How To Save Money On Your Health Savings Account: The Secret You Need To Know
Health Savings Accounts are a great way to save money for your future health. They allow you to save up tax-free money that can cover deductible medical expenses in the future, and they help you pay for your care when you need it. In order to take advantage of these accounts, though, you'll have to navigate some taxes and fees. Here are some ways to make sure that your HSA is working for you.
The basics of an HSA
A Health Savings Account (HSA) is a great way to help pay for your medical expenses. It offers tax-free savings opportunities that can be used for qualified medical expenses, including deductibles, co-pays, and prescriptions.
An HSA account lets you save up money by depositing pre-tax dollars into the account. The funds in the account are not subject to taxes, so these savings are tax-free. Withdrawals from an HSA are also tax free if they're used for qualified medical expenses.
An HSA is a personal savings plan that lets you enjoy some tax benefits while saving money with a flexible spending arrangement (FSA). You can open an HSA through a bank or broker and start saving today!
How does your employer contribute to your HSA?
The majority of companies in the United States contribute a certain amount to their employees' health savings accounts. These contributions are tax-deductible, so you'll get a nice bonus at tax time.
In order to figure out how much your employer will contribute, you'll need to ask them how they're going to set up your health savings account and what the contribution is.
If you're not sure where to start, try asking your human resources department or the insurance company that administers your benefits package. They should be able to answer any questions that you have about how it's set up and how much they contribute.
What are the tax benefits of an HSA?
The tax benefits of an HSA account are pretty significant. Every year, you can contribute up to $3,450 to an HSA account and not pay taxes on the amount. If you use the money in your account to cover medical expenses, the funds that you put into your HSA are deducted from your taxable income before taxes are calculated.
If you contribute more than $3,450 in a single year, though, you'll have to pay taxes on the excess amount when you file your taxes. Your contributions will also be subject to a 20 percent penalty if they're not used for health care costs.
Additionally, if you take out money from your HSA account for anything other than medical expenses, though, there's another tax penalty for withdrawing money from the account that's been tax-free. You'll also have to pay income taxes on all withdrawals made outside of qualified medical expenses. This means that even if you withdraw funds from your HSA account for non-health care uses like covering education costs or mortgage payments, those withdrawals will count as both income and medical expenses and will be subject to a 10 percent penalty tax and federal income taxes.
What are the fees associated with an HSA?
Health Savings Accounts have a variety of fees that you'll need to consider before opening an account.
The two biggest fees associated with an HSA are the administrative fee and the annual contribution minimum.
Administrative Fee: This fee is deducted from your HSA on-time deposits and goes towards the cost of running your account. The fee typically ranges between $1-$2 per month, but can be as low as $0 if you open a new account.
Annual Contribution Minimum: This fee is deducted from each deposit that falls below the minimum annual contribution amount. If this amount is not met, then your account will be closed. This tends to happen if you don't make any deposits for three consecutive years.
Who can make contributions to your account?
This is the first thing you'll want to know before setting up your Health Savings Account. The contribution limits for an individual's HSA depend on their age. If you are younger than 65, you can contribute up to $3,450 a year ($6,900 if married and filing jointly). Starting at age 65, the contribution limit increases to $6,900 and then increases again to $7,150 by the time you reach age 70.
If you're over 55 years old or disabled, contributions also increase to $3,450 ($6,900 for married couples) and $3,500 ($7,050 for married couples), respectively.
What if you're self-employed?
If you're self-employed, using a HSA is a bit more complicated. You don't have access to employer-sponsored health insurance and you can't contribute to an FSA, because they are not tax-advantaged accounts like HSAs.
This means that your HSA contributions are 100% yours, which can be difficult for someone with a low income who needs to save up for the future.
However, there are ways that you can take advantage of these accounts even if you're self-employed:
Paying into another account outside of your HSA--try contributing to an IRA or 401(k). Or consider finding a financial partner with an HSA who will help contribute to your account in exchange for some of the fees that come with it.