The health savings account uses to be similar to personal savings accounts, but the money they contain is used to pay for health care expenses.
It is you, not your employer or your insurance company, who owns and controls the money in your health savings account.
The money you deposit in the account is tax-free. To be qualified for opening a health savings account, you have to have a distinct kind of health insurance which is called a “high deductible plan.”
Why were health savings accounts created?
Health savings accounts as well as high-deductible health plans were created as a way to help control health care costs.
The idea is that people will spend money on healthcare more wisely if it comes out of their own pocket.
Is the health savings account a suitable option for me?
Like any healthcare option, Health Savings Accounts (HSAs) have advantages and disadvantages. As you evaluate your options, think about your budget and the medical care you will likely need next year.
If you are generally healthy and want to save for future health care expenses, an HSA may be an attractive option. Or if you are close to retirement, an HSA may make sense because the money can be used to offset the costs of health care post-retirement.
What are some possible benefits of having a health savings account?
You decide how much money you will set aside to cover the costs of medical care.
You control how the money in your health savings account is spent. You can compare prices based on quality and cost.
Your employer can contribute to your health savings account, but you are the owner of the account and the money happens to be yours, though you change jobs.
The money you have not spent at the end of the year is transferred (remains in your account) to the following year and is yours indefinitely.
You do not pay taxes on the money that is credited to your health savings account.
For some health savings accounts, interest is paid on the unused money in the account, or the money is invested in mutual funds or other financial products. Earnings from a health savings account are also tax-exempt.
What are some possible disadvantages of having a health savings account?
The illness can be unpredictable, so it can be difficult to set aside funds accurately for healthcare expenses.
It can be difficult to find information about the cost and quality of medical care.
For some people, setting aside money to put into their health savings account is challenging. Older and sicker people probably cannot save as much as younger, healthier people.
The pressure of saving money in your health savings account can lead you not to seek medical attention when you need it.
If you draw money from the health savings account you hold for other non-medical expenses, you will have to pay taxes.
Who can open a health savings account?
Your employer may offer a health savings account option, or you can open an account yourself through a bank or other financial institution. To be suitable, you have to be below 65 and have a high deductible health insurance plan.
If you have a spouse who uses their insurance as secondary coverage, he or she must also be enrolled in a high deductible plan.
This high deductible health plan should be your only health insurance; You cannot be covered by any other health insurance.
Are health savings accounts resembling flexible spending accounts?
The answer is yes, but there used to be a pair of primary differences. One difference happens to be the amount of unspent money which you can invest each year.
Another difference happens to be that the money you put into an HSA is yours and you can take it with you if you change jobs or retire. You cannot carry money from an employer-sponsored FSA if you change jobs or retire.
- Finally, it is important to know that in most cases you cannot have an HSA and an FSA.
- How do you find information about the medical quality and costs so you can make informed decisions?
- It can be challenging. At this time, it is difficult to obtain consistent information about the quality and cost of the treatment options, hospitals, and doctors.
- Your health plan or employer might offer a few web-built tools or a phone number to ask for basic information.
Yes, but if you withdraw funds for non-medical expenses before your 65th birthday, you need to pay income taxes and an extra20 percent penalty. If you take money out for non-medical expenses after you turn 65, you shouldn’t pay a penalty, but you should still pay money taxes.