Health Savings Accounts or HSA plans are popular across the U.S. that help you control your health insurance premiums, thereby saving money on a tax-free basis. HSA plans work in conjunction with High Deductible Health Plan and you first need to purchase this plan, and then set up a savings account. It is commonly seen that people are usually scared of having a high deductible plan, but in reality, these plans mostly work for the advantage of the insured. Though the small claims of the insured are not paid by the insurance company, the amount saved in health premium will be bigger than the amount spent on the small claims. Generally, you visit a doctor once or twice a year and even if each doctor visit costs you $150, then you will spend only $300 a year. Whereas an HSA health plan can help you save up to 35% in premium.
Eligibility for HSA
If you have a high deductible health plan with an annual deductible of at least $1,400 for single coverage or $2,800 for a family, then you are eligible to contribute to a Health Savings Account. Besides, to qualify your health plan needs to conform to an out-of-pocket maximum. In 2020, the out-of-pocket maximum for an HSA-qualified health plan cannot be more than $6,900 for self-coverage or $13,800 for family coverage. To participate in an HSA, you must conform to the minimum deductible as well as the maximum out-of-pocket expenses.
Contribution in HSA
If you are eligible to participate in an HSA then your contribution will vary depending upon whether you have an individual health plan or a family health plan. The HSA annual contribution limits for 2020 are $3,550 for self-only coverage and $7,100 for a family. Besides, HSA participants who are at least 55 years old and have only self-health coverage, can contribute a total of $4,550 to their HSA in 2020 and individuals 55 or older who have family health plans can contribute as much as $8,100 to their account. The funds in your HSA can be contributed by you, your employer, a relative, or anyone else who wants to add to your HAS. The idea behind HSA is that you will spend your saved health care dollars more wisely while using your money.
Benefits of HSA
HSA is set to help you save money to meet your smaller claims along with other healthcare expenses that are not normally covered by a health insurance plan. The money saved in the HSA account is not taxed and will never be taxed if the saved funds are used on qualified medical expenses. Most of the healthcare expenses are eligible along with dental and vision costs.
On the amount saved on this HSA account, you will earn interest and the interest amount is also tax differed. However, if you used the saved fund of this account on anything other than qualified medical expenses, then you will be responsible for paying income tax and a 10% penalty. You have complete control over the funds saved in this account and you won’t even lose the funds if the complete fund is not used by the end of the year, as the money automatically roll over year to year.
You can continue to withdraw funds on a tax-free basis to pay for qualified medical expenses, including long term health plan premiums, even after turning 65. However, withdrawals made for any other purpose will be subjected to tax and penalty. HSA money can be withdrawn at any age for medical expenses, but you cannot contribute to an HSA after you enroll for Medicare.
HAS’s other benefits include that the money saved in this account can also be invested in mutual funds, stocks and other investment tools. You can even seek help from different companies depending upon your investing preferences. Thus, if you are also looking to invest your balance amount of HSA, you can seek the assistance of HSA custodians who will offer low-fee investment options. You can also consult a professional financial advisor.