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How Health Savings Accounts Work
Health savings accounts are beneficial for many people who are in insurance plans that carry high deductibles. A health savings account, or HSA, is a special bank account that money can be placed in for medical bills. In return for using the account, the individual receives a tax credit for any income tax originally paid on that money. In other words, the account allows its owner to put aside money tax-free to be used for medical expenses.
Can you benefit from opening an HSA? You can if your plan qualifies. The actual deductible amounts vary from year to year, but if you consider yourself as being in a high interest account, you should see what the current year's guidelines are. In 2009 the minimum deductible for a plan that qualifies for an HSA was $1,150 for individuals and $2,300 for families. In other words, if your insurance has a deductible that is this high or higher, you can set up an HSA.
If you will be paying money for medical bills and have an account that qualifies, you will benefit from setting up an HSA. Remember, when you pay your taxes at the end of the year, the taxes you paid on the money in the HSA will be credited to you.
There are some limits to the amount you can put into one of these accounts each year. Even if your health insurance deductible is higher, the government limits individuals to $3,000 in new deductions in a year. That amount increases to $5,950 for families. These numbers may increase over time, but you cannot contribute more than that. However, you can contribute up to that amount, even if you do not need it.
Money placed into a health savings account must be spent on health related expenses. However, this does not mean medical bills alone. When you go to the drug store for Sudafed and Band-Aids, you can use money from your HSA to pay for these purchases, because they are health related purchases. In this way, you can benefit from the account even if you do not get sick very often. You can also use the funds for health expenses that are not covered under your insurance plan, such as eye care, alternative medicine treatments, and dental care.
For those who have plans that qualify for them, HSAs just make sense. They give you a way to save a little on your taxes while working to save the money for those deductibles. Remember, you have no way of knowing when an expensive medical situation is going to happen, so start preparing now by setting up and contributing to an HSA.
Denise_Brienne
