Is a Health Savings Account (HSA) an option for you and your family? There are some tax benefits and cost saving benefits with these programs:
- Contributions to your HSA are tax deductible even if you do not itemize your deductions
- Contributions made by your employer are excluded from your gross income
- Interest and earnings on your contributions are tax free
A Health Savings Account works similar to an IRA except you are able to use the funds within the account for health related items. You could use the account to help cover co-pays or even deductibles. It also covers health related items such as contact solution or a new pair of glasses.
This is a better option than the typical flexible spending arrangement ("flex") account because the monies will roll over from year to year instead of losing the money every year like you do with the flex accounts - pre-tax dollars continue to grow that can be used for medical expenses.
A HSA is a separate savings account built for future medical expenses. You are able to invest the money in stocks, bonds, mutual funds or a simple banks savings account. The money that is deposited is not taxed and it grows tax free. Also, it is a single HSA; you cannot have a joint HSA.
In order to qualify for a HSA, you must have a high deductible insurance plan, also known as “catastrophic insurance.” Also, you may not have other insurance or be claimed as a dependent on someone else’s return.
I would not recommend this type of insurance plan for people with young children, elderly, or anyone with health issues unless you are very wealth and need a way to protect money and in that case you might be better off making charitable contributions.
If you have the high deductable insurance plan, for 2010 as a single person you can contribute $3,050 and $6,150 as family.
Many people, due to the cost of health insurance, try to self-insure. The high deductable plan and with the Health Savings Account give us another option. We can save some money over the HMOs and the PPOs, but our coverage is much less and we could pay more out of pocket. The HSA is used to save for those expenses.
More information can be found regarding Health Savings Accounts, Medical Savings Accounts and Flexible Spending Arrangements through the IRS or your local income tax preparation office.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.