Heath Savings Accounts
In an effort to give Americans more control over their healthcare decisions, and to help reduce their overall healthcare costs, a tax-deductible Health Savings Account (HSA) can now be used to pay for qualified health expenses incurred by business owners, employees, their spouses, or their dependents. In order to qualify, an individual must have a high deductible health plan (HDHP). Most insurance carriers offer qualified HDHPs
HSA Benefits & Advantages
- Lower and potentially stabilized monthly health insurance premiums
- Immediate tax-savings (all qualified deposits are 100% deductible)
- Long-term growth potential (the only way to actually â€œmake moneyâ€ with a healthcare plan)
- Tax-free withdrawals to pay medical expenses covered under the policy, and for many medical services not covered by insurance (dental, vision, acupuncture, alternative medicines, etc.)
- Tax-free withdrawals to pay for supplemental benefit plans, long-term-care insurance, COBRA premiums, or health insurance premiums while unemployed.
- HSAâ€™s are open to individuals covered by a high deductible health insurance plan. The annual deductible must be at least $1,200.00* for individual coverage, and at least $2,400.00* for family coverage.
- Contributions to HSAâ€™s by individuals are fully deductible, even if the taxpayer does not itemize.
- Contributions by an employer are not included in the individualâ€™s taxable income.
- Individuals, their employers, or both can contribute tax-deductible funds each year up to $3,100.00 for individuals and $6,250.00 for families.
- Individuals over age 55 can make extra contributions to their accounts up to $1,000 and still enjoy the same tax advantages.
- The interest and investment earnings generated by the account are also not taxable while in the HSA. Amounts distributed are not taxable as long as they are used to pay for qualified expenses.
- Amounts distributed that are not used to pay for qualified medical expenses will be taxable, plus a 10% penalty (until age 65) to be applied to deter the use of the HSA for non-medical purposes.
Distribution of Funds
HSA funds can be used to cover qualified medical, dental and vision expenses such as insurance deductibles, co-payments for office visits and prescriptions, etc. In addition, HSA funds can be used to purchase long-term care insurance and COBRA health insurance premiums during any period of unemployment. The process of withdrawing funds is generally very simple with an HSA debit card.
HSAâ€™s are portable, so an individual is not dependent on a particular employer to enjoy the advantages of having an HSA. Like an individual retirement account (IRA), the HSA is owned by the individual, not the employer. If the individual changes jobs, the HSA stays with the individual.