The Big Deal About Health Savings Accounts
by Kathy & Alex Falter on 10/02/14
If you’re
like most people, there are two things you hate doing: paying taxes and paying
medical bills. But, there is a tax-deductible option that can assist you
lowering your tax bill, while also assisting you pay your medical bills. Consider
opening a health saving account.
A health
savings account combines health insurance with a high deductible (at least
$1,250 for an individual or $2,500 for a family) with a tax-favored savings
account. You make contributions to the account, which you then use to help you
pay for your medical expenses. But, like any good thing, there are limits to
what you can contribute and pay out of pocket for health insurance to remain
tax-deductible, but the benefits far outweigh the limits.
Advantages:
- - Contributions are 100% tax deductible up to the
limit
- - Withdrawals to pay qualified medical expenses
are never taxed
- - Interest earned on the account are always tax
free
- - There is no “use it or lose it,” it can grow
tax-deferred for years
- - You control it! It goes wherever you go!
- - You can use it to pay for your health insurance
if you’re between jobs
- - Use it for Medicare premiums or living expenses
if you’re over 65
- - When you open an account, you're given a credit/debit card so it's incredibly easy to use!
- Pay qualified long-term care premiums
What else could you ask for? Everything works within limits:
Single:
- Minimum Health Insurance Deductible that will qualify you
for an HSA: $1,250
- Maximum Out-of-Pocket: $6,350
- Contribution Limit per year to an HSA: $3,300
- 55+ Catch Up Contribution: $1,000
Family:
- Minimum Health Insurance Deductible that will qualify you
for an HSA: $2,500
- Maximum Out-of-Pocket: $12,700
- Contribution Limit: $6,550
- 55+ Catch Up Contribution: $1,000
Many banks and credit unions offer them
now. Check with your financial institution or do a search for
“Health Savings Account”. Be aware of their terms and fees as they
vary.
Positives:
A Financial Institution that allows you to
transfer money from your personal account to the Health Savings Account
electronically instead of by check. Your money will be credited in about
48 hours instead of a week to 10 days for a check by mail.
If you know you have a doctor’s appointment “a
week from Tuesday” and the copay is $50 you can transfer money in advance of
the charge and get the best tax benefit.?
Negatives:
Some financial institutions charge fees for
maintaining the account. Do your homework.
A health
savings account is a great way to answer some of life’s most annoying problems and if it is at all feasible for you,
we at PPb are happy to recommend it.
PPb Super Tip:
If you go to pay a medical bill and you do not have enough money in your Health Savings Account to pay for what's due, then you can pay it out of your regular checking account and later reimburse yourself out of the HSA, making everything tax deductible once more!