What is a Health Savings Plan?
If you have a high deductible health insurance plan, you may be eligible for a Health Savings Plan too. If you qualify, the HSA, you can contribute money to this account before taxes. This may help decrease your tax liability while giving you money to help you pay the high deductible or other approved medical charges.
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Qualifying for an HSA Plan
The IRS determines who qualifies for an HSA Plan. It depends on the amount of your deductible and the maximum out-of-pocket expenses your insurance company allows. For 2018, the requirements are:
- Individuals have a high deductible insurance plan if their deductible is at least $1,350 and maximum out-of-pocket expenses are $6,650
- Families have a high deductible insurance plan if their deductible is at least $2,700 and maximum out-of-pocket expenses are $13,300
If you qualify, you can contribute the following amounts to your Health Saving Plan for 2018:
- Individuals may contribute up to $3,450
- Families may contribute up to $6,850
Adults over the age of 55 may also be eligible to increase their savings by $1,000 of the above maximums.
How to Use Your Health Savings Plan
You can set up your Health Savings Plan with your employer. This is the easiest way as you can set up direct deposit of your funds from your check directly to the HSA. If your employer or health insurance doesn’t offer the plan, you may be able to set one up with your financial institution.
Once you have the account set up, you will receive a debit card or access to a checking account linked to your Health Savings Plan. You can only use this money for eligible healthcare expenses. This may include:
- Money to meet your deductible
- Money to pay your co-pay
- Money to pay your co-insurance
You cannot use the funds to pay your health insurance premiums. If you use the money on anything that is considered ineligible, you will be responsible for paying income taxes on the money spent. You may also incur a penalty for use of the funds on ineligible purchases.
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The money in your HSA does roll over from year-to-year. For example, if you have $1,500 in your Health Savings Plan in 2017, but you didn’t see the doctor for anything but routine medical exams, you may still have the funds sitting in your account. In 2018, those funds remain there and continue to grow with your new deposits.
You can continue to contribute to the plan until you are 65-years old. At this point, you become eligible for Medicare and cannot contribute. But you can still use the funds that remain in the account to help you cover the expenses that Medicare doesn’t cover.
The Largest Benefit of the Health Savings Plan
The Health Savings Plan helps you earn money tax-free as you never pay taxes on the money should you use it for eligible medical expenses.
You work and earn your salary. Your employer deducts the HSA funds before taxes, depositing the funds into your Health Savings Plan. The money sits in your plan and grows interest, again tax-free. If you withdraw the funds for use on eligible medical expenses, you still don’t pay taxes on the funds.
In addition, you lower your tax liability by decreasing your taxable income. Your employer will only withdraw taxes for the funds that are taxable. If you make $3,000 per paycheck, but you withdraw $100 for your HSA account, you only pay taxes on the $2,900.
Investing Your HSA Funds
Your Health Savings Plan funds don’t sit in your account accruing minimal interest that savings account offer. Instead, you can invest the funds, furthering your investment even further. You can talk with an investment advisor on the best way to invest the funds while keeping them accessible, should you need them. A couple of options include mutual funds and stocks.
As long as you use your Health Savings Plan funds appropriately, it can be a great investment and/or savings vehicle for you. If you max out your 401(K) contributions according to what your employer will match, the next best thing may be to invest in your health. The money sits there until you need to use it, which can help you prepare for medical emergencies in the future.
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