Health Saving Accounts, Are They Right for You?

Everyone has questions regarding whether or not they should invest in health savings accounts and many people have never even heard of an HSA. A health saving account does exactly what it says it does, it's an account that you can set up to save for unforeseen medical events in your lives. Right now, the maximum yearly amount for an individual to contribute is $2,850, while family contributions are $5,650. These contributions may be lump sum or in any amount you wish to put in, unless your trustee has imposed a minimum deposit or balance requirement.

These contributions can be used as an "above-the-line" deduction or on a pre-tax basis if an employer is contributing to your HSA. Your "above-the-line" deduction does not have to be itemized to benefit. You may also claim your medical expenses, without including neither your contribution nor distribution of your HSA.

Self employed business owners may not contribute to their HSA on a pre-tax basis, nor will they be able to use the contributions as a deduction for SECA purposes. However, they may contribute with after tax dollars and use the "above-the-line" deduction.

Yes, these will save you money on your health insurance. The reason that it is a little cheaper on your health insurance is because you have to have a high deductible insurance plan in place. High deductible insurance plans are more inexpensive, because you have decided that you will take the chance of paying a higher deductible rather than to pay with higher premiums. This makes it crucial that you have funds available in your HSA, because you will need those funds to pay that high deductible.

Your HSA will not begin until it is clear that your high deductible insurance plan is in effect. Once your HSA is operational, it is always yours and will roll over every year. Even if you lose your high deductible plan, you will still have money in the HSA rolling over. If you do lose that high deductible plan and haven't paid your deductibles, you may still use the funds in your HSA, if you have been presented with a card or check book from the issuing company. Remember, if you don't pay that deductible, you are responsible for whatever you have done in the medical facility. That means that all medical expenses are your responsibility until that deductible is met.

HSA's can be used any time for any qualified medical expense tax free, however if it is used on any other medical expense it is subject to a 10% tax penalty. The smartest thing you can do is to pay for minor expenses out of your own pocket, before you decide to dip into that account. After reaching the age of 65, HSA's can be used for anything tax free. HSA's may also be used to pay your insurance premiums, if you are collecting federal or state unemployment or are receiving COBRA coverage through a former employer.

I further recommend that you contact a tax specialist and your insurance company to determine if a HSA is right for you. You can also discover more pertinent information on the United States Department of Treasury's webpage. Much of the information discussed here was researched on the United States Department of Treasury's Office of Public Affairs website.