High-deductible insurance plans qualify for a special savings account that the federal government regulates. If you have an individual deductible of $1,350 or a family deductible of $2,700, you may be able to open up a health savings account, or HSA. You get three significant tax benefits that make HSAs a great way to pay for your medical costs and reduce your tax obligations.
When you deposit money into your HSA, it’s tax deductible. This means that it lowers how much income you get taxed on. If you’re near the edge of a lower tax bracket, contributing to your HSA could move you down to that new rate. Some employers offer funds for HSAs, and you’re not responsible for tax payments on them. The maximum that you can add to an HSA each year is $3,450 if you have an individual health insurance plan and $6,850 if you cover your entire family. These funds rollover annually so you can build up the account.
HSAs act as typical savings accounts in that you earn interest on your funds. The rates vary based on many economic factors. No matter how much you earn in interest, you can enjoy the increase tax-free.
The whole point of an HSA is to cover your medical costs. Unlike some other investment accounts, when you withdraw from your HSA for any qualified costs, you don’t receive a tax penalty.
You can use the HSA funds for a wide range of medical goods and services. For example, copays, prescriptions, medical procedures, dental visits and eye exams are all acceptable uses of the HSA. The only time you have to worry about tax penalties is if you take out funds for other reasons.
An HSA is a valuable tool for planning for your health costs while reducing your tax liability. If you have the option to open up an HSA with your health insurance, you can get a lot of mileage out of it.
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