Health Savings Accounts Offer Triple Tax Savings
Health Savings Accounts (HSAs) have gained in popularity since they were first introduced in 2003. The accounts are designed to help individuals save for qualified medical expenses on a tax-free basis. The Tax Relief and Health Care Act of 2006 infused Health Savings Accounts (HSAs) with taxpayer-friendly changes designed to make the accounts more attractive.
HSA funds may also be used to pay for future needs, such as:
- Health insurance or medical expenses if unemployed
- Medical expenses after retirement (before Medicare)
- Out-of-pocket expenses when covered by Medicare
- Long-term care expenses and insurance
Triple Tax Savings
The greatest advantage of HSAs is that they provide triple tax savings:
- Contributions to an HSA are 100% tax free.
- Any HSA earnings through investment are tax free.
- Monies withdrawn for qualified expenses are always tax free.
Who Qualifies for HSAs?
An HSA can be established by an individual who:
- Is covered under a qualified high deductible health plan (HDHP)
- Is not covered by any other health plan that is not an HDHP
- Is not enrolled for benefits under Medicare
HSA contributions are used to pay for qualified medical expenses until the HDHP's deductible is reached. Once the deductible is reached, the HDHP begins paying the medical expenses. Any remaining money in the HSA is carried forward into future years until used.
How Do HSAs Compare with FSAs?
Unlike HSAs, FSAs (flexible spending accounts) cover qualified medical expenses no matter what your deductible. A qualified HDHP is not required for FSA participation. However, FSA funds do not roll over to the next year. You lose the money you didn’t use. However, HSAs roll over year after year.
If your current health plan doesn’t qualify for a HSA, talk with your insurance agent to see if you could be saving money. If you have a high-deductible health plan, Pinnacle can help you open your HSA. Go ahead and start saving money today.
