A health savings account is a special account specifically meant to help pay for qualified medical expenses. One of the benefits an HSA account offers is the ability to save money on a pre-tax basis. Being able to use your untaxed money for copayments, deductibles and other qualified medical expenses can be very beneficial and can help your hard-earned dollars stretch further. Here are a few things you should know about these accounts.
There are a variety of reasons to open a health savings account. Such accounts can reduce the financial burden associated with medical care and other eligible health expenses. Here are a few of the most notable benefits an HSA can offer:
- Pretax contributions: Most HSA accounts are set up through an employer and contributions are made pretax through payroll deductions. Since they are set up this way, HSA contributions are not subject to federal income taxes because they aren’t included as part of your gross income.
- Tax-free withdrawals and earnings: Most HSA accounts earn a small amount of interest. The amount of interest is usually negligible (less than 1%). But any tax-free earnings are a benefit to the HSA account holder.
- Portability: Since your HSA account is in your name and not the name of the company for which you work, you can take it with you if you retire or go to work for another company.
- Annual Rollover: Any money left in your health savings accounts at the end of the year automatically rolls over so you can use it the next year. This is the major way these accounts differ from flexible spending accounts, which normally don’t roll over into the next year (or may only roll over a couple of months into the next year).
In addition to the great benefits they offer, it’s also important to note the potential drawbacks of HSA accounts. They require you to have a high-deductible health plan, which may not be ideal for all families or individuals. Many health savings accounts also have monthly maintenance fees. Some may even charge a fee per transaction. Fortunately, these fees are usually quite low and may be waived if you meet certain stipulations.
Who Can Open an HSA
There are certain federal guidelines that must be met to open an HSA account. You can open such an account if you:
- Are not covered by Veterans Administration medical benefits (though there may be some exceptions to this rule)
- Are covered under a high-deductible health plan that meets certain qualifications
- Are not enrolled in Medicare
- Are not a dependent on another person’s tax return
- Are not covered by your spouse’s medical plan or any other medical plan
- Do not have an alternative medical savings account that disqualifies you from opening a health savings account
- Are not enrolled in TRICARE for Life or TRICARE
Get Help Setting Up Your Health Savings Account
If you need help understanding the regulations regarding health savings accounts, we may be able to help. Or if you need legal advice on topics such as estate planning, capital gains avoidance and trust settlement, we invite you to contact AmeriEstate today.