Americans spend about $3.4 trillion a year on healthcare. No one should skimp on health insurance and health care. If you are looking for ways to help save on healthcare, you may want to consider a health savings account (HSA).
Just like using a pay stub generator can help you keep track of salary information, oening an HSA can help you responsibly manage funds for medical expenditures. Here are some amazing HSA benefits worth reading about.
What is an HSA?
If you have a high-deductible health insurance plan, you may qualify to open an HSA. Some health insurance companies offer HSAs. You can also purchase HSA plans from other financial institutions.
HSAs can help you pay your out-of-pocket medical expenses with a high deductible. This can help you pay your large eligible medical expenses with big savings.
Each year, you decide what you want to contribute. There are government-mandated maximums. If you have an HSA through work, you can deduct automatically from your pay.
You will then get a debit card that links to your HSA account. You can then use this card to pay for eligible medical expenses. Some eligible expenses include copays, deductibles, vision expenses, dental procedures, and coinsurance. You can use your HSA to pay for expenses now are down the road because your balance rolls over from year to year.
You cannot pay your health insurance premium with your HSA funds. If you are over 65, you cannot contribute to your HSA if you are enrolled in Medicare. You can use the money for out-of-pocket medical expenses.
1. Immediate Tax Savings
One of the biggest benefits of an HSA is your immediate tax savings. HSA contributions through your employer are not subject to payroll taxes or federal income taxes.
To put this into perspective, your Roth 401(k) and Roth IRA plans are subject to these taxes. If you contribute $3,000 annually to each of these plans with a combined tax rate of 30 percent, you would contribute $2,100 to your 401(K) and $3,000 to your HSA.
These contributions to your HSA are pre-tax dollars. This means your contributions are not included in your gross income and are not subject to federal or state income taxes (in most states).
Contributions made to an HSA are also 100 percent tax-deductible. The interest earned on this account is also tax-free. If you contribute more than allowed, you are subject to a 6 percent tax, and these contributions are not tax-deductible.
2. Convenience
Since most HSAs have a debit card, you can pay your medical expenses like doctor visits or prescriptions immediately. You then submit your receipts to your HSA company, so they can ensure these expenses are eligible. You can use your HSA debit card just like any other credit card to pay online, over-the-phone, at the doctor’s office, or pharmacy.
The money that you use to pay these expenses is tax-free, so you are saving money. The eligible expenses are pretty comprehensive, so you can pay for a wide variety of services, possibly using a web based free invoice template.
If you need to withdraw from your HSA to pay for something other than medical expenses, this amount is subject to a tax penalty of about 20 percent and income tax. If you are over 65, you can withdraw these funds for any expense without the tax penalty. Income tax only applies to funds withdrawn for non-medical expenses for those over 65.
If you want to change the amount of your contribution, you can change it throughout the year as long as you don’t exceed the maximum. You don’t have to wait for the start of another year to adjust accordingly.
3. Funds Rollover
If you are worried about unused HSA funds, your funds can be rolled over into the next year. It can be hard to determine the right amount of funds to contribute to your HSA. You may also have more expenses for one year versus the next.
Flexible Savings Accounts (FSAs) are similar to HSA accounts because they are both for medical expenditures. However, funds from an FSA do not roll over like an HSA, so you lose any leftover money you don’t spend for that year.
Your HSA funds can build up over time to give you more money and peace of mind. If you play it smark, you can pair your HSA with your 401(K) for your Golden Years.
4. Others Can Contribute
Others can contribute to your HSA, including your employer. Some employers offer HSA contribution matching up to a certain amount. This means you could actually double your contribution if your employer matches.
Family members can also contribute to your HSA. They must be eligible, which means they need to have a high deductible health insurance plan.
5. Investment Potential
A huge benefit of HSAs is that they can be invested in stocks, mutual funds, and other investment tools. This means you can actually make money. You can work with your HSA company to find the best options for your investment preferences.
With an HSA, you are saving tax dollars since it is pre-tax. You are also able to make money with investments. If you choose to invest, you want to choose companies that are consistently high performing.
You need to check if there is a minimum balance if you plan to invest. These funds are here for you to use for medical expenses, and if you have a large expense come up like surgery, you want to be able to use these funds and not have a hefty fine.
If the account holder passes away, these funds do not disappear. An HSA can also be transferred to a surviving spouse tax-free.
Ready for HSA Benefits?
There are several HSA benefits including tax savings, flexibility, investment potential, and more. Find an HSA that works for you, and start saving for the future. You can save money on healthcare since this is pre-tax dollars.
If you are looking for other medical news and advice, check out our site. You can find the latest information on diseases, conditions, medications, treatments, and more on our site.