Rising healthcare costs are an ever-present issue that many families across the country are facing. There is an uncertainty about the status of healthcare like never before. To protect yourself and your loved ones, having a financial plan in place to cover medical costs is crucial. A great way to save for medical costs is a Health Savings Account. Learn more about what a Health Savings Account is and if it’s the right option for you.
What is a Health Savings Account?
A Health Savings Account (HSA) works like a savings account that has been created specifically to cover health expenses. However, unlike your standard savings account, an HSA allows you to make pre-tax contributions. These contributions can be used to pay for medical bills before you reach your medical insurance deductible. You can also use your HSA to pay for qualified expenses that are not covered by your plan, including dental and vision care.
To explain how an HSA works, imagine you injure your leg and need physical therapy. However, your insurance has a $500 deductible for physical therapy treatment. What this means is that you will need to spend $500 of your own money before your health insurance starts chipping in. This is where an HSA comes in handy because you can use those pre-tax contributions in your account to pay that $500.
To qualify for an HSA, you must:
- Be covered by qualified high deductible health insurance
- Not be covered under other health insurance
- Not be enrolled in Medicare
- Not be another person’s dependent
There are numerous benefits that make an HSA a great choice for many people. They can help limit your upfront healthcare costs, have a favorable tax treatment, and your monthly premium can be significantly lower than if you have a low deductible health plan.
HSA benefits include:
- The contributions are made with pre-tax dollars so they aren’t subject to federal taxes
- Contributions that are made with after-tax dollars can be deducted on your tax returns
- You don’t pay taxes on funds withdrawn to pay for qualified medical expenses
- Employers, relatives, and anyone else who wants to can contribute to your HSA
- HSAs are portable and remain available to you even if you change insurance plans, change employers, or retire
- Your HSA rolls over every year