HSAs Can Save You Money on High Deductible Health PlansDecember 09, 2016
Want to pay lower insurance payments and still have money set aside for medical needs? There's a way with a Health Savings Account. Paired with higher deductible plans with lower payments, they're playing a major role in many consumers' medical planning.
For young adults, they can help prevent financial devastation over a relatively minor emergency. For families, they can help in caring for children and planning for parents' retirement. For those nearing retirement, they help in planning for major expenses that often come with aging.
- How HSAs work
HSAs work much like regular savings accounts, but are for medical needs. Unlike a regular savings account the funds put into the accounts are tax-deductible and tax-free. But HSAs also have eligibility requirements.
To qualify for an HSA, a person must have a high-deductible health plan. They can't be listed as a dependent on another person's tax return or covered by Medicare. Unlike flexible spending accounts, or FSAs, HSAs can be used for any medical expense and the funds don't expire.
There are also annual maximums for HSA contributions, which depend on whether the account is for a single person or family and how long you’ve been eligible for an account.
- Tax and security benefits from HSAs
HSAs offer security and three major tax benefits, which make them great for planning for the future. Deductible contributions reduce taxable income, the money in the HSA earns tax-free interest, and withdrawals can be used, tax-free, for eligible expenses. This is what makes an HSA so powerful.
All in all, an HSA is an important part of financial planning for anyone with health insurance that has a high deductible plan. Because more employers and individuals are working to avoid high premiums, high-deductible plans are becoming an important part of health insurance.