Remember those “water-cooler” conversations about multiple past experiences, different plans, co-pays, and deductibles. It is where you got started for opting for opening a health savings account, right? Indeed, YES!
In the present scenario, opening a health savings account has drawn much attention. Let us share a neutral look for analyzing a situation pertaining to the deal with these health savings accounts. For that, get an imaginary mind first, there are lots of practical tasks that you would be dealing with us! Suppose you spent $9000 on a specific medical plan, for instance, let it be “Cadillac.” And, the actual amount that is needed by you is only $1000. This situation has two aspects, a good one and the “worst” one! The good one first on the table- you and your family were blessed with good health for a year, and you felt easy going with the medical plan. Something sort of peace of mind with the medical plan. Now comes the worst-case scenario: the remaining $8000 had gone and the medical plan’s high cost!
Here comes the fundamental aesthetics of having a health savings account. Do you have the option to spend on money expenses only when you need it? Also, you have the full right to keep the rest amount with you! If this option compels your financial instincts, undoubtedly opening a health savings account can be the best option.
In the present year 2020., the health savings account contributions are set at $3550 for an individual and $7000 for a family. Moreover, you can also cover an extra amount of $1k if you fall in the age group of 55 and above.
What is a health savings account?
A health saving account is a tax-exempt account which you can use to reimburse or pay yourself for certain medical expenses, like prescription drugs, visits to the doctor or dentist, and eyeglasses. You can fund a health saving account up to certain annual limits, using your own contributions, contributions from an employer, or funds from a family member.
Deductions are made either on a pre-tax basis or deducted on your tax return, even if you don’t itemize deductions, which means you never pay tax on money that goes into your HSA, which is a nice saving. Besides, you can also get another tax break because the funds in an HSA grow tax-deferred. But, unfortunately, not everyone qualifies for an HSA.
Health Saving Account: pros and cons!
You must already be covered by a high deductible health plan or HDHP in order to be eligible to open up and contribute to an HSA. If you get an HDHP on your own or through an employer, you’re still eligible for an HSA.
Pros of opening a health saving account
The main draw of the HSA is tax savings. An individual can save up to $775/year, and that amount increases if you’re a family or if you’re over 55. An HSA also earns interest, and that interest isn’t taxed, unlike regular savings accounts.
The most obvious benefit of the HSA is that you’re funding the future, and you’re responsible. The HSA is an emergency fund for your health. You can even withdraw the HSA money to pay for non-health expenses, but you’ll be taxed on that, and you’ll also have to pay the penalty. You can also use your HSA savings as retirement money after the age of 65.
Free preventive procedures
Wellness procedures, cancer screenings are usually not subject to the HSA-compatible plan’s deductible. Those are often free.
On a good note, the health savings account is flexible in many respects. You can use the fund for reimbursing the prior’s years, medical expenses from the time the fund was established, and before the medical expenses were actually incurred. It is to note that the HAS funds cannot be used to clear the various health insurance premiums, yet they can be used for COBRA payments. Well, remember that this can only be possible if you are 65 or older.
They can be used as retirement or emergency funds
While young, you may not have opted for retirement plans in the present context. But, contextually, retirement plans have to be made with effective financial decisions for ensuring a secure future. The health savings account funds can also be used as retirement funds. That is something to consider after the age of 65.
Cons of opening a health saving account
An HSA comes with its share of fees like any other bank account. They vary, but from my research, most seem to have a transaction fee, start-up fee, debit fee, a minimum account balance fee, and in some cases, a monthly maintenance fee.
Not meeting the deductible.
The health expenses you may have to pay with an HSA plan could outweigh the tax savings. One reader mentioned that the amount he pays in his prescriptions for the year makes the HSA not worth it.
The funds must build up over time, and even the funds are not available immediately. The benefits are even reduced as the account holder ages.
If you have Medicare or another health plan with similar coverage, you cannot use this account. Having pre-existing medical conditions may cause problems with using a health savings account.
Who is eligible for opening a health savings account?
Well, that must be one of the most sought-after questions sticking to your minds! We have the answer for that- anyone with the following criteria is eligible to open a health savings account.
Choosing a high deductible health insurance plan
The IRS defines the eligibility criteria in the year 2020, as has been said. For an individual, the maximum amount can be $6900, and a minimum deductible is set at $1400. If you are opting as a family plan, the deductibles do change. The out-of-pocket maximum for a family plan of $13,800 and the minimum deductible as of the current year is 2,800.
- You must not have enrolled in any Medicare plans. If you have, that can considerably rule out the eligibility criterion for your name for opening the health savings account.
- It would be best if you did not have your name claimed for someone else’s tax returns. This is an important criterion to be fulfilled by you if you are willing to open a health savings account.
Apart from that, you can check with your benefits director at your employer for understanding the various aspects ion the real foreground. For instance, if your employer does not offer the benefits package, you can check the multiple financial institutions, see if they provide a health saving account that suits your needs. Moreover, you can always go through the 2019 rankings of the 11 top HSA providers for a negotiable room!
Can you access your health savings account’s accumulated funds?
Contextually, according to the laid rules in 2019, you can withdraw the accumulated funds that are unused as soon as you reach the age of 65. Indeed, you have to clear the amount that gets calculated as income tax. Do not worry; the fund that got accumulated did not count the aspect of income tax. That is, the money accumulation process is tax-free. The fund also qualifies for earing the total interest up to that point.
You must keep all the copies of the money receipts as a witness to your withdrawal amount. That can be needed at the time of proving the withdrawals for opting for different medical services. In some cases, you may opt to keep the receipts till your tax return is considered open, which is generally set for three years after you file the claim. Moreover, there are plenty of reasons to love HSAs, but there are scenarios in which the tax incentives might not always be worth it. But it’s not just about tax incentives; the main point of the HSA is also to save for the future.