Health Savings Accounts
Health care costs and health insurance rates are spiraling upward and out of control. Even with insurance, a series of the usual screening tests can end up costing a lot of money out of your own pocket after deductibles and the percentage uncovered by your insurance provider. One of the ways to get a handle on this situation is to investigate some of the alternatives to the traditional payments made for the usual health care policy.
One of the newer choices that is becoming more popular is the health savings account. Probably, the biggest advantage to the health savings account is the tax benefits. Contributions made by the employee are tax exempt from federal income tax and, in most states, from state income tax. Whatever amount your employer contributes is also tax exempt.
You may contribute as much as 100% of your annual deductible, provided you do not exceed the annual contribution limits set by the IRS. When you need to use the health savings account funds for health care costs, distributions are tax-free as long as the amount is used for “qualified medical expenses.
People who are qualified for a health savings account are individuals covered by a high deductible health plan, not enrolled in Medicare, not covered by any other insurance and not claimed by another as a dependent on their tax return. A health savings account is an individually owned account and is intended for use together with a high deductible health plan.
The money in a health savings account is your own and balances roll over from year to year. If you leave your job, the money in your health savings account stays and if you opt for a high deductible health plan with your new employer, you can continue contributing to your account. Even if you don’t use that option, you can still use these funds for qualified medical expenses, but can no longer contribute.
A health savings account can be opened as a checking account, a money market or as certificates of deposit. Interest is accumulated on all of these types of accounts and minimum opening deposits vary with the type you choose to open and which bank you choose. Be certain of any fees that may apply and what your balance needs to be to avoid them.
This is an option that is worth researching for the tax benefits and because the funds stay with you and remain your own even with a shift in employment.
