What is a Health Savings Account? Do I Need One?

A Health Savings Account or HSA is a tax-advantaged savings account used specifically for medical purposes that is available to people who are enrolled in high-deductible health plans. Health Savings Accounts work similar to a 401k due to the fact that any money put into the account is done so out of your paycheck before taxes are taken out.
One of the major benefits of an HSA is that there are multiple tax advantages. Any contributions made by the policy holder to an HSA are tax deductible, and any employer contributions are tax free. Since Health Savings Accounts accumulate interest, any interest earned is also tax free. You can withdraw money from your Health Savings Account without paying tax as long as the money is used for medical related expenses. However, if the money is used for non-medical expenses you will be subject to paying a 20% tax on whatever was spent.
Another great benefit of Health Savings Accounts is that the money stays with you in one account. For example, if you have an HSA setup through your current employer and leave, you keep the same account unlike a 401k where you need to transfer funds to different accounts after you leave your job. This makes HSA’s a great option because you can keep the same account for as long as you choose.
Unlike other accounts, Health Savings Accounts do not require you to use all the money in your account every year. If you did not use all of the funds in your HSA in a given year, the money will remain in the account and can be used towards next year. The fact that Health Savings Accounts don’t have a use it or lose it policy is one of the reasons people prefer them over other types of health related accounts because they are not forced to unnecessarily spend money on medical expenses.
When looking into opening a Health Savings Account, you need to remember that in order to qualify you must have a high-deductible health plan. According to the IRS, a policy for an individual with a minimum annual deductible of $1,300 and a maximum deductible and out-of-pocket expenses of $6,450 qualifies as a high-deductible plan.   For family coverage, the minimum annual deductible has to be $2,600 and the maximum deducible and out-of-pocket expenses must total $12,900.
Once you open your Health Savings Account, you can only deposit a certain amount of money into the account per year. For individuals, you can deposit up to $3,350 per year, and for family coverage, you can deposit up to $6,650. For those aged 55 and older, you are allowed to deposit an extra $1,000 per year into your Health Savings Account.
Health Savings Accounts are a great way to help pay any medical expenses if you have a high-deductible health plan. There are a number of great benefits for Health Savings Accounts such as how both the money deposited and spent (on medical expenses) is tax free. Another interesting benefit about HSA’s is that once you are of age, it is converted to an Individual Retirement Account (IRA), but that’s another topic for another day.
If you are interested in in opening a Health Savings Account, our friends at Ion Bank can guide you down the right path. If you have any questions about your current health insurance policy or need a quote for a new one, contact the professionals at Ion Insurance.