The cost of health insurance puts it out of reach for many people, but there are ways to save. For example, you can combine health savings accounts with high deductible plans to lower your costs. You will be eligible for tax advantages that can be maximized with the right strategies.
Read on to learn how to make wise purchasing and investment choices that will provide access to optimal physical, mental, and financial health.
What is a Health Savings Account (HSA)?
An HSA is a savings account that is used to pay for health expenses that aren’t covered by insurance. They are rollover accounts so any money not spent is rolled over to the following period and will stay in your account until it is withdrawn. They are tax-deductible and the interest earned is tax-free.
Am I Eligible for an HSA?
You may set up in HSA if:
- You have a high deductible health plan with a deductible between $1300 and $6550 for an individual or between $2600 and $13,100 for a family
- You don’t have other health insurance or Medicare
However, you can have an HSA if you have separate coverage for vision and dental or if you have a disability, worker’s comp, or long-term coverage insurance.
HSAs are available in most areas, but not every area. You can find out if they are available in your area when applying for a plan on HealthCare.gov or through an agent or insurance company.
How Do You Use an HSA?
The money in your HSA can be used to cover any “qualifying medical expense” not covered by your insurer. You may use the funds to pay for dental procedures, lab work, copays, hospital expenses, and specialty work. The IRS website has more information about which treatments and procedures qualify.
These treatments would normally be recorded as a tax return deduction, but if you use an HSA to cover these expenses, they will no longer qualify.
If you are under 65 and take money out of your HSA to pay for anything other than medical expenses, you must pay taxes on the withdrawal. You may also face a 20% penalty. If you are 65 or over, you can withdraw the money without a penalty, but you must still pay taxes on the distribution.
The amount you can contribute to your HSA will vary depending on your age, your insurance plan, and when you became eligible for your HSA account.
HSAs and Taxes
Taxpayers can report their HSA contributions on Tax Form 8889. You can make contributions for a tax year until the tax filing deadline. For example, you will have until April 15, 2024, to make contributions for the 2023 tax year.
Tips for Making the Most Out of Your HSA
- Contribute the Annual Maximum: For best results, contribute the annual maximum to your account and pay health costs out of pocket if possible. This strategy will allow the money to grow tax-free. You will diversify your portfolio and reduce investment risk. Keep in mind that any money contributed over the limit will not be tax-deductible.
- Pay Yourself Back: People who pay out of pocket for medical expenses while letting their HSA grow can pay themselves back later. The tax-free payments will lower your taxable income. Keep track of earlier payments so you can pay yourself back with accuracy.
- Decide if an HSA is Right for You: HSAs do not benefit everyone. If you have a chronic illness and require frequent medical visits, you may be better off with a plan that offers fewer out-of-pocket costs.
- Invest Your HSA Funds: You can profit even more from your HSA if you invest your funds. A young healthy adult with a positive financial outlook may consider investing in a low-cost diversified stock fund that presents some risk. People who are not as financially well off may consider a more conservative investment, like a money market fund. Older adults should avoid investments and keep money in their accounts so they can access it as needed.
Let Insurance Broker Hub Determine if an HSA is Right For You
Like anything regarding health insurance, there is a whole lot more nuance that you should know before diving into an HSA. The best way to find out whether a plan is right for you? Speak with a broker.
Insurance Broker Hub will help you save even more by matching you with a health insurance plan that offers the best value for your money. Contact us to request a health insurance quote today.
Additional Resources
Maximizing the Benefits of Your Health Savings Account (HSA)
