Did you know that it is possible to save for your future medical expenses without worrying about tax deductions?
Yes, individuals covered under a high-deductible health plan (HDHP) can apply for a Health Savings Account (HSA) by taking to your health insurance agent. As the name suggests, an HSA account is a combination of a health plan and a savings account. Either you or your employer can contribute a limited amount to this plan, each year.
Furthermore, you get to have total control over the money in your account. You can keep let it sit in your savings account and wait for the interest returns or spend it on something else. It doesn’t even have to be a health-related expense. Further in the post, I have discussed how HSA works and how to apply for it.
How Does Health Savings Account (HSA) Work?
Bear in mind that, the HSA contributions or deposits should be under the limits set by the Federal Government. There is a set policy whether you or your employer only can contribute to your HSA. Even a friend or a family member can add money to your account– using your HSA account number.
In some cases, the employer deducts a certain amount from an employee’s monthly salary to contribute to their HSA account. This process can also be automated. However, you and your health insurance agent should figure out and work with the terms and conditions before applying for an HSA account.
What Else Do You Need I Know About the Health Savings Account (HSA)?
There are lots of tax benefits to investing your money in an HSA. Unlike in a regular savings account where the money you add is taxable, contributions are made to the HSA account utilizing the pre-tax income. You don’t have to count the HSA contributions made by you are your employer while calculation your total tax at the end of the financial year.
A report by Investopedia confirms that the contributions made to the HSA are 100 percent tax-deductible. Even the amount you earn in interests is 100 percent yours to keep. The same report also states that to benefit form HSA, you either need a healthy person with a low income or someone seeking tax-cuts (mainly coming from a rich family). This is all you need to know before applying for an HSA.
How to Apply for a Health Savings Account (HSA)?
To apply for HSA, you do need to be already covered under a high-deductible health plan (HDHP). Plus, you also should not have subscribed to other health insurance plans like Medicare. HSA will be your only health insurance policy. To open an HSA account, you can contact your health insurance agent or pay a visit to the nearest financial institution. In 2020, you can contribute to $3,550 per year. $50 more than what it was in 2019.