can build up a fund for your retirement medical expenses.

Qualified withdrawals include coinsurance and deductibles as well as other expenses not covered by standard medical insurance like dental, vision, durable medical equipment and chiropractic costs. You can even withdraw money form an HSA plan even if you don’t use it for medical expenses. If you’re under the age of fifty five, there is a ten percent penalty and ordinary income tax; at age sixty five and older all you would pay is ordinary income tax.

If you are opening an account on your own, you can find a list of providers offering Health Savings Account plans online. Policies in most states can be compared conveniently and quickly at the many reputable sites online. Alternatively, you could find a local agent who knows what is available in your area.

Whatever you do, be sure you do the homework and know what you are doing. Keep the documentation of expenses paid for through withdrawals from the account. Bottom line is that the IRS is watching. Also consider contacting a financial expert or insurance agent if you need more HSA – Health Savings Account information, it can’t hurt and may help.

Health Savings Accounts Work Through Periods Of Unemployment

Health Savings Accounts have been around since 2004, and all indications are that they’re here to stay. This form of health insurance is more in tune with our times of unemployment and lack of medical care than traditional co-payment health insurance plans. Those policies tend to have premiums on the high side, while HSA plans start with lower than average premiums. A couple of studies have shown that premiums rise slower than average for these policies, too.

Low premiums make it more affordable to maintain coverage during periods of unemployment, but that’s not the only way HSA plans can bridge gaps between jobs. As you’ve probably guessed, a Health Savings Account is specifically designed to pay for health care with benefits that standard accounts don’t provide.

Health Savings Accounts Reduce Taxes

Health Savings Accounts allow you to pay for health care with pre-tax dollars. The money you contribute to your HSA can be used to directly reduce your taxable income with an “above-the-line deduction.” That basically means you won’t need to itemize deductions to lower your income taxes. That works for federal tax returns and for all but three state returns.

After you get that tax deduction, you have a choice about how to use your HSA funds. If you use the money for health care, withdrawals won’t be taxed as long as you only spend them to pay for health care that’s deemed to be eligible. Most things are with the exception of over-the-counter medicines, like aspirin. A purchase like that would trigger a 20-percent penalty fee on the HSA withdrawal and it would become taxable income.

You can spend HSA money on things your high-deductible health plan probably won’t cover, such as dentistry or homeopathy. You can also pay for health care for family members who are not covered on your insurance policy.

HSA Plans Foster Saving For Retirement

Your other choice is to invest HSA dollars and let the balance grow with tax-free earnings as you would with an IRA. If your employer contributes to your HSA, that money is yours to keep even after that job is history. Once you turn 65, you can use HSA funds to buy anything without incurring a penalty, but it’s still taxable as income when spent on something other than qualified health care.

Many different financial institutions will let you open an HSA. Some restrict what they offer to interest-bearing savings accounts, but others will allow you to invest in stocks and bonds, or mutual funds. These accounts are becoming big business, so HSA administrators are competing with perks to attract your business. Many make it as simple to withdraw HSA money as it is to use a regular checking account. Even credit cards linked to HSA money are on the horizon.

After your HSA balance reaches an amount that you’re comfortable with, you might even consider starting a second Health Savings Account that you use strictly for the investment options. Keep one liquid for medical emergencies and devote the second one to letting the tax-free earnings help you prepare for retirement.