Health Savings Account-Is it right for you?
A Health Saving Account allows individuals with high-deductible health plans to receive tax preferred treatment of money saved for medical expenses. Many self-employed and small businesses owners purchase their own health insurance and choose a high deductible plan to minimize premiums. A Health Savings Account isn’t “use it or lose it”, they are tax free in, keep it, invest it, and use it tax free on medical expenses. You pay no federal taxes on interest earned by your HSA as long as you use the money to pay for eligible medical expenses.
Individuals with high deductible health plans. Typically this is any plan with an annual deductible of more than $1300 for self-only coverage or $2600 for family coverage.
What can it be used for?
HSAs can be used for nearly everything related to medical (except insurance premiums), dental, vision, chiropractic, prescriptions, and long term care. There are great resources to use to make sure it is a qualified medical expense.
What if you withdraw for non-medical reasons?
If you make non-medical withdrawals prior to 65, you will be subject to a 20% penalty and the tax. At the age of 65, the account acts like an IRA. At 65, you can withdraw for non-medical reasons and pay the tax-no penalty.
What’s the benefit?
For 2016 annual contribution limit for your HSA is $3,350 for an individual and $6,750 for a family. HSA holders 55 and older can contribute an extra $1,000 tax deductible dollars to their HSA. For example, let’s suppose your marginal tax bracket is 25%, you contribute the maximum amount for a family, $6,750 per year for 10 years and spend $2,000 of the contributions on qualified medical expenses and the interest rate is a whopping 1%. At the end of 10 years, you will have $49,922. The value of the account would be $31,766 if you paid taxes on the contributions and interest earned. The goal is to keep more of what you earn and this is a great way to do it.
How do you get one?
Let us help you with that to make sure you meet all the criteria and it is the right choice for your situation.