No one wants surprise medical expenses. As much as you try to plan for emergencies, you may find yourself without enough money to pay the bill. You can enroll in a health savings account (HSA) to head off some of these situations.
What is a Health Savings Account?
With an HSA, you put aside a part of each paycheck, pre-tax. The funds help you cover unexpected or medical costs or those your insurance doesn’t cover.
A health savings account is especially helpful for those with a high deductible health insurance plan.The Society for Human Resource Management says that a self-only person on a high deductible health insurance plan with a maximum out-of-pocket amount is $6,750, while the maximum out-of-pocket for families on an HDHP is $13,500. Both of these amounts have increased in the last year and are set by the IRS. HSAs reduce your taxable income. That means, if you put enough away, you could actually lower your tax bracket and owe less.
How Do HSAs Work?
Most employers offer HSAs through the workplace. If they do, it’s simple to set one up, and you can direct a certain amount of money from each paycheck to get deposited into your HSA. If they don’t offer an HSA, many insurance companies and financial institutions offer them. Avoid exceeding the government maximums, $3,500 for self-only or $7,000 for families.
You will receive a debit card or checks that are linked to the money in your HSA. There are requirements for what you can use the funds in your plan for, but these requirements are less restrictive than other health plans. IRS Publication 502 lists how you can and can’t use the funds in your HSA.
An advantage to an HSA is that, according to Kiplinger, you don’t need permission to use the funds in your plan. Not needing permission is what sets HSAs apart from other savings plans. Instead, all you need to do is keep the receipt to prove that it was related to medical services and show that it’s tax-free.
Do HSAs Save You Money?
HSAs offer tax advantages. Money goes into your HSA pre-tax. It won’t be taxed while the money grows, and it won’t be taxed when you use the money on medical expenses.
The government allows the money in your HSA to get invested in mutual funds or stocks. As long as the stock or the fund continues to grow, so will the money in your account, giving you more money to work with for any potential health problems you’re not planning on.
Other Advantages of HSAs
Unlike other health plans, the funds in your HSA may roll over each year. That can help in saving up for potential health problems you aren’t accounting for currently.
While you can’t pay into an HSA once you’re enrolled in Medicare, you can still use the funds in the HSA should anything come up. Because HSAs allow for more money contributions to the fund, that can come in handy if something unexpected and pricey comes up.
If you’re able to qualify for an HSA, it’s a simple option you have to have a fund for anything unexpected that happens to your health or your family’s health. The few restrictions on an HSA make it worth your while to consider having one.
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