Health Savings what?

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From time-to-time, I get the question “why would I choose an HSA over a copay plan?” 

There are a number of reasons why actually. 

First of all, a Health Savings Account is a special savings account, exclusively for medical expenses. It can be a great tool for families who don’t expect to use their health plan much in a given year. Plus, it can help you save on important tax dollars.

What? A health plan that can help me save money on my taxes? Yep. 

To start, you must have an HSA-designated High Deductible Health Plan. Just because it has what you consider a high deductible, doesn’t mean that it qualifies. It must actually be HSA designated by the insurance company. An easy way to tell would be if your plan qualifies is if there are no copays before you hit your deductible.

Tax savings

At work, you may have an HSA plan in your benefits offering. You also may have an actual Health Savings Account available to you. Sometimes, an employer offers an HSA plan and lets you elect the financial institution for your savings account. They then will offer a split deposit where you can have a certain dollar amount deposited into your HSA while the rest of your pay goes into your everyday bank account. 

These HSA dollars can be deducted from your pay on a pretax basis, which will lower how much you will pay in taxes. For 2020, you can set aside up to $3050 for an individual or $7100 for the family. If you set aside the maximum amount, you would save over $500 in taxes for the year. 

I’m sure there’s a lot you could do with an extra $500! Think about how much you could set aside for your healthcare over your lifetime, assuming you stick with  an HSA plan. Plus, that annual tax savings. And, this money rolls over from year-to-year. Wow! That’s good stuff. 

Retirement usage

On top of that tax savings, you can even use this special savings account for your retirement! For as long as you have the HSA, you will earn interest on the money you have … tax free! And unlike other tax-advantaged plans, the HSA is not a use or lose it deal. You will always have your money. Even in retirement. 

My good friend Howard Block, who is a compliance guru, calls an HSA a medical IRA. Once you hit age 65, your HSA dollars can be used for any purpose ... without penalty. 

Penalty? Yes, it is important to keep in mind that if you pull money out of your HSA early, you are taxed and penalized. Yikes! And if you try to use it for something other than it designed for you will lose your tax benefits on those dollars. Eek!

However once you hit age 65, if you can use this money for something other than a medical expense, say a motorcycle, and at that point, those dollars would be taxed.

Sample expenses

The IRS has a booklet available listing all of the medical expenses that you could use your HSA for at https://www.irs.gov/publications/p969. For simplicity, I’ve included this breakdown of some of the most common qualified expenses, which now includes over-the-counter expenses. Thanks to hsabank.com for this list.


Acupuncture

Eyeglasses, both prescription and reading

Occlusal guards to prevent teeth grinding

Ambulance

Fluoride treatments

Orthodontics

Artificial limbs

Fertility enhancements, including IVF

Orthotic inserts

Artificial teeth

Flu shots

OTC medicines and drugs, if prescribed

Birth control

Guide dogs

Physical therapy

Blood sugar tests for diabetics

Hearing aids and batteries

Special education services for learning disabilities, if prescribed by a doctor

Breast pumps and lactation supplies

Infertility treatment

Speech therapy

Chiropractor

Inpatient alcoholism treatment

Smoking cessation programs

Contact lenses and solutions

Insulin

Surgery

Crutches

Lab fees

Vaccines

Dental treatment, including X Rays, cleanings, fillings, sealants, braces and tooth removals

Laser eye surgery

Vasectomy

Doctor’s visits

Medical alert bracelet

Vision exam

Drug addiction treatment

Medical records charges

Walker, cane

Drug prescriptions

Midwife

Wheelchair


Flexibility

One of the greatest benefits of an HSA is that it gives you the flexibility to shop around for your healthcare services and products so you can make more informed decisions on your healthcare. A great resource for shopping your healthcare procedures and services is healthcarebluebook.com.

A few other things to consider with an HSA:

  • You cannot have secondary insurance that is a copay plan. That goes for Medicare Parts A and B, too.

  • You cannot be covered by TriCare or have accessed your VA medical benefits in the past 90 days in order to contribute to your HSA.

  • You cannot be claimed as a dependent on someone else’s taxes.

Choosing your HSA vendor

There are plenty of great vendors out there for your HSA account, if you don’t have one available through your employer. A few things to consider:

  • Check your prospective bank’s fees. Some have HSA accounts at little to no charge, while others charge a fee that can be as high as a few hundred dollars per year. 

  • Consider convenience. You don’t necessarily need to have a physical bank for your HSA. A virtual bank may be the right fit for you. Just make sure it’s easy to connect your everyday account to your HSA so you can easily do your transfer if you’re managing the money on your own.

  • Make sure you opt for a bank that is FDIC insured so that your monies are protected by the federal government.

Have a question? Let us know.

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