A health savings account (HSA) can be a smart health care option for families and individuals with high-deductible health insurance plans. While it is similar to a personal savings account, the money deposited into a health savings account is tax deductible. It is also similar to a flexible spending account (FSA), except that the deposited fund role over yearly. As employee health insurance plans shift to high-deductible models, a health savings account can help in lessening the burden of healthcare expenses. As such, this article reviews some of the key benefits of a health savings account for employees:
Your contributions to a health savings account are deductible from your gross pay or business income. As such, you get a powerful tax deduction that can possibly put you into a lower tax bracket. The tax deduction for singles and families in 2016 was up to $3,350 and $6,750 respectively. In 2017, the tax deduction for singles is $3,400 and remains the same for heads of households and married couples at $6,750.
Many people think that you must own a business for you to implement a health savings account, but that’s not the case. Anybody who obtains the right health insurance plan can have a health savings account. Notably, your employer doesn’t have to contribute to your health savings account. They just need to offer an insurance policy that qualifies for health savings account.
Once you invest in a health savings account, the funds can be spent tax-free on qualified medical expenses. It could be dental care, deductibles, rental on hotel and lodging while at the hospital, acupuncture, or even eye care. Interestingly, you start withdrawing money immediately with no waiting period. Just change your approach to health care spending and you will go places. A good approach is to stop at the bank and make a deposit at your health savings account on the way to the doctor. You may also pay bills with your health savings account card.
The money in your health savings account grows tax-free and is not subject to economic fluctuation such as inflation. It grows and builds with your future healthcare needs.
A retiree has an option to withdraw the funds for non-medical expenses but has to pay a federal income tax on the non-medical withdrawals. That way the health savings account acts much like a traditional IRA since the account holder pays federal income tax on non-healthcare withdrawals.
There are simple options of setting up a health savings account. You can set it up at your local bank by visiting the bank physically or completing the set-up online. It doesn’t demand major paperwork. Just fill in the proper details, sign the form and make a deposit.
In short, harnessing the power of a health savings account will help you save with a low premium, high-deductible medical care insurance. You also enjoy tax deductions and build a tax-free pool of money designated for health care expenses. The health savings account is one of the under-utilized tax strategies in the United States. Therefore, open your account today and reap the benefits before it’s too late.
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