A Health Savings Account (HSA) is a savings account individuals contribute to, to pay for medical expenses. Not anyone can set up a HSA; you have to have an approved High Deductible Health Plan (HDHP) to set up a HSA.
The best thing about a HSA is the tax savings advantages. The money an individual contributes to the HSA is tax free and as it accumulates over time, is tax deferred. Whenever money is withdrawn for medical expenses it is also tax free. Congress created this savings plan to help individuals save money for their medical needs.
In a way a HSA is like an IRA. Your saving investments are tax free. You can contribute and carry over the money in your account year after year all the way to retirement. If you withdraw funds for non medical expenses, you will the penalized. You could face a 20% income tax penalty if you withdraw money for non medical needs, before age 65. After age 65, you can withdraw funds and will be subjected to normal income taxes without penalties. A HSA can be transferred to a spouse when you die.
You Own Your HSA
Your HSA is owned by you. So if you change jobs your HSA can move with you to your new job. If you retire, the money goes with you. Money not withdrawn for medical purposes this year, can be rolled over into to the next. Your employer can also make contributions to your HSA. Your HSA money can be used for any of your family member’s medical expenses.
Usually insurance companies offer approved High Deductible Health Plans. A bank or a licensed HSA administrator oversees the savings account.
HSA’s Contribution Amount
The most you can contribute to your HSA in 2012 is $3,100 for an individual and $6,250 for a family. If you are 55 to 65 years of age, you can contribute a $1000 more or $4,100 per year.
An HSA account is an individual account. For married couples, both husband and wife set up separate HSA accounts even with a HSA family health plan. Dependent children can not sign up for a HSA. The owner of the HSA account is the only one who can take a tax deduction.
Your approved HDHP has a minimum and maximum out-of-the pocket deductible. An individual must have a minimum $1,200 deductible or a maximum $6,050 deductible in their HDHP. For a family under this health plan the minimum deductible is at least $2,400, all the way up to the maximum of $12,100. The HDHP must pay 100% of medical costs after the deductible has been met. Preventive care is often provided without having to meet a deductible.
If you are looking for a High Deductible Health Plan with a HSA, investigate several reputable companies. Always get multiple quotes to compare coverage and costs. It pays to do your homework.
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