If you have a high deductible health plan (HDHP), you may be
eligible to create a Health Savings Account.
Also known as an HSA, this is basically a special savings account that
is used to pay for medical related expenses.
The primary benefit of this account is that you can make contributions
(or deposits) into your account using pre-tax income. The drawback is that you can only use money
in this account for medical-related expenses.
If you have a high deductible health plan (HDHP), you may be
eligible to create a Health Savings Account.
Also known as an HSA, this is basically a special savings account that
is used to pay for medical related expenses.
The primary benefit of this account is that you can make contributions
(or deposits) into your account using pre-tax income. The drawback is that you can only use money
in this account for medical-related expenses.
The definition of medical related expenses is pretty broad; I have even
heard that you can buy diapers with your health savings account.
The tax savings works like this: Say you make $50,000 in one year, and you
want to contribute $2,000 to your health savings account (There are yearly
contribution limits, make sure you arent contributing more than your
limit). You deposit the $2,000 in your
account and you write the whole $2,000 off on your taxes even if you havent
spent a dime in medical related expenses that year. Your savings account grows tax free and rolls
over from year to year, unlike a flexible spending account. When you need to make medical related
expenses (doctor bills, deductible, medicine, etc), just use the money from
your health savings account. Piece of
cake!
After spending a couple hours reading through my health insurance
documentation, I finally figured out how to start my health savings
account. The one thing that would have
been nice is if my health insurance company told me that I wasnt setting up
the health savings account through them or with them. I could go to any financial institution that
I wanted and set the account up there. I
did a search on Google for HSA accounts and found plenty of places to sign
up. The one credit union I ended up with
offered the account with a visa debit card and a 5% interest rate. The only drawback is that they start charging
a $1/month fee after the first year.
However, all I need in the account is $240 and the interest will cover
the monthly fee the entire time.
My health savings account ended up being really easy to get
started. I just filled out some forms
online, clicked the “I agree” button, sent them a couple bucks to
start the account off, and now everything is set up. I didnt have to do anything through my Health Insurance
to get the account set up. After setting
up your health savings account
, just be sure to get itemized receipts for every
single purchase that you make with your account. Save these receipts in case you need to show
that all your purchases were health related.
I will have to research exactly what expenses are included in medical
related expenses so that I can take maximum advantage of all the tax savings. It will be great knowing that I can pay for
cough drops tax-free!
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