People use every opportunity to take care of their health and one such way is through a health savings account.
Amongst the global issues we have today, health has always found its way to the top of the list. For that reason and many more, a lot of people have devised suitable means to take care of themselves in the event of illness or health emergency.
So, since humans can not foresee an event that might take them to the doctor in the future. They make provisions ready for just in case purposes in the way of a health savings account.
Therefore, if you have never heard about the health savings account, here is an opportunity to have first-hand information about it.
What is a Health Savings Account (HSA)
A health savings account (HSA) is a type of savings account that is owned by individuals for the purpose of health care expenses.
Basically, this type of savings account is a tax-advantaged account designed to help you pay for qualified medical expenses when the need arises.
So, it means that the savings account is tax-free and will not incur tax but will be used solely on health matters.
Owners of such accounts make contributions to the accounts by themselves or by their employers if they are employed.
Furthermore, you can still make contributions to the account even after you retire, as long as they are used for qualified medical expenses or for other approved purposes.
Moreover, contributions to a health savings account are not tax-deductible just like contributions to a traditional IRA. The dollars in your HSA grow tax-free, and withdrawals for qualified medical expenses are completely tax-free.
Who is qualified to own a Health savings account
Ultimately, before you open a health savings account, you must meet some criteria and obey some rules, first. Therefore, you must be covered by high deductible health plans (HDHP). Meanwhile, your employer can offer this as an employee payroll deduction option to you.
But in the case that you have an HDPH and want to set up your account yourself, you can do so through a financial institute or even through a bank.
A high deductible health plan generally has a higher and larger deductible in a year. This high deductible health plan exempts you from copays because it operates full coverage for the owners.
In continuation, to qualify for a health savings account, you must not be enrolled in Medicare. And again, you do not have other health care coverage.
So, this account can just be held by anyone who has a qualifying high-deductible health insurance plan, which covers medical, dental, and vision expenses. Not only that, you must be a taxpayer and in tune with the rules of the Internal Revenue Services.
Who is not eligible for the HSA
This savings account is not for those that have only regular health insurance plans.
More so, anyone who is still a dependent and under someone else’s tax returns is not eligible to own HSA.
Can an HSA be used to pay for health insurance?
Yes, a Health Savings Account (HSA) can be used to pay for health insurance. Your HSA can be used to pay for premiums, co-pays, deductibles, and out-of-pocket costs.
It is a very useful and tax-advantaged way to save for future medical expenses.
In some cases, money in an HSA can also be used to pay for Medicare premiums.
By the way, there is another type of HSA called the Flexible Spending Account (FSA). But because HSAs are tax-advantaged accounts, they cost money to set up.
Difference between HSA and FSA
Firstly, you can have just one out of the two accounts.
Moving forward, HSAs as we know are tax-favored accounts that individuals can use for out-of-pocket medical expenses. Money in an HSA is exempted from federal income tax, as well as taxes on state and local income taxes.
Also, if your HSA is through your employer, it is still all yours and can move with you to your new job or while retiring.
Flexible Savings Account
On the other hand, though Health Flexible Spending Accounts (FSAs), are similar to HSAs. The main difference between an FSA and an HSA is that FSAs allow you to set aside pre-tax income to be used on medical expenses.
Money in an FSA is exempted from federal taxes but is subject to a 20% penalty for early withdrawal.
Again, your FSA can not move with you to another job. You have to leave it behind for your employer.
Advantages of HSAs
You can always rollover your unused money in the account at the end of each year.
The account remains tax-free
An employer can offer you an HSA but it still remains fully yours
Your HSA is solely under your control so you decide how you spend the money.
You are entitled to full coverage.
Disadvantages of HSAs
It is just for those with high deductible health plans
Can be expensive to set up and maintain
It is not for tax dependents
Older people above 65 may not be eligible to have HSA
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