A Health Savings Account (HSA) is a savings account that can be used alongside your health plan. It’s a great tool to help save up for a qualifying procedure, an emergency, or even your retirement. With this account, you can save up to $3,600 individual plans and $7,200 for a family plan.
This article shows you some of the great benefits you get from opening an HSA and answer some frequently asked questions.
Also Read: The Ultimate Guide On Health Insurance for more information on other common phrases.
How Does A Health Savings Account Work
Any qualified person can contribute funds to an HSA. This means either you, a family member, or your employer can contribute to the account on your behalf. HSAs are only available with high deductible health plans.
An HSA does not have a “use it or lose it,” policy. If you still have money in the account after the year is over, all the savings roll into next year’s account. This is how your HSA becomes a powerful savings tool for almost anything you need.
You can use your HSA money to cover health costs for a number of things. You can use to HSA to cover:
- Most healthcare costs until you meet your deductible.
- Copays and coinsurance costs.
- Mutual fund or stock investments.
- Retirement funds.
- Emergency funds.
The most common reason people start an HSA is simply to have a tax-free way to save money.
Does A Health Savings Account Affect Taxes
All contributions into your HSA are tax-deductible, aside from your employers. Your employer’s contributions aren’t included in your income.
With your HSA, you don’t pay tax on money you do take out for qualified expenses. There are four more ways your HSA saves you money on taxes:
- Pre-Tax Contributions are pre-taxed funds that are made through your payroll deductions. These contributions aren’t included in your gross income, so you won’t pay federal tax on them. Some select states also don’t consider these contributions taxable.
- Tax-Deductible After-Tax Contributions can be deducted from your gross income on your tax return. This can drastically reduce your tax bill for the year.
- Tax-Free Withdrawals allow tax-free withdrawals if you use the money on qualified medical expenses.
- Tax-Free Earnings allows you to earn tax-free interest on other savings in the HSA.
If you withdraw money from your account for non-qualified expenses before you turn 65, you’ll face a 20% penalty and have to pay tax on the withdrawal.
Every HSA has different policies on what’s considered a “qualifying medical expense.” Check with your health insurance company to see the policy on their HSA.
How To Open A Health Savings Account
You can open a health savings account on your own, even if your employer doesn’t have one. You can either do it through your bank, or ask your insurer what they offer with their high-deductible plans.
Before you open your HSA, compare health insurance plans and HSA plans on the market. You can do this by calling Quote Purple to see what high-deductible plans our partners offer.
To open an HSA, you can either speak with your employer or your bank to see what further steps you need to take.
What Else Can You Use An HSA For?
An HSA is a great savings tool, but it’s main purpose is to help you pay for your medical expenses. That means even if your current health plan doesn’t cover something, your HSA savings can still be used for:
- Qualified out-pocket-pocket medical expenses
- Dental and vision copays and coinsurance
- Prescription eyewear and other supplies
- Other medical treatments like chiropractor visits
If you want to open an HSA through your insurance, call Quote Purple and we can get one of our partners to give you more information.