Everything You Need to Know About Opening a Health Savings Account

Everything You Need to Know About Opening a Health Savings Account

Everything You Need to Know About Opening a Health Savings Account

If you’ve gotten health insurance quotes in the last 5-10 years, you’ve likely had major sticker shock. Those who get health insurance through their companies are still paying, of course, but with it automatically coming out of their paycheck each week, it’s barely a blip on their financial radar. It’s when you start shopping for yourself that you begin to realize how much health insurance can set you back. And even when you’re getting insurance through employers, you might be stuck with very high deductibles., Everything You Need to Know About Opening a Health Savings Account

Health Savings Account Overview

Thankfully, there is something called a Health Savings Account (HSA) that can ease the pain. You have to qualify first, though, which means that you have to be enrolled in a high-deductible insurance plan (HDHP). The government defines the parameters for this. So, what does that mean exactly? For an individual, a plan is considered a HDHP plan when the cost parameters are as follows: $6,550 for maximum out-of-pocket costs and a minimum deductible of $1,300.

If your health insurance provider doesn’t offer HSAs, you can open a separate account with most financial institutions. You can even opt out of your employer’s health insurance plan if you find an HSA that is more appealing.

If you’re enrolling in a new health plan and you need to establish with a primary care physician under your plan, you can browse Angie’s List for the best-rated doctors in your area.

If you’re considering this option, you probably have a lot more questions. Read on for everything you need to know about opening a health savings account.

The Money Can Roll Over

Unlike some other financial options such as flexible-spending accounts, this one is not a “use it or lose it” fund. In other words, you don’t have to spend the money in the HSA by the year’s end. An HAS is great because it’s way to pay for medical costs at any time – not just in the short term. You can also leave money in the account year-to-year so that it can build tax-free interest over time.

You Should Check With Your Employer For Incentives

Some employers will encourage you to choose this option by offering to match your contributions, such as with the 401(k). Your boss might even contribute more than this if you participate in a wellness program, as companies need healthy employees. It’s a win/win.

HSA Funds Can Be Used for Family Members

While covering other family members on your health insurance isn’t a new concept, the HSA is a bit different. This is because even those with a self-only health insurance policy can use HSA money for medical expenses for their spouses and current tax dependents. Because it’s essentially a savings account, how you use it is up to you.

You Can Use the Money For Mutual Funds

Anything that’s not used on the current year’s deductible can be invested in mutual funds for long-term growth. It’s not limited to cash or money market accounts. In fact, most brokerage firms and Health Savings Account administrators offer you a choice of mutual funds.

There are Major Tax Benefits

As with the 401(k), the HSA allows for tax-free contributions. However, with the 401(k), you have to pay income taxes on withdrawals. With your health savings account, contributions are tax-deductible, the money grows tax-deferred, and any withdrawals for medical expenses are tax-free. This is so significant that many people opt to contribute the maximum amount into these accounts.

Don’t forget, however, that proper HSA reporting is necessary in order to make your deductions. The IRS uses Form 8889 for this. Fill it out and attach it to your Form 1040 when you do your personal taxes.

You Should Assign a Beneficiary

You don’t the money you’ve invested in your HSA to go to waste should something happen to you, so designate a beneficiary. Your spouse can use the HSA if you’ve assigned him or her as the beneficiary. As this Washington Post article goes on to note, “If your beneficiary is not your spouse, then the fair market value of the HSA is taxable to your beneficiary in the year that you die. If your beneficiary is your estate, the HSA becomes part of your estate and is includable on your final tax return.”

Health Savings Accounts Can Help Secure Your Future

Now that you’ve armed with the information on the health savings account, you’re likely eager to set one up for yourself. Weigh your options and if this ultimately stands out as the best one for you, go for it.

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