Health savings accounts are a fantastic way of saving money and in fact are just like personal savings accounts within a bank. The only difference here is that the money in these accounts can only be used for medical expenses. Instead of your insurance company, you control all of the money within your health savings account. You can use the money deposited to invest in mutual funds, stocks, and bonds and the best part is that none of this money is ever taxed. You are required to have a certain type of health insurance known as a “high-deductible plan” in order to be able to open a health savings account. This type of health insurance plan is around to act as backup in case you need help with your medical expenses.
Should I Get A Health Savings Account?
Health savings accounts will have both pros and cons just like any other health care option out there today. When deciding whether or not to get one, be sure to consider your potential future medical expenses, how much control you want over health expenses, as well as your financial situation. For those that are currently healthy and plan on living without having to rely on medical care too much in the near future, a health savings account would be a great choice. However, if you are the type of person who already has medical issues or cannot afford the deductible, you may need to consider other options that are available to you.
Pros of a Health Savings Account For one thing, you can easily decide exactly how much money you want to set aside for medical costs within the near future. Along with this, you are also able to control exactly how any of this money is spent. If certain funds remain unused, they never disappear and will be available whenever you might need them. Also, the money placed into this account can be deposited on a pretax basis or may be deducted from your taxable income.
Cons of a Health Savings Account
Unfortunately, with this type of option, it can be hard to budget correctly in terms of how much money you may actually need for health care. A perfectly healthy person could become sick out of nowhere. Also, people who are older and much sicker may not be able to save as much money as someone who is much younger and healthier. Also, if you have to withdraw money from this account at any time, you will have to pay taxes on it. If your age happens to be younger than 65, you will also be required to pay a 10% penalty on top of that.
How Much Can I Deposit Each Year?
According to the Internal Revenue Service (IRS), they decide how much you are able to contribute to your savings account each year. To keep up to date on the maximum amounts, you can check the IRS website for more information. Generally, in the past few years, the limit has been around $6,000 for family coverage and $3,000 for an individual. These limits are indexed each year and are adjusted accordingly for inflation.
How Can I Get a Health Savings Account?
You can either obtain an account on your own by researching for HSA-eligible policies from a variety of insurers. You can also get this type of account through your employer. If your employer provides health coverage, talk to whoever manages your benefits to see if you can get more information about an HSA. Some employers may even opt to contribute to your account but keep in mind that both your employer’s and your contributions combined must be below the maximum limit.
Author bio: April Santos is a freelance writer for an accounting firm where you can find an accountant to help you figure out of health savings accounts are in your best interest.