Health Savings Accounts
No doubt about it, medical expenses – even if you have health insurance coverage – can be steep. However, if your policy has a high deductible, you may be able to use a Health Savings Account to pay for some very common (and often pricey) out-of-pocket medical expenses at a tax advantage.
Why have an HSA?
HSAs are only compatible with high-deductible health insurance plans. A deductible is the amount of money that you are responsible for before your insurance coverage begins to pay out. The upside to high-deductible health insurance plans is the affordable premiums. The downside, however, is that you could be out thousands of dollars before your insurance company pays a penny. HSAs were developed to bridge this gap. Because of all the tax advantages, they can greatly reduce the amount you have to pay for those uncovered medical costs.
Who can open an HSA?
How to set up an account
Many people have group health insurance coverage through their employer, and if that policy qualifies as high-deductible, you will be able to sign up for an HSA during your open-enrollment period. Depending on your company’s policy, your employer may fund all or a portion of the HSA, or they may match contributions.
What are qualified medical expenses?
Also, be aware that if you use the money for non-medical expenses before the age of 65, you will be charged a 10 percent early withdrawal penalty, and will have to pay income taxes on the amount you take out.
HSAs make good financial sense, but they don’t open by themselves – it requires action on your part. Therefore, if you have a high-deductible health insurance policy through work, talk with your human resources department to find out how (and when) you can sign up. If you obtain the policy on your own, contact your financial institution or insurance agent. You will need to decide how much money you want contribute, and if you want to use the plan to pay for current medical costs or if you’d rather invest for future expenses.
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