“One of the best tools for saving money with tax benefits is a health care savings account.” – Michael Kuznicki, President, Ridgeback Capital Management
If your health insurance premiums are high or if you have a high deductible plan, you should be aware of the benefits of a health savings account as a tool to manage your healthcare budget.
What is an HSA?
A Health Savings Account (HSA), is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall healthcare costs.
How does it work?
While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) or if your plan offers that option.
For the plan year 2023, the minimum deductible for an HDHP is $1,500 for an individual and $3,000 for a family, and if you have an HDHP, you can contribute up to $3,850 for self-only coverage and up to $7,750 for family coverage into an HSA. HSA funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable.
How HSAs can even be better than an IRA:
- Pre-tax money is deposited each year into an HSA and can be easily withdrawn at any time with no penalty or taxes to pay for qualified medical expenses. Withdrawals can also be made for non-medical purposes but will be taxed as normal income and are subject to a 10 percent penalty if done prior to age 65.
- Any HSA funds not used each year remain in the account (no “use it or lose it”), and earn interest tax-free to supplement medical expenses at any time in the future.
- Like an IRA, the account belongs to you, not your employer. But unlike an IRA, your employer CAN contribute to your HSA.
With the potential to lower your overall healthcare cost and provide a valuable savings vehicle, an HSA is undoubtedly one of the best tools for maximizing savings and tax benefits in the realm of healthcare.