October 9, 2020
By Rahul Iyer
Medical bills get expensive, especially as you get older. If you have a high deductible insurance plan, you may wonder how you’ll afford the bills and pay your insurance premiums.
Enter the Health Savings Account – a tax-advantaged way to save for your medical expenses.
If you don’t have one yet, read on to learn why you should consider it.
You may open an HSA through your employer (if they offer one) or find one yourself through a broker. As long as you have a qualifying health insurance plan with a high deductible as determined by the IRS, you’re eligible for an HSA.
In 2020, the IRS considers a high deductible insurance plan one with a $1,400 individual deductible or $2,800 family deductible. If your insurance plan meets this requirement, you may take advantage of a Health Savings Account.
You may contribute pre-tax funds to your HSA. The funds stay in the account until you need them for qualified medical expenses. You’ll receive a debit card for the account to pay your medical bills. The allowed expenses include co-insurance, co-pays, and out of pocket expenses, but not insurance premiums.
The benefit of the HSA comes down to the tax savings. Like retirement fund contributions, you make HSA contributions pre-tax if you have an account through your employer. Your employer automatically deducts the contributions from your pay before withdrawing taxes.
If you open your own account, you may deduct the contributions (up to $3,500 for individuals and $7,100 for families) on your taxes when you prepare them.
No matter where you hold your account, the funds grow tax-free and if you use the money on qualified medical expenses, your withdrawals are tax-free too. In other words, you pay no taxes on the income you use to contribute to your medical expenses.
Any funds you contribute to your Health Savings Account, but don’t use that year may be rolled over. You may continue to roll the funds over year over year until age 65. Once you are over 65-years old and enrolled in Medicare, you are no longer eligible for an HSA account for new contributions.
If you have unused funds in your account, though, you may use the funds after age 65 to cover your out-of-pocket medical expenses. You never lose the use of the funds.
If you have a high deductible insurance plan through your employer or even the marketplace, take advantage of the benefits HSAs offer. You’ll get the tax advantages and have money available to cover your medical expenses without the worry of how you’ll cover your medical bills. It can be a great help during stressful times!