HSA – "The Better Rainy Day Fund" of Health Care Savings Plans
Whether you are self-employed looking for an individual and family health insurance or receiving your benefits through an employer group, you are noticing the increase of health care costs. Without proper planning even deductibles and other out of pocket expenses can create a burden on your family. In 2003, legislation was passed that created a Health Savings Account to help ease the financial strain on the average, working family regarding paying for health care costs.
A Health Savings Account, or HSA, is an account designed specifically for individuals with high-deductible insurance plans to save pre-tax money for out of pocket medical expenses. Qualified medical expenses include co-pays, deductibles for prescriptions and even over the counter medication such as cough medicine or aspirin. Generally insurance premiums are not considered qualified out of pocket medical expenses. In some cases premiums for vision, dental, or disability may be eligible.
In short, an HSA is a savings account just for out of pocket medical expenses. An account that, unlike a flexible spending account, with any balance left at the end of the year can be saved for future expenditures. Since the funds belong to you, you have a good deal of flexibility on ways to handle your account such as:
An HSA account can be established by visiting your bank or credit union, your insurance company, any financial institution that handles accounts such as IRA's or, if available through employment, directly with your employer. After the account has been created, regular deposits up to the allowed amount, which are determined by the deductible of your annual health insurance, can be made by you and/or employer. And while employees benefit by contributing money that is tax free, employers also reap the benefits of contributions that are exempt from payroll taxes.
A Health Savings Account, or HSA, is an account designed specifically for individuals with high-deductible insurance plans to save pre-tax money for out of pocket medical expenses. Qualified medical expenses include co-pays, deductibles for prescriptions and even over the counter medication such as cough medicine or aspirin. Generally insurance premiums are not considered qualified out of pocket medical expenses. In some cases premiums for vision, dental, or disability may be eligible.
In short, an HSA is a savings account just for out of pocket medical expenses. An account that, unlike a flexible spending account, with any balance left at the end of the year can be saved for future expenditures. Since the funds belong to you, you have a good deal of flexibility on ways to handle your account such as:
- In the short term – year to year medical expenses
- Let the funds accumulate to pay for medical expenses incurred during retirement before you reach the age of 65
- Roll over into another tax-advantaged account, such as an IRA.
- Move from employer to employer
- Draw out money to pay for any non-medical expense. Take note that with this option you are required to pay income tax as well as an additional 10% penalty.
An HSA account can be established by visiting your bank or credit union, your insurance company, any financial institution that handles accounts such as IRA's or, if available through employment, directly with your employer. After the account has been created, regular deposits up to the allowed amount, which are determined by the deductible of your annual health insurance, can be made by you and/or employer. And while employees benefit by contributing money that is tax free, employers also reap the benefits of contributions that are exempt from payroll taxes.
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