Health Savings Accounts, commonly known as “HSAs”, are designed to help individuals save for future medical and retiree health expenses on a tax-free basis.
Are you eligible?
You are eligible for an HSA if you are covered by a high-deductible health insurance plan (HDHP), aren’t covered by other health insurance, are not enrolled in Medicare, and cannot be claimed as a dependent on someone else’s tax return.
What makes an insurance policy an HDHP?
An HDHP is virtually any health insurance plan that has a high minimum deductible and which does not cover the initial costs or all the costs of medical expenses. For 2020, that deductible amount (as dictated by the IRS) must be at least $1,400 for an individual or $2,800 for family coverage.
What’s the basic concept?
You save money on your insurance premium by having a high deductible, and you put that savings in a fund (HSA) to meet future medical expenses. In essence, you pay a portion of your health-care budget to yourself instead of an insurance company.
How do you use your HSA to pay expenses?
Money can be withdrawn tax-free for most medical expenses, including prescription drugs, doctor visits, medical testing, dental expenses and even alternative medical treatments. Typically, you’ll receive a debit card from the financial institution where your HSA is held, and simply use that card to pay for those expenses which aren’t covered by your health insurance plan.
What happens to money you don’t use?
Every year, the money not spent would stay in the account and gain interest tax-free.
How much can you contribute tax-free each year?
You may contribute any amount up to $3,050 for single coverage and $7,100 for a family.
Disclaimer: The information in this article is based upon FACT’s understanding of HSAs. Our purpose is to give you an overview of something which might be of genuine value to you, and we urge you to meet with your trusted insurance or financial expert before making a final decision.